In the early days of private equity (PE), investors often accepted the terms offered to them as limited partners (LPs) of funds. That has changed over the years, however, as LPs have increasingly demanded higher returns and additional rights in connection with their investments. Those additional rights have largely been granted to LPs in side letters, which are more prevalent in the industry than ever before. This three-part series is designed to provide an overview of PE-specific provisions in side letters and the variety of ways parties are negotiating those terms. This first article discusses the general trends in PE side letters, provisions excusing LPs from certain investments and representations about the use of placement agents. The second article
will detail provisions on co-investment rights and LP advisory committee seats, and outline restrictions on the use of parallel funds and alternative investment vehicles. The third article
will address most favored nation clauses, overcall limitations and key person provisions. See “How Fund Managers Can Accommodate Heightened Investor Demands for Bespoke Negative Consent, Liquidity, MFN and Other Provisions in Side Letters
” (Oct. 13, 2016); and “Proskauer Partner Christopher Wells Discusses Challenges and Concerns in Negotiating and Administering Side Letters
” (Feb. 1, 2013).