Side letters are additional agreements that set out terms that supplement or modify the terms of the offering memorandum, subscription agreement or constitutional documents of the fund. Such agreements generally provide preferential treatment with respect to matters such as redemption terms, fees, access to information and “most favoured nation” (MFN) status.
Potential problems and hazards
Before negotiating side letters all parties to the agreement should be aware of potential problems and hazards, which may include:
(i) cost
(ii) administrative inconvenience
(iii) litigation risks
(iv) regulatory issues and
(v) enforceability.
Some side letters address discrete terms that can be negotiated quickly and efficiently. Examples of such terms include agreements by the manager to waive fees, or the fund to waive a “lock up period” for redemptions. However, large institutional investors who often have requests for material concessions may require substantial
