The purpose of this paper is to analyze disclosure issues relating to side letters between funds and individual investors or groups of investors, as discussed in recent reports by the Investors' Committee and the Asset Managers' Committee of the US President's Working Group on Financial Markets.
The paper addresses criteria regarding the types of terms in side letters that should be disclosed to all investors, the manager's fiduciary duties to investors in a fund, and practical considerations as to whether various types of benefits should be offered to an individual investor or group of investors or rather offered to all investors by amending a fund's documents.
To satisfy its fiduciary duties, a manager should ensure that the fund documents accurately reflect the material terms relating to the fund and that generally side letters should not materially alter those terms without adequate disclosure to all investors. Terms that could adversely impact on other investors include those related to control rights, preferential liquidity rights, preferential fees, and material alterations of the investment program.
The paper is a useful interpretation of Working Group Guidelines by experienced securities lawyers.
