Side Letter

A side letter supplements the subscription agreement and LPA or offering documents for one investor. Common provisions include fee discounts, enhanced reporting or transparency, capacity rights for future funds, advisory committee seats, most-favored-nation (MFN) clauses, excuse rights for certain investments, and regulatory or tax undertakings.

Side letters create operational obligations that must be tracked and honored. Fee terms affect management fee and performance fee calculations at investor level; reporting terms create additional deliverables; MFN clauses require election processes after closing.

Pitfalls include keeping side-letter terms only in legal files rather than in an operational obligations register, failing to configure fee exceptions in accounting systems, and missing notice or reporting deadlines. Regulators also expect appropriate disclosure of preferential terms to other investors. A practical control is to map each side-letter clause to an owner, a system setting and a review date, and to evidence compliance periodically.