{"concept_id":"ALTSS-LPA-010","slug":"side-letter","canonical_name":"Side Letter","aliases":["side letters"],"kind":"document","authority":"industry","facets":["GOV"],"domains":["FUND-TERMS"],"display_title":"Side Letter","search_aliases":["what is a side letter in private equity","side letter terms","side letter vs lpa","side letter disclosure rules","side letter tracking","side letter compliance"],"one_sentence_definition":"A side letter is a separate agreement between a fund or its general partner and one LP that adds to or varies the limited partnership agreement's terms for that investor, for example on fees, reporting, regulatory accommodations or co-investment rights.","plain_english":"Every LP signs the same partnership agreement, but investors have different legal constraints and bargaining power. Side letters handle the differences: a public pension needs public-records language, a large investor negotiates a fee discount, a regulated insurer needs extra reporting. Over a fund's life the side letters become a second rulebook that the manager has to track and honour.","parent_concepts":[],"child_concepts":[],"related_concepts":["most-favored-nation-mfn","limited-partnership-agreement","lpac","excuse-and-exclusion-rights","lp-information-rights","aifmd","parallel-fund","erisa"],"comparison_concepts":[],"not_the_same_as":[{"slug":"limited-partnership-agreement","distinction":"The LPA binds all partners; a side letter applies only to the LP that signs it."},{"slug":"most-favored-nation-mfn","distinction":"An MFN is a clause, usually in a side letter, that lets an LP elect terms from other LPs' side letters."}],"formula_ids":[],"worked_examples":[],"sections":[{"heading":"Typical terms","paragraphs":["- **Economic**: fee discounts or caps, often for size or early commitment.\n- **Information**: additional or more frequent reporting, ESG data, specific reporting templates, access to the manager.\n- **Legal, regulatory and tax**: provisions for [ERISA](/glossary/erisa) plans, public pensions (public-records laws, placement-agent and political-contribution representations), sovereign investors (immunity), insurers and investors with sanctions or religious restrictions; tax information for treaty claims.\n- **Investment**: [excuse rights](/glossary/excuse-and-exclusion-rights) for particular sectors, co-investment rights, an [LPAC](/glossary/lpac) seat.\n- **Transfers**: consent in advance to transfers to affiliates.\n- **[MFN](/glossary/most-favored-nation-mfn) right**: the right to elect terms granted to other LPs."]},{"heading":"Legal effect","paragraphs":["The [LPA](/glossary/limited-partnership-agreement) normally authorises the GP to enter into side letters that vary terms for a particular LP without other LPs' consent, often provided that the variation does not adversely affect them, and states that a side letter prevails for that LP over the LPA. Some terms cannot be granted by side letter because they would change other LPs' economics; those need an LPA amendment."]},{"heading":"Disclosure rules","paragraphs":["In the EU, the [Alternative Investment Fund Managers Directive](/glossary/aifmd) (AIFMD) requires managers of alternative investment funds, for each EU fund they manage and each fund they market in the EU, to make available to investors before they invest a description of any preferential treatment, the types of investors receiving it and, where relevant, their legal or economic links to the fund or its manager (Article 23(1)(j)); the 2024 amending Directive (EU) 2024/927 left that point unchanged. In the US, the Securities and Exchange Commission (SEC) adopted a preferential treatment rule in August 2023 that would have required disclosure of side letter terms and prohibited some; the Fifth Circuit vacated it on 5 June 2024, and the SEC removed the text from the Code of Federal Regulations with effect from 19 November 2024. As of 2 October 2026, US disclosure of side letters therefore rests on the LPA, MFN processes and the general antifraud provisions, including Advisers Act rule 206(4)-8 on statements to investors in pooled investment vehicles, rather than a specific rule. The Institutional Limited Partners Association (ILPA) addresses side letters mainly through their cost and scope: its Principles 3.0 ask GPs to move provisions common to most of a fund's side letters into the LPA, ask LPs to limit side letters to essential statutory or institution-specific requirements, and ask GPs to disclose to all LPs the existence of co-investment rights granted by side letter."]},{"heading":"Managing side letters","paragraphs":["Managers that grant many side letters keep a central register mapping every obligation to the team or service provider that delivers it (fund administrator, investor relations, compliance), run the MFN election process after the final closing, and test compliance periodically. Common failures are missed reporting obligations, inconsistent terms across [parallel funds](/glossary/parallel-fund), and side letter provisions that conflict with the LPA."]}],"classification_rules":[],"calculation_rules":[],"common_mistakes":["Treating side letters as a one-off negotiation rather than continuing obligations that must be delivered.","Assuming all side letter terms are available to other LPs through MFN.","Describing the vacated SEC preferential treatment rule as in force."],"edge_cases":["Side letters with investors in a feeder or parallel vehicle may need mirror provisions in the main fund to be effective.","A side letter term granted after final closing, for example in a secondary transfer, may fall outside the original MFN process."],"external_standard_mappings":[],"source_ids":["SRC-EU-AIFMD-2011-61","SRC-EU-AIFMD2-2024-927","SRC-ILPA-PRINCIPLES-3","SRC-US-COURT-CA5-23-60471","SRC-US-ECFR-275-206-4-8","SRC-US-FR-2024-26524","SRC-US-SEC-PFAR-VACATUR-NOTICE","SRC-US-SEC-REL-IA-6383"],"citations":[{"source_id":"SRC-EU-AIFMD-2011-61","pinpoint":"Art. 23(1) opening words and point (j)","supports":"For EU AIFs managed and AIFs marketed in the EU: pre-investment description of preferential treatment, the type of investors receiving it and, where relevant, their legal or economic links with the AIF or AIFM","source":{"source_id":"SRC-EU-AIFMD-2011-61","title":"Directive 2011/61/EU on Alternative Investment Fund Managers (AIFMD)","authors":"European Parliament and Council","publisher":"Official Journal of the EU, L 174, 1.7.2011","document_type":"directive","url":"https://eur-lex.europa.eu/eli/dir/2011/61/oj/eng","year":2011,"publication_date":"Adopted 8 June 2011; transposition by 22 July 2013","jurisdiction":"EU","status":"In force; amended by Directive (EU) 2024/927 (AIFMD II)","last_verified":"2026-10-01"}},{"source_id":"SRC-US-SEC-REL-IA-6383","pinpoint":"Rule 211(h)(2)-3(a)-(b) (preferential treatment; vacated); adopted 2023-08-23","supports":"The 2023 rules would have restricted and required disclosure of preferential treatment","source":{"source_id":"SRC-US-SEC-REL-IA-6383","title":"Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews (final rule), Release No. IA-6383","publisher":"U.S. Securities and Exchange Commission","document_type":"release","url":"https://www.sec.gov/files/rules/final/2023/ia-6383.pdf","publication_date":"Adopted 2023-08-23","jurisdiction":"US","status":"vacated","last_verified":"2026-10-01"}},{"source_id":"SRC-US-COURT-CA5-23-60471","pinpoint":"Decided 2024-06-05","supports":"Fifth Circuit vacated the Private Fund Adviser Rules","source":{"source_id":"SRC-US-COURT-CA5-23-60471","title":"National Association of Private Fund Managers v. SEC, No. 23-60471 (5th Cir. June 5, 2024)","publisher":"U.S. Court of Appeals for the Fifth Circuit (via govinfo, USCOURTS collection)","document_type":"court","url":"https://www.govinfo.gov/app/details/USCOURTS-ca5-23-60471","publication_date":"Decided 2024-06-05","jurisdiction":"US","status":"final","last_verified":"2026-10-01"}},{"source_id":"SRC-US-SEC-PFAR-VACATUR-NOTICE","pinpoint":"Announcement of 2024-10-31","supports":"Vacatur covers rule 211(h)(2)-3 (preferential treatment)","source":{"source_id":"SRC-US-SEC-PFAR-VACATUR-NOTICE","title":"Announcement Regarding the Private Fund Advisers Rules","publisher":"U.S. Securities and Exchange Commission","document_type":"guidance","url":"https://www.sec.gov/announcement-regarding-private-fund-advisers-rules","publication_date":"2024-10-31","jurisdiction":"US","status":"current","last_verified":"2026-10-01"}},{"source_id":"SRC-ILPA-PRINCIPLES-3","pinpoint":"p. 14 (Side Letters); p. 26 (Co-Investment Allocations)","supports":"Fold provisions common to most side letters into the LPA; LPs to limit side letters to essential statutory or institution-specific requirements; disclose to all LPs the existence of co-investment rights granted via side letters","source":{"source_id":"SRC-ILPA-PRINCIPLES-3","title":"ILPA Principles 3.0: Fostering Transparency, Governance and Alignment of Interests for General and Limited Partners","authors":"Institutional Limited Partners Association","publisher":"ILPA","document_type":"guidance","url":"https://ilpa.org/wp-content/uploads/2019/06/ILPA-Principles-3.0_2019.pdf","year":2019,"publication_date":"Third edition, released 27 June 2019","jurisdiction":"intl","status":"Current edition (no 4.0 found as of 2026-10-01)","last_verified":"2026-10-01"}},{"source_id":"SRC-EU-AIFMD2-2024-927","pinpoint":"Art. 1(11) (replaces Art. 23(1)(a) and (h), inserts (ia); point (j) not amended)","supports":"AIFMD II leaves Art. 23(1)(j) unchanged","source":{"source_id":"SRC-EU-AIFMD2-2024-927","title":"Directive (EU) 2024/927 amending Directives 2011/61/EU and 2009/65/EC (AIFMD II)","authors":"European Parliament and Council","publisher":"Official Journal of the EU, L series, 26.3.2024","document_type":"directive","url":"https://eur-lex.europa.eu/eli/dir/2024/927/oj/eng","year":2024,"publication_date":"Adopted 13 March 2024; Member States to adopt and apply measures by 16 April 2026 (some reporting provisions later)","jurisdiction":"EU","status":"In force; transposition deadline passed 16 April 2026; national transposition status varies by Member State","last_verified":"2026-10-01"}},{"source_id":"SRC-US-FR-2024-26524","pinpoint":"89 FR 91252, DATES (effective 2024-11-19) and amendatory instructions removing 275.211(h)(2)-3","supports":"Removal of the vacated rule text from the CFR effective 19 November 2024","source":{"source_id":"SRC-US-FR-2024-26524","title":"Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews (final rule; technical amendments), 89 FR 91252","publisher":"U.S. Securities and Exchange Commission (Federal Register via govinfo)","document_type":"release","url":"https://www.govinfo.gov/content/pkg/FR-2024-11-19/pdf/2024-26524.pdf","publication_date":"Published and effective 2024-11-19","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"}},{"source_id":"SRC-US-ECFR-275-206-4-8","pinpoint":"17 CFR 275.206(4)-8(a)(1)-(2), (b)","supports":"Antifraud rule for advisers to pooled investment vehicles: no untrue statement or misleading omission of material fact to investors or prospective investors","source":{"source_id":"SRC-US-ECFR-275-206-4-8","title":"17 CFR 275.206(4)-8 - Pooled investment vehicles","publisher":"U.S. Securities and Exchange Commission (CFR text; LII mirror)","document_type":"regulation","url":"https://www.law.cornell.edu/cfr/text/17/275.206(4)-8","publication_date":"Current CFR text as published by LII (accessed 2026-10-01); source 72 FR 44761, Aug. 9, 2007","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"}}],"faq":[{"q":"Do other LPs see my side letter?","a":"Not the letter itself, usually. Terms are typically disclosed to other LPs with MFN rights in an anonymised compendium after final closing, and under the EU AIFMD managers must describe preferential treatment to investors before they invest."},{"q":"Is the SEC side letter rule in effect?","a":"No. The preferential treatment rule adopted in August 2023 was vacated by the Fifth Circuit in June 2024."}],"seo":{},"first_published":"2025-12-29","last_reviewed":"2026-10-02","last_modified":"2026-10-02","content_version":"2.0.0","url":"https://altss.com/glossary/side-letter","json_url":"https://altss.com/reference/concepts/side-letter.json","title":"Side Letter","formulas":[],"sources":[{"source_id":"SRC-EU-AIFMD-2011-61","title":"Directive 2011/61/EU on Alternative Investment Fund Managers (AIFMD)","authors":"European Parliament and Council","publisher":"Official Journal of the EU, L 174, 1.7.2011","document_type":"directive","url":"https://eur-lex.europa.eu/eli/dir/2011/61/oj/eng","year":2011,"publication_date":"Adopted 8 June 2011; transposition by 22 July 2013","jurisdiction":"EU","status":"In force; amended by Directive (EU) 2024/927 (AIFMD II)","last_verified":"2026-10-01"},{"source_id":"SRC-EU-AIFMD2-2024-927","title":"Directive (EU) 2024/927 amending Directives 2011/61/EU and 2009/65/EC (AIFMD II)","authors":"European Parliament and Council","publisher":"Official Journal of the EU, L series, 26.3.2024","document_type":"directive","url":"https://eur-lex.europa.eu/eli/dir/2024/927/oj/eng","year":2024,"publication_date":"Adopted 13 March 2024; Member States to adopt and apply measures by 16 April 2026 (some reporting provisions later)","jurisdiction":"EU","status":"In force; transposition deadline passed 16 April 2026; national transposition status varies by Member State","last_verified":"2026-10-01"},{"source_id":"SRC-ILPA-PRINCIPLES-3","title":"ILPA Principles 3.0: Fostering Transparency, Governance and Alignment of Interests for General and Limited Partners","authors":"Institutional Limited Partners Association","publisher":"ILPA","document_type":"guidance","url":"https://ilpa.org/wp-content/uploads/2019/06/ILPA-Principles-3.0_2019.pdf","year":2019,"publication_date":"Third edition, released 27 June 2019","jurisdiction":"intl","status":"Current edition (no 4.0 found as of 2026-10-01)","last_verified":"2026-10-01"},{"source_id":"SRC-US-COURT-CA5-23-60471","title":"National Association of Private Fund Managers v. SEC, No. 23-60471 (5th Cir. June 5, 2024)","publisher":"U.S. Court of Appeals for the Fifth Circuit (via govinfo, USCOURTS collection)","document_type":"court","url":"https://www.govinfo.gov/app/details/USCOURTS-ca5-23-60471","publication_date":"Decided 2024-06-05","jurisdiction":"US","status":"final","last_verified":"2026-10-01"},{"source_id":"SRC-US-ECFR-275-206-4-8","title":"17 CFR 275.206(4)-8 - Pooled investment vehicles","publisher":"U.S. Securities and Exchange Commission (CFR text; LII mirror)","document_type":"regulation","url":"https://www.law.cornell.edu/cfr/text/17/275.206(4)-8","publication_date":"Current CFR text as published by LII (accessed 2026-10-01); source 72 FR 44761, Aug. 9, 2007","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"},{"source_id":"SRC-US-FR-2024-26524","title":"Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews (final rule; technical amendments), 89 FR 91252","publisher":"U.S. Securities and Exchange Commission (Federal Register via govinfo)","document_type":"release","url":"https://www.govinfo.gov/content/pkg/FR-2024-11-19/pdf/2024-26524.pdf","publication_date":"Published and effective 2024-11-19","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"},{"source_id":"SRC-US-SEC-PFAR-VACATUR-NOTICE","title":"Announcement Regarding the Private Fund Advisers Rules","publisher":"U.S. Securities and Exchange Commission","document_type":"guidance","url":"https://www.sec.gov/announcement-regarding-private-fund-advisers-rules","publication_date":"2024-10-31","jurisdiction":"US","status":"current","last_verified":"2026-10-01"},{"source_id":"SRC-US-SEC-REL-IA-6383","title":"Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews (final rule), Release No. IA-6383","publisher":"U.S. Securities and Exchange Commission","document_type":"release","url":"https://www.sec.gov/files/rules/final/2023/ia-6383.pdf","publication_date":"Adopted 2023-08-23","jurisdiction":"US","status":"vacated","last_verified":"2026-10-01"}]}