What is Side Letter?
A side letter is a bilateral agreement between a fund's GP and an individual LP that grants that LP rights or terms beyond what is in the standard LPA — such as lower fees, additional reporting, or co-investment rights.
Side letters allow GPs to give certain LPs customized terms without amending the LPA for all investors. Common side letter provisions include: management fee discounts, most favored nation rights, co-investment priority, enhanced reporting (e.g., look-through data for ERISA investors), FOIA exemptions for government LPs, and ESG disclosure rights.
ILPA guidelines recommend that GPs disclose the existence (though not necessarily the terms) of side letters to all LPs. The accumulation of many side letters creates operational complexity and potential conflicts between LP interests.
Also known as: side agreement