Navigating Legal Risks in Private Equity: The Due Diligence and Governance Imperative for High-Net-Worth Investors

The private equity landscape in 2025 is a high-stakes arena where legal risks loom larger than ever. From antitrust enforcement to ESG compliance, high-net-worth investors must navigate a minefield of regulatory and litigation challenges. The recent DOJ lawsuit against KKR & Co. over alleged HSR Act violations and the FTC's settlement with Welsh Carson over anticompetitive roll-up strategies underscore the volatility of this environmentPrivate Equity and Stockholder Agreements: Empirical Insights for the Moelis Debate^[2]. As geopolitical tensions and evolving trade policies amplify scrutiny, the need for robust due diligence and governance frameworks has never been more urgent.

Legal Risks in Focus: Antitrust, ESG, and Beyond

Antitrust enforcement remains a top priority for regulators. The Biden administration's aggressive stance—exemplified by the 2023 Merger Guidelines—has cast a long shadow, but the new Trump administration's appointment of as FTC Chair signals a potential pivot toward traditional antitrust theoriesPrivate Equity 2025 | Global Practice Guides | Chambers and Partners^[1]. This shift could mean a greater emphasis on remedies like divestitures rather than outright bans. However, the introduction of revised HSR rules in February 2025 has expanded regulators' ability to detect interlocking directorates, a risk that private equity firms must proactively addressPrivate Equity 2025 | Global Practice Guides | Chambers and Partners^[1].

Beyond antitrust, ESG compliance has emerged as a critical legal risk. , reflecting growing pressure from investors and regulatorsPrivate Equity and Stockholder Agreements: Empirical Insights for the Moelis Debate^[2]. Firms failing to align with sustainability standards risk not only penalties but also reputational damage. Similarly, data privacy regulations and anti-corruption laws, particularly in cross-border deals, demand meticulous attention.

Due Diligence: The Bedrock of Risk Mitigation

Due diligence is no longer a checkbox exercise—it's a strategic imperative. According to a 2025 report by Accenture, , . The solution? A four-stage approach:

1. Pre-Due Diligence: Legal risk reviews and document preparation.
2. Initial Due Diligence: Virtual data room access for management teams.
3. In-Depth Due Diligence: Operational audits, supplier interviews, and contract evaluations.
4. Post-Acquisition Due Diligence: Integration oversight to address lingering issuesPrivate Equity and Stockholder Agreements: Empirical Insights for the Moelis Debate^[2].

Key areas of focus include financial due diligence (assessing IRR, MOIC, and expense ratios), operational due diligence (evaluating supply chain efficiency), and technology due diligence (scrutinizing IT infrastructure and cybersecurity protocols). For example, .

Governance Frameworks: Aligning Interests and Accountability

Governance is the backbone of successful private equity partnerships. The ILPA's Private Equity Principles, updated in 2019, emphasize alignment of interests, transparency, and accountability between GPs and LPsPrivate Equity 2025 | Global Practice Guides | Chambers and Partners^[1]. These principles are not just theoretical—they translate into actionable strategies. For instance, a UK private equity firm leveraged entity management software to centralize compliance tracking and ownership visualization, mitigating regulatory risks in a multi-jurisdictional portfolioMitigating regulatory risks and strengthening reputation for a private equity firm^[3].

Contractual control rights also play a pivotal role. A 2025 Harvard study found that PE firms dominate the use of stockholder agreements to customize governance strategies, often phasing out control rights within three years post-IPO to align with short-term investment horizonsPrivate Equity and Stockholder Agreements: Empirical Insights for the Moelis Debate^[2]. These agreements include drag-along and tag-along clauses that protect minority shareholders during exits, ensuring a balanced risk allocation.

The High-Net-Worth Investor's Playbook

For high-net-worth investors, the message is clear: due diligence and governance are not optional—they are non-negotiable. . Similarly, foreign PE investments in sectors with weak domestic governance, such as emerging markets, have shown that experienced funds can catalyze corporate governance improvementsPrivate Equity and Stockholder Agreements: Empirical Insights for the Moelis Debate^[2].

Investors must also embrace technology. LegalTech tools automate contract processing, while virtual data rooms streamline document sharing. These innovations reduce inefficiencies and enhance transparency, allowing investors to focus on value creation rather than risk management.

Conclusion: A Call for Vigilance and Adaptability

The legal risks in private equity are evolving at breakneck speed. From antitrust enforcement to ESG compliance, the stakes are higher than ever. High-net-worth investors who prioritize due diligence and governance frameworks will not only survive but thrive in this environment. As the industry grapples with regulatory headwinds, the mantra remains: Prepare meticulously, act decisively, and govern relentlessly.