Collaboration = collusion?

If reports that several private equity firms have retained counsel to look into anti-trust issues related to the ILPA guidelines are true, it would seem that GPs are trying to pull the pendulum back in their direction.

Since the Institutional Limited Partners Association guidelines on private equity fund terms and conditions were announced last year, many GPs have privately discussed the various ways they have dealt with demands from their LPs for improved terms and conditions. But while most of these approaches have involved trying to figure out the least painful way to appease their investors, a recent report suggests some firms are going on the offensive. 
The Wall Street Journal reported this week at least three unnamed private equity firms have retained outside counsel to examine potential anti-trust issues related to the ILPA guidelines, which among other things call for smaller management fees and European-style waterfall distributions. It was confirmed that one of these firms has hired Boies, Schiller & Flexner to look into a possible anti-trust issues involving LPs banding together to force firms to meet their demands. 
The firm's founder, David Boies, is involved in another high-profile private equity case, representing Terra Firma Capital Partners in a lawsuit against Citi.
Whether the LP collusion argument has legs is uncertain, but the presence of Boies' firm adds weight to the case. Boies has previously served as special counsel for the Justice Department in its successful suit against Microsoft. And as one Florida lawyer told sister publication Private Equity Online in December, if “Boies is on the other side, you better tell your other lawyers to quit the bar and get to work”. 
Reportedly, the three GPs are concerned about discussions between two of ILPA’s biggest members – the California State Teachers’ Retirement System (CalSTRS) and California Public Employees’ Retirement System (CalPERS) – about whether to insist private equity firms agree to the guidelines. A CalPERS spokesman had explained the pension was “collaborating” with other investors to get a better alignment of interests with their private equity partners. GPs now want to find out if collaborating is tantamount to colluding. 
The collusion charge is not entirely unexpected. One GP predicted at a PEI Media forum in January collaboration between LPs would bring up ant-trust concerns. However, while this argument has been made privately, no GP has yet publicly stood up and accused its limited partners of anti-competitive behaviour. 
The idea that a GP would actually sue its own clients does seem a bit of a stretch, especially in this tough fundraising climate. One placement agent mused that the GPs could simply be hiring counsel – and allowing that information to reach the press – in order to “put the fear of God in their LPs”. He also said he suspected few courts would be sympathetic to the GPs' case, as the balance of power in the GP-LP relationship has historically tilted overwhelmingly in the GP's favour. 
Even so, the recent news shows at least a few firms are considering fighting back against ILPA. Whether it’s a fight worth waging is something they’ll have decide.