Private Equity Firms Ponder Antitrust Implications of Investor Collective Action

March 29, 2010

Private equity firms are mulling a recent statement of “Private Equity Principles” published by a trade group of institutional investors that highlights the antitrust terrain that financial services firms must navigate as they try to adapt to changing markets.

The “Principles” statement was published last week by the Institutional Limited Partners Association (“ILPA”), a trade association of over 215 institutional investors in private equity. Among its recommendations, the Principles suggest that private equity firms cap their fees, increase the scope of their disclosures and subject themselves to greater investor oversight. A copy of the ILPA’s Principles statement can be found at

The ILPA has explained that the Principles are intended to serve as an “educational medium” and that it is not seeking the commitment of any private equity investor to any of the outlined terms. However, the ILPA is encouraging members and non-members to endorse the Principles and has listed on its website those limited partners, general partners and industry consultants who have done so. Press reports also indicate that some of the largest institutional investors who are ILPA members have held discussions about whether to insist that private equity firms agree to the Principles, and that at least one investor is reported to have taken this position.

Some private equity firms reportedly have retained antitrust counsel to examine potential antitrust issues arising from the Principles. Some observers have suggested that the collective action undertaken by investors to develop the Principles and to encourage their adoption may have been inconsistent with the permissible scope of trade association activity traditionally recognized as lawful under the antitrust laws. At least one of the investors who participated in the efforts to develop the Principles, Calpers Spokesman Clark McKinley, has been quoted as saying that: “We are collaborating with other investors in an effort to get better alignment with private-equity partners, including more favorable fees. This requires more than a unilateral action by any one investor.”

The brewing debate over the Principles underscores the care with which financial markets participants should approach collective action with other similarly situated participants. While collective action in financial services is frequently benign and procompetitive and, in many circumstances, is essential to well-functioning markets, collaborations among participants on both the buy and sell sides must always be sensitive to the potential antitrust pitfalls of competitor or investor collective action. Even the best-intended and efficiency-enhancing joint activities should be carefully managed to avoid any appearance of overstepping legitimate activities.

This is particularly true in the financial services industry where a firm’s competitor is often also an investor, supplier or joint venturer. Adding to the complexity of competition issues is the fact that the purposes and effects of collective action in the financial services industry are frequently subject to multiple regulatory regimes, not all of which are uniform in what they promote or forbid. Indeed, industry-specific regulatory principles often encourage, and even require, coordination among competitors to make markets more liquid and transparent, or to allocate risk to increase output, provide innovative products or facilitate the capital formation needs of the nation’s economy. In an industry that has been no stranger to antitrust scrutiny in recent years, financial services firms must reconcile the recurring tensions between financial market regulation and the antitrust laws, particularly in the current era of regulatory reform and rapidly changing markets.

For more information, please contact any of the lawyers listed below:

William Berkowitz, Co-chair, Antitrust and Trade Regulation Group, 617.951.8375

James Loss, Co-chair, Private Equity Group, 714.830.0626

Jon Roellke, Partner, Antitrust and Trade Regulation Group, 202.373.6119

This article was originally published by Bingham McCutchen LLP.