Three Carve-Outs Name a Right. One Names a Circumstance.

The most-favoured-nation obligation in ILPA's model limited partnership agreement never uses the phrase. "Most favored nations" appears once in the whole document, in the definition of Organizational Expenses, where the costs of complying with such a process are counted among the fund's formation costs. The obligation itself sits at Section 20.6.2, a proviso attached to the Entire Agreement clause in the Miscellaneous article.

That one sentence decides which negotiated terms reach which investors.

What the sentence does

It confirms first that the general partner may enter a side letter "without the approval of any Limited Partner or any other Person," then attaches two obligations. Notice of the terms of all side letters goes to every limited partner reasonably promptly after the Final Closing Date, which the model puts twelve months after the initial closing. And where a side letter grants more favourable rights to one partner than another has, "each such other Partner shall have the benefit of the more favorable rights" — conferred in the model's formulation rather than offered for election.

Three name a right. One names a circumstance.

Four exceptions follow. Three of them name a kind of right: consents to or limits on the general partner's discretion over transfers to the recipient's affiliates, excuse rights under Section 6.7, and the right to nominate a representative on the advisory committee. Each can be settled by reading the provision and asking what sort of thing it is.

The first works differently. It excepts "any rights granted solely with respect to a particular regulatory, legal or tax situation or policy (including any internal policy of a Partner that has been disclosed to the General Partner in writing at or prior to the date of such Partner's subscription to the Fund) applicable to a Partner but not applicable to such other Partner." That is two factual questions rather than one classification: what the right was granted for, and whether the same situation reaches the investor now claiming it. A fee accommodation can read identically on the page whether it was conceded to satisfy a public pension's statutory constraint or conceded to close a round.

The provision may say which. The model does not require that it do so.

The notice carries the terms

What Section 20.6.2 expressly requires the general partner to circulate is notice "of the terms of all Side Letters." The clause does not separately require that notice to identify the situation a right was granted for, or the partners to whom that situation applies. ILPA's diligence questionnaire collects the same shape: question 12.4 asks whether any prospective investor received side agreements or rights, "whether in-writing or verbally," and asks for a copy of the terms, which its appendix repeats as a document to produce. Question 12.4.1 reduces the propagation question to a checkbox — will the terms in such side letters be offered to all limited partners that request them, yes or no.

The questionnaire does reach for circumstance, at 12.5, asking the firm to "describe any circumstance in which one or more Limited Partner(s) is not investing under the same terms as other Limited Partners." It asks for a description at diligence time. It does not ask for the circumstance to be recorded against each provision, or maintained as the side letter file changes.

The model knows how to require a written status

Elsewhere the agreement shows it can make a circumstance a matter of record. A limited partner counts as an ERISA Partner only where it "has notified the General Partner in writing of such status" before the relevant determination, and the definitions of BHCA Partner and Non-U.S. Partner use the same construction. Those three statuses are written down because consequences elsewhere depend on them.

Section 20.6.2 borrows the technique once. An internal policy of a partner counts only if it was "disclosed to the General Partner in writing at or prior to the date of such Partner's subscription," a documentation precondition sitting inside the parenthetical. The regulatory, legal and tax limbs beside it carry no equivalent condition. Making a fact operative and making it a record are separate drafting decisions, and this sentence makes them differently within its own first exception.

The advice concentrates what is left

ILPA Principles 3.0 pushes side letters toward exactly this material. It asks general partners to "seek whenever possible to include those provisions common across the majority of a fund's side letters into the LPA itself," and asks limited partners to "limit the substance of side letters to essential statutory or other institution-specific requirements." Both are sensible on their own terms, and both are aimed at cost rather than at propagation.

Followed, they would tend to move the common provisions into the agreement and leave behind the ones tied to a particular institution — which is the category whose propagation depends on a fact about that institution, and the category the first exception tests. The likely result is a side-letter file weighted more heavily toward provisions whose treatment depends on institution-specific circumstances — and a clause imposing an express prior-writing condition only on the internal-policy branch of the first exception.