Private equity sits at the heart of global finance. This $13 trillion industry thrives on contracts that lock in billions of dollars over decades, and on relationships between investors—the limited partners (“LPs”)—and the general partners (“GPs”) who manage their money. In an arena where LPs hand over vast sums, have limited say during a fund’s life, and have few exit options, one would expect courts to play a central role in policing the relationship. Yet they do not. In stark contrast to public markets, where shareholder litigation helps deter misconduct and shape corporate norms, private equity operates in a near-litigation-free zone. Lawsuits against GPs are rare, and when they happen, they are reserved for the most egregious breaches, such as outright fraud.

This presents a genuine puzzle. In an industry where fiduciary conflicts and misaligned incentives are not uncommon, why do LPs almost never turn to the courts to enforce their rights? And if litigation is largely off the table, how does the industry resolve disputes and discipline misconduct?

In a new Article, forthcoming in the Vanderbilt Law Review, we offer the first account of the rarity of litigation in private equity, of its underlying causes, and of the ecosystem of extralegal relations and informal norms that serves as a partial substitute for formal legal channels. Drawing on a proprietary dataset of limited partnership agreements (“LPAs”), a comprehensive search of four decades of state and federal litigation, and a unique set of interviews with senior investment officers and legal advisors to both LPs and GPs, we make three contributions to the literature on private equity.

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