If 2007 will be remembered as the time when deal-makers put the pedal to the metal, 2008 will be remembered as the year the economy slammed on the brakes. That much was evident private equity giant The Carlyle Group put out its annual review on Thursday and was surprisingly candid. Considering just how bad the economy was in 2008 and continues to be in the first half of this year, there wasn’t much else the firm could say.

Although the firm ended 2008 in “excellent financial shape,” Carlyle founders David Rubenstein, Daniel D’Aniello and William Conway wrote in their joint letter there was, and continues to be, much to be concerned about.

“But clearly, 2008 was a rough year and make no mistake: we were affected by it,” they wrote.

Three of the firm’s portfolio companies filed for bankruptcy protection last year. They included Edscha, a German auto parts manufacturer that was bought by the firm in 2003. That was hardly surprising considering the worldwide downturn in the auto industry. The second company was SemGroup, a midstream oil and gas logistics and marketing company. The firm invested in this company through its affiliation with Riverstone in 2005. The third portfolio company to succumb to bankruptcy was Hawaiian Telecom, a telecommunications company serving Hawaii.

The firm tried to look on the bright side of these developments, writing there was some value to take away from them.

“While we obviously are not pleased by these events, we consider the experience we gained from them to be extremely useful as we move forward,” Rubenstein, et. al. wrote in their cover note.

That wasn’t all the bad news for Carlyle to recap for the year. The also liquidated Carlyle Capital Corp. in March 2008. The vehicle invested in AAA mortgate-related securities by government-backed agencies.

The firm also shut down its multi-strategy hedge fund Carlyle Blue Wave last summer. The firm was unable to sustain critical mass of assets under management to stay afloat. The strategy had a rough go of it last year, finishing down 16.12% for 2008, according to the HFN Multi-strategy Average.

The firm also had to make targeted staff reductions in November for the first time in its history. The firm announced it had let 10% of its staff go. It also suspended two investment initiatives in a Central and Eastern European fund and an Asian leveraged finance fund.

“Operating conditions for our portfolio companies will remain challenging,” the letter said. “Transactions will be fewer and smaller. More equity will be required and debt terms will be less favorable. And hold periods will increase while returns will decrease.”