Investors negotiate additional rights in side letters rather than amending the fund documents, which keeps the main agreement uniform and creates an administrative burden.
Common subjects. Fee discounts; co-investment rights; advisory committee seats; additional reporting; excuse rights from investments conflicting with the investor’s policies; transfer rights; regulatory and tax provisions specific to the investor type; and confidentiality carve-outs for public entities subject to records laws.
Most favoured nation. A right to elect the benefit of terms granted to other investors, usually tiered by commitment size, and typically excluding rights granted for legal or regulatory reasons specific to another investor, capacity rights and advisory committee seats.
The election process. Disclosure of the side letter terms to eligible investors after the final closing, with a defined election window. Sponsors should run this process on a schedule rather than ad hoc.
Administration. A side letter matrix maintained by the sponsor, mapping every obligation to an operational owner. Breaches occur because obligations are recorded in documents nobody reads during operations.
Conflicts with the partnership agreement. Side letters should state that they do not amend the agreement as to other investors, and sponsors should confirm the general partner has authority to grant the term.