Side Letter
A side letter is a separate agreement granting specific rights or terms to a particular LP, often related to fees, reporting, or governance.
Definition
A side letter is a bilateral agreement between a fund manager and an LP that modifies or clarifies terms for that LP. Side letters commonly cover fee discounts, reporting enhancements, most-favored-nation (MFN) rights, regulatory representations, or specific governance provisions. Allocator Context Side letters are common for large LPs or strategic investors whose requirements differ from the standard fund terms. Allocators often require side letters to satisfy internal compliance, regulatory needs, or reporting standards. Decision Authority Side letter terms usually require legal review and may require committee approval depending on materiality. Managers must also manage fairness and disclosure obligations, particularly if MFN provisions exist. Why It Matters for Fundraising Side letters can enable closes, but they can also introduce complexity and delays. Managers who run side letter processes efficiently—clear templates, quick legal turnaround, consistent disclosure—reduce friction and improve investor experience. Key Takeaways Side letters customize LP terms Common for large or regulated LPs Legal and governance review can delay closes Process quality matters as much as terms