Preferential treatment is more common than ever in the $4 trilron private equip industy, thanks in part to new structures that make it easier to grant different terms to different investors. Traditionaly, private equiy managers raised almost all of their capital through

" pooled" funds wherely the capital of many investors was aggregated into a single vehicle, but recent years have seen a dramatic increase in what I call'ndividuadZed investing'-private equip investing ly individual investors through'" eparate accounts" and" co-investments" outside of pooled funds. Many of the largest and most influential investors have used these individuadZed approaches to obtain sgnficant advantages that are often unavailable to pooled fund investors.

This raises a question that is both economic and philosophical: Can preferential treatment be a good thing for private equity? The idea of preferential treatment runs counter to many people's intuitive sense of fairness, but in this Article I make the case that these trends are efficieng-enhancing developments for the industry when managers fuli abide ly their disclosure duties and keep their contractual commitments. Some forms of preferential treatment made possible ly individuadZed investing create new value for preferred investors without harming nonpreferred investors. Others generate what I call" ero-sum" benefits