What is an LP side letter?
A side letter is a supplementary agreement between an individual limited partner (LP) and the fund’s general partner (GP) that grants the specific LP terms that differ from — or supplement — the standard Limited Partnership Agreement (LPA). Side letters customise the LP’s rights, obligations, and economic terms without amending the LPA itself, which would require all-LP consent. Side letter use is industry-standard but heavily regulated by MFN (Most-Favoured Nation) clauses that allow other LPs to elect equivalent terms.
Common side letter provisions
- Fee discount: reduced management fee for large or anchor LP commitments.
- Co-investment rights: right of first refusal or pro-rata participation in direct co-investments.
- Excuse rights: opt-out from specific investments (sanctioned countries, prohibited sectors, regulatory restrictions).
- Reporting: enhanced transparency for sovereign or regulated LPs (transaction-level detail, ESG metrics).
- Transfer rights: permitted intra-group transfers without GP consent.
- Most-favoured-nation (MFN): right to elect any more-favourable terms granted to other LPs.
- Key-person: additional triggers or remedies on departure of named investment professionals.
MFN mechanics
- MFN tiers: top-tier (full MFN — all terms), tiered (only terms granted to LPs of similar commitment size), or category-restricted (only ESG, only regulatory).
- MFN election process: GP shares redacted summary of other side letters; LP elects within fixed window (typically 30-90 days post-closing).
- Carve-outs: common exclusions include terms reflecting regulatory status (sovereign immunity, ERISA), structural type (fund of funds gating), or anchor LP arrangements predating fund close.
Türk LP’leri ve side letter pratiği
Türkiye Wealth Fund’ı (TVF), büyük Türk emeklilik şirketleri ve EBRD/IFC gibi DFI’lar Türk-yönetici fonlarda anchor LP olduğunda side letter standart pratiktir. Türk LP’lerin tipik side letter talepleri: KVKK uyum reporting, MASAK Travel Rule uyum garantisi, döviz kuru hedging hakkı, vergi sertifikası talep hakkı. SPK düzenlemeleri GSYO yapısında side letter’a doğrudan yasak getirmez ancak orantılı muamele ilkesi (eşit hak) sağlanmalıdır — MFN benzeri korumayı yapılandırır.
Do: negotiate side letter early in subscription process; document MFN scope precisely; track all side letters in unified register for compliance and MFN administration.
Don’t: grant side letter terms that materially shift economics across remaining LPs — sophisticated LPs detect imbalance via MFN process and challenge.