The side letter is an animal increasingly seen in the hedge fund jungle. It is a species that can be unpredictable, even dangerous. The attitude that any arrangement outside the principal contractual documents can simply be put into a side letter is foolhardy.
Investors considering a hedge fund may require amendments to the offering memorandum's terms as a condition of their investment. Such amendments are typically implemented using a side letter (a species of collateral contract), the consideration for which is the investor's entry into the principal contractual documentation and the investment. Often the approach to side letters has been casual and parties have not checked, first, that the fund's documentation accommodates the creation of side-letter arrangements and, secondly, that the preparation and approval of the side letter is consistent with the fund's documentation. Failure to do this might render the side letter unenforceable and expose the fund to complaints and legal
