Private capital and arbitration – a natural fit?

The private capital boom and the shifting dispute landscape

It is well known that private capital has experienced remarkable growth over the past decade. A diverse range of market participants, including private equity, sovereign wealth, infrastructure managers, and dedicated family offices, are deploying capital across an ever-wider array of geographies, asset classes, and deal structures. While this expansion unlocks opportunity, it also introduces heightened risk, in line with the growing competition for assets faced by substantial levels of unallocated capital.

Private capital transactions today frequently involve characteristics with the potential to give rise to complex disputes: multi-layered fund structures spanning multiple jurisdictions; specialist contractual mechanisms such as carried interest waterfalls, equity ratchets, and EBITDA-based price adjustments; and a wide range of stakeholders from limited partners (sometimes also acting as asset-level co-investors) to portfolio company management. This transactional complexity is often compounded by an evolving regulatory environment. 

Being well prepared for contentious scenarios and understanding the available dispute resolution mechanisms is essential for protecting asset value and maintaining commercial relationships.

Notable trends in private capital disputes

The range of disputes affecting private capital participants has widened in recent years, with several categories now arising with notable frequency:

• Post-M&A disputes: Globally, 45% of the PE acquisitions and 39% of the PE exits that A&O Shearman acted on in 2025 provided for disputes to be resolved by arbitration, with the remainder opting for litigation. Across our M&A deals more broadly, there were marked regional variations, with a clear preference for arbitration in Central and Eastern Europe, the Middle East, Turkey and Africa, and Asia; a strong preference for litigation in North America and Australasia; and a more mixed picture in Western Europe, where arbitration is increasingly popular but preferences vary by country. At the same time, W&I insurance has become an increasingly established feature of the M&A landscape. Claims for warranty breaches are therefore commonly pursued under W&I policies, potentially giving rise to separate policy-level arbitrations and procedural and substantive issues specific to insurance law. By contrast, claims relating to completion account adjustments, earn-out calculations, and special indemnities typically fall outside the scope of W&I policies and are referred to the forum or mechanism specified in the sale and purchase agreement.
• Expert determination: Parties often employ different dispute resolution mechanisms within the same transaction. Disputes arising from completion accounts adjustments, locked-box leakage claims, and earn-out calculations are primarily accounting-driven and increasingly referred to expert determination (typically by an independent accountant) in the first instance. In principle, this allows for a more efficient and well informed resolution compared with an arbitration. A well-drafted sale and purchase agreement will distinguish between “expert matters” and “legal matters” that are to be referred to arbitration or litigation. The boundary between the two categories is itself a frequent source of disputes, for example, where a party argues that a completion accounts adjustment involves a question of contractual interpretation rather than accounting judgment. The drafting of the expert determination clause – including the scope of the expert’s mandate and the finality (or reviewability) of the expert’s decision – is therefore a critical element of the overall dispute resolution architecture.
• Exit and redemption disputes: Exit disputes can arise as fund life-cycles mature and market conditions fluctuate. These may involve disagreements over the timing or terms of an exit, drag-along or tag-along rights, redemption requests by limited partners, or the terms of a contested secondary transaction. Investors may also disagree over whether to extend or liquidate a fund nearing the end of its term.
• LP/GP partnership disputes: Limited partnership agreements, which govern the relationship between limited partners and general partners, cannot anticipate every eventuality. Disputes over fund governance, investment mandates, conflicts of interest and the scope of the GP’s discretion continue to arise, and the growing use of GP-led continuation vehicles has brought these issues into sharper focus. Actions involving “removal for cause”, where investors seek to displace a general partner on grounds of misconduct or underperformance, represent a particularly high-stakes category given the implications for the GP’s carried interest and market reputation.
• Carried interest disputes: Carried interest remains the bedrock of alternative investment compensation, yet the waterfall mechanics governing its calculation and distribution are notoriously complex. Disputes typically arise when fund performance dips, triggering clawback obligations, or when departing partners challenge the forfeiture of their carry. 
• Disputes arising from State action: Private capital investments increasingly operate in regulated sectors, such as power, telecoms, infrastructure, and financial services. When sovereign States or regulatory bodies implement adverse measures – such as tariff adjustments, subsidy cuts, or license revocations or amendments – the resulting disputes can give rise to claims under investment treaties alongside standard commercial claims. While understandably seen as often being a last resort, the past decade has seen some of the leading institutional asset managers, sovereign wealth funds and infrastructure sponsors resorting to arbitration claims under investment treaties to seek compensation for State intervention of this nature.

Why arbitration is a natural fit for private capital

International arbitration is increasingly popular as a dispute resolution mechanism for cross-border commercial matters generally. In this context, it is no surprise that its adoption within the alternative asset ecosystem is accelerating. 

Five core characteristics of arbitration align closely with the needs of private capital participants:

• Confidentiality: Participants in the alternative investment space tend to prize confidentiality. Valuations, investment strategies, return profiles, exit discussions and governance arrangements are all commercially sensitive. While court proceedings are generally a matter of public record, arbitration is generally private and confidential. Hearings take place behind closed doors, submissions and awards are typically not published and, depending on the applicable rules, the very existence of the dispute can remain unknown to competitors, co-investors, and the wider market.
• Neutrality: Private capital transactions frequently cross borders. Where, for example, an acquiring London-based fund and a Japanese seller disagree over a warranty claim, neither party will relish litigating in the other’s home courts. Arbitration provides a level playing field: the parties select the seat, language, and governing law, ensuring that no participant enjoys a “home advantage”. Some rules also ensure that arbitrators do not share nationality with any party (and parties can include a similar requirement in their arbitration agreement as well). This can be particularly important if the alternative to arbitration is a court system that may not offer the parties their desired levels of predictability and efficiency.
• Expert decision-makers: The world of private capital disputes can involve complex investment structures, bespoke contractual mechanisms, and niche sector practices that fall outside the day-to-day experience of many generalist courts, even in mature markets. In arbitration, the parties have a say in selecting their decision-makers. The appointment of arbitrators with relevant experience ensures that the tribunal grasps the issues and their commercial context from day one.
• International enforceability: An arbitral award issued in any of the 172 Contracting States to the New York Convention (including in seats like New York, London, Paris, Singapore, the Dubai International Financial Centre, or Hong Kong) can be enforced across this global network. While there are international frameworks and national law mechanisms for the cross-border enforcement of domestic court judgments (e.g., the Brussels Regulation within the EU), they are highly fragmented. For participants in an increasingly global industry like private capital, whose assets and counterparties span multiple jurisdictions, the streamlined enforcement mechanism under the New York Convention can present a real strategic advantage.
• Flexibility and bespoke procedures: Arbitration allows parties to tailor proceedings to their specific needs because nearly everything can be agreed. Timelines can be compressed for urgency, and procedures can be adapted to accommodate multi-party disputes. For a market built on bespoke deal structures, this procedural flexibility is a natural fit.

Of course, this is not to say that arbitration is the right choice for all transactions and all fund structures. There can be downsides in agreeing to arbitrate rather than litigating in domestic courts. For example, arbitral tribunals tend to have more limited coercive powers than courts, which can be unhelpful, particularly if a dispute involves third parties.  But the advantages of arbitration mean it is almost always an option worth considering.

Procedural tools that benefit private capital users

In recent years, leading arbitral institutions have introduced a range of procedural tools with the potential to benefit parties to private capital disputes. Many of these tools were inspired by court procedures and resolve perceived deficiencies in the arbitration process when compared with court litigation in mature jurisdictions, rendering arbitration a more attractive proposition for commercial transactions.

• Emergency arbitration: Where a dispute requires immediate interim relief, for example, to prevent the dissipation of assets, the completion of a competing transaction, or a breach of exclusivity, most major arbitration institutions now offer emergency arbitration procedures. An emergency arbitrator can be appointed within days of a request and can be empowered to grant injunctions, freezing orders, or other interim measures before the main tribunal is constituted. This is significant given that constituting a full tribunal typically takes two to three months. For private capital disputes, where speed can be critical to preserving value, the fact that these mechanisms are now available in arbitration as well as in the courts is a welcome development. However, some jurisdictions do not recognize emergency arbitrator decisions or provide a direct mechanism to enforce them (particularly for arbitrations seated in another jurisdiction). Parties may therefore need to seek interim relief from, or bring enforcement proceedings in, the local courts with jurisdiction over the counterparty or its assets despite having agreed to arbitrate under institutional rules that provide for emergency relief. 
• Expedited procedures: Expedited procedures offer a streamlined process with a sole arbitrator and truncated timelines for lower-value claims. While these procedures can have their downsides, they can also provide an efficient, binding alternative to full three-arbitrator tribunals. Detailed analysis of these procedures can be found in our earlier Arbitration Agenda blog post, Expedited Arbitration: Fast, Efficient & Fair Dispute Resolution?
• Early dismissal of unmeritorious claims: Several institutions now expressly permit respondents to apply for early dismissal of claims lacking legal merit or falling outside the tribunal’s jurisdiction. This resembles summary procedures in litigation and can provide an efficient defence against opportunistic or vexatious claims. This could come into play, for example, during a contentious exit or termination, where a disgruntled counterparty might threaten a spurious claim (or counterclaim) in an attempt to gain commercial leverage or to prolong the dispute while movements in the asset’s value play to the counterparty’s advantage.

Getting “dispute ready”: practical steps for private capital participants

Strategic decisions made at the inception of an investment cycle or a transaction – when documents are being negotiated and investment structures finalized – can be decisive in shaping the trajectory and outcome of any dispute that later arises. Parties should think carefully at the outset about how they can protect their commercial positions and ensure dispute readiness:

• Draft arbitration clauses with precision: Poorly structured dispute resolution clauses can trigger costly jurisdictional challenges, result in fragmented parallel proceedings across multiple forums, or leave gaps in available remedies. Clauses must explicitly specify the chosen arbitral institution, seat, language, number of arbitrators, and governing law (including the governing law of the arbitration agreement where that is different from the substantive governing law). Parties may also wish to confirm whether the emergency relief provisions of the chosen institutional rules will apply and to consent in advance to joinder and consolidation, so that multi-party disputes can be resolved in a single arbitration. 
• Ensure coherence across the transaction document suite: A practical matter that warrants attention is the consistency of governing law and dispute resolution provisions across the full suite of transaction documents. In a typical cross-border private equity acquisition in APAC, for example, the initial deal structure may propose a sale and purchase agreement governed by Singapore law and providing for Singapore-seated SIAC arbitration; a shareholders’ agreement with similar provisions but mandating pre-arbitral negotiation and mediation; management incentive agreements governed by local law and providing for exclusive jurisdiction of local courts; and a W&I insurance policy governed by English law and providing for London-seated LCIA arbitration. Side letters and co-investment agreements may introduce further variations. If carried through to the final documents, this patchwork creates real risk: a single set of facts, such as a disagreement over the conduct of the target business post-completion, may engage several agreements and require determination in multiple forums under multiple governing laws. In addition to the risks outlined above, this can lead to inconsistent outcomes. Advance consent to joinder and consolidation can mitigate these risks, but only for disputes arising under agreements with compatible arbitration clauses. Transactional and disputes teams should therefore work together during deal negotiation to align these provisions before the documents are finalized, rather than treating dispute resolution as an afterthought once the commercial terms are agreed. 
• Consider investment treaty structuring: Beyond commercial arbitration between private parties, investment treaty arbitration provides an important additional layer of legal recourse against adverse State action. This is particularly relevant for regulated asset classes like infrastructure. Nearly 2,400 investment treaties grant foreign investors enforceable legal protections that exist in parallel with, and in addition to, contractual protections. These commonly include guarantees of protection against unlawful expropriation, fair and equitable treatment, national and most-favored-nation treatment, full protection and security (encompassing obligations not to harm investors or investments through State action and to protect them against private action), as well as “umbrella clauses” requiring States to comply with their commitments and obligations undertaken in respect of foreign investors. Investment treaty protection can be viewed as akin to a free form of political risk insurance. With treaty caseloads at record levels – and significant investor recoveries against States in high-profile renewable energy and infrastructure disputes – these protections can have immense practical value. Parties can generally secure protection by structuring their investments up-front through an entity incorporated in a “home State” that is party to a relevant treaty with the host State of the investment (and by taking further steps to establish a “real economic connection” with the home State where the treaty so requires). In contrast, structuring an investment after a dispute becomes foreseeable can be too late and may result in the dismissal of any subsequent treaty claim. 
• Integrate contentious risk advice into the transaction process: Involving disputes specialists during the deal negotiation phase to stress-test contractual protections materially reduces downside risk. The relevant protections may include covenants, indemnities, representations and warranties, redemption mechanics, and carried interest waterfalls. Disputes counsel can also advise on governing law and forum selection, flag possible local enforcement challenges, and provide insights on provisions that commonly trigger disputes. 
• Monitor emerging conflicts proactively: Commercial disputes rarely materialize overnight. Early indicators such as a missed operational milestone, an unexpected regulatory announcement, or a redemption request, or friction in the GP/LP relationship, should ideally trigger a prompt review of the available dispute resolution frameworks. Left unmanaged, conflicts can disrupt fund operations, portfolio company activities, exit discussions, and broader investor confidence. In addition, tactical domestic proceedings initiated by a local counterparty, often “dressed up” as statutory, criminal, or other non-arbitrable claims, can have severe operational consequences and potentially undermine the conduct and outcome of an offshore arbitration. Considering these issues early (including with external disputes counsel where appropriate) allows firms to actively map out preferred forums and timing, prevent escalation, preserve their commercial position, and potentially gain leverage for settlement discussions or if the dispute escalates further. An associated risk that merits attention is the position of nominee directors appointed by sponsors to portfolio company boards. In the context of a contested exit or governance dispute, the conduct of nominee directors can itself become a source of claims, particularly if it is alleged that the director acted as an instrument of the sponsor rather than in the company’s interests. The shareholders’ agreement should address these risks clearly, including through the allocation of legal costs and indemnification for nominee directors in the event of proceedings.
• Ensure clarity in exit mechanisms and contractual remedies: A significant proportion of private capital disputes ultimately concern exits: the exercise of put or call options, valuation methodologies, or restrictions on share transfers. Shareholders’ agreements should include unambiguous triggers for exit rights, require valuation experts to provide their full underlying reasoning rather than a simple certificate, and quantify the remedies available upon breach. Ambiguities in materiality thresholds, incomplete governance provisions, or unclear allocations of liability provide fertile ground for disputes. Robust contractual drafting which anticipates exit scenarios at the outset can significantly reduce the risk and scope of disputes.

A strategic tool for value protection

The intersection of private capital and arbitration is likely to deepen in the years ahead. As fund sizes grow, investments expand into more challenging jurisdictions, regulatory frameworks evolve globally and political complexity continues to increase, we are likely to see the use of arbitration grow in the private capital sphere. Major arbitral institutions have recognized this trajectory and adapted their rules and procedures to serve the evolving needs of investor participants.

As always, the choice of dispute resolution mechanism must not be viewed merely as a contractual formality left to the final pages of transaction documents. It is a strategic choice that bears directly on the ability to protect multi-jurisdictional investments, preserve market confidentiality and secure binding and internationally enforceable decisions. 

This article forms part of our Arbitration Agenda review of 2026 trends.