Trends in Contentious Terms in Side‑Letter Negotiations, Including MFNs and ESG Considerations (Part Two of Two)

Side letters are sometimes cloaked in a veil of secrecy, as their purpose is to allow fund managers and LPs to hide certain negotiated terms from other investors in a commingled vehicle. That can make it comparatively difficult to discern market trends of side letters, including what types of issues are of the greatest concern to parties and where negotiations tend to land. Those trends and administrative issues of side letters were addressed at the Practising Law Institute’s recent Advanced Issues in Private Funds 2021 program in a panel moderated by Skadden partner Anna Rips, and featuring Alison Horton, managing director and legal counsel at Davidson Kempner Capital Management; Nicole Restivo, chief operating officer, GC and CCO at Key Square Capital Management; and Fola Adamolekun, executive director and assistant GC at J.P. Morgan Asset Management. This second article in a two-part series describes some of the difficulties presented by most favored nation provisions in side letters and some current hot topics in negotiations, including information sharing and environmental, social and governance investing. The first article explained certain benefits and challenges of using form side letters in negotiations; difficulties funds of funds face in simultaneous negotiations; and administrative challenges fund managers need to overcome. See our three-part series on PE-specific side letter provisions: “Industry Trends, Excusal Rights and Placement Agent Representations” (Mar. 19, 2019); “Co‑Investment Rights, LP Advisory Committee Seats and Parallel Funds/AIVs” (Mar. 26, 2019); and “MFN Clauses, Overcall Limitations and Key Person Provisions” (Apr. 2, 2019).

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