This chapter aims to place the asset class private equity in the framework of principal-agent theory. Section 2.1 develops a generic theory of fund investments. Key corollaries of this theory are that investors must take special care to a) choose funds in accordance with their risk-sharing preferences, and b) then to select funds out of a group of possible alternatives. In section 2.2, existing empirical research is examined in light of this proposition, before the chapter is concluded in section 2.3.