Private equity, public capital, and litigation risk

Journal article

For nearly a century, securities regulation has drawn a sharp line: firms that seek to raise capital from the public must comply with strict governance and disclosure duties, while firms that remain “private” may organize their internal governance structures as they see fit. But the line between public and private capital is now eroding. Private equity firms, once funded solely by institutions, increasingly raise capital from ordinary investors, while remaining outside the reach of securities regulation through a combination of complex financial structures and well-worn legal exemptions. As a result, asset classes long confined to qualified investors are now being offered to the public, but without the protection traditionally attached to public offerings. This Article argues that this retailization of private equity creates a significant regulatory gap. Practices normalized in institutional settings—misleading performance metrics, manipulable valuations, opaque fees, limited liquidity, and fiduciary duty waivers—become significant litigation risks when ordinary investors enter the picture. Financial regulators are ill-equipped to address these risks, a problem exacerbated by the deregulatory agenda of the last two decades. But while public enforcement is likely to remain ineffective, private equity’s retailization opens a new and potentially more powerful avenue for holding firms to account: private enforcement. By broadening their investor base, private equity firms have exposed themselves to litigation under a wide range of domains, from contract to tort, from fraud to consumer protection. These doctrines, long thought peripheral to private equity, are often broader and stricter than traditional securities regulation. This Article charts how private enforcement could reshape the industry and explores how the future of private equity will increasingly be shaped by judges, not regulators.

Authors: Phalippou, L; Magnuson, W

• Publication status: Accepted
• Peer review status: Peer reviewed
• Publisher: University of North Carolina School of Law
• Journal: North Carolina Law Review
• Acceptance date: 2026-02-15
• EISSN: 0029-2524
• Language: English