Strong criticisms have been levied against private equity fund agreements in recent years. Fund agreements have been accused of enabling managers to charge exorbitant fees,'encouraging managers to engage in excessive risktaking, allowing managers to operate behind a veil of secrecy, 3 and eliminating negative consequences for managers' bad behavior, 4 among other critiques. One commentator has accused fund agreements of being so deficient that they create an" incubator for agency costs." 5 Given the vast size of the private equity market, 6 and the heavy investment by public institutions in private equity funds,'these criticisms have raised alarm. In response, one defense frequently used by the private equity industry has been to invoke what I call the private equity negotiation myth. 8 The myth is simple. It claims that large investors in private equity funds use their bargaining power to negotiate for robust protections in fund agreements that benefit all investors in a fund. Because fund agreements are highly negotiated, so the myth goes, concerns about the substantive quality of their terms must be unwarranted. 9

This defense has strong surface-level appeal. If fund agreements really are heavily negotiated by large investors, it would create a presumption that the terms in them are not deficient, despite what critics say. Classical contract theory holds that unrestricted freedom of contract between parties that possess equal bargaining power, skill, and knowledge of relevant market conditions enhances individual welfare and promotes an efficient allocation of resources." o