Side Stepping Side Letters?

In a market where fundraising has been challenging, side letters providing tailored investment terms to investors can be a helpful tool to attract capital.  

Although advisors will commonly highlight issues arising with side letters, including the risks of breach of fiduciary duties or inconsistency with constituent documents, two recent cases in the Cayman Islands have highlighted a more fundamental issue: whether the side letter actually works.

In the past, side letters, commonly included provisions such as a reduction in fees, approval of transfers to parties related to the investor, and undertakings to use best efforts not to pay redemption proceeds in kind. A "most favoured nation" provision was also a typical feature.  The legal issues raised by such provisions could generally be managed.