Side Letter
A side letter is a separate agreement between a GP and an LP that grants specific terms, rights, or reporting beyond the standard LPA.
Allocator relevance: A major driver of term dispersion—side letters can change economics, governance, and reporting rights materially.
Expanded Definition
Side letters may include fee breaks, MFN rights, reporting enhancements, regulatory accommodations, co-investment rights, or governance protections. They create variability across LPs, which is why MFN provisions and careful internal tracking matter.
Allocators evaluate side letters as part of net outcome and governance—what you negotiate can determine operational experience for years.
How It Works in Practice
LPs request side letter provisions during fundraising; GPs agree to certain terms for strategic or large investors. After close, side letters are finalized and tracked, and MFN elections may occur.
Decision Authority and Governance
Governance requires legal review, internal tracking, and ensuring operational teams can actually deliver on reporting obligations. MFN processes are governance-heavy because deadlines and exclusions matter.
Common Misconceptions
- Side letters are minor add-ons.
- Side letters automatically override the LPA (depends on language).
- Only large LPs can get side letters.
Key Takeaways
- Side letters can materially alter economics and governance.
- Track obligations—rights are only valuable if delivered.
- MFN reduces but doesn’t eliminate dispersion.