Carlyle Group co-founder Bill Conway was in court on the small town of St Peter Port, Guernsey last week recounting one of the most bruising episodes in his private equity firm’s history: the 2008 collapse of mortgage-bond fund Carlyle Capital Corp.

Carlyle Capital Corp., or CCC, borrowed vast sums from banks to buy $23 billion in bonds. When a deteriorating US housing market spooked CCC's lenders, investors in the fund lost their entire $945 million in capital.