Side Letter
A separate agreement between a GP and an individual LP that modifies or supplements the terms of the main limited partnership agreement for that specific investor.
Side letters typically address most-favored-nation (MFN) clauses, reduced fees, co-investment rights, reporting requirements, liquidity provisions, regulatory accommodations, and ESG commitments. Side letters are confidential and run alongside — but do not amend — the main LPA.
Side letters have become increasingly common and complex as large institutional LPs negotiate customized terms. The MFN provision is particularly important — it ensures that any LP with an MFN clause can elect to receive the most favorable terms negotiated by any other LP of similar size.
Frequently Asked Questions
What is a side letter in private equity?
A side letter is a separate agreement between a GP and individual LP that modifies fund terms for that investor — covering fee reductions, co-investment rights, reporting requirements, and other customized provisions.
What is an MFN clause in a side letter?
A most-favored-nation (MFN) clause ensures the LP can elect to receive the most favorable terms negotiated by any other LP of similar size — preventing preferential treatment of certain investors.
Are side letters standard in private equity?
Yes, side letters are standard practice for institutional LPs. Large pension funds, endowments, and sovereign wealth funds routinely negotiate customized terms through side letters.
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