The Private Equity Negotiation Myth

Abstract

Private equity fund agreements have been criticized for failing to protect investors from exploitation by fund managers. One defense frequently used by the industry has been to invoke what I call the private equity negotiation myth, which claims that because fund agreements are highly negotiated, substantive concerns about their terms are unwarranted. This myth assumes that large investors will use their bargaining power to demand strong fund agreement protections for all of the investors in a fund.