Side letters, explained.

A side letter is a private agreement between the fund and one LP that modifies the standard partnership terms for that investor alone. It doesn't replace the partnership agreement — it sits next to it, and only that one LP is bound by what's inside.

Why side letters exist

Institutional LPs aren't interchangeable, and neither are their requirements. The partnership agreement establishes the standard terms for every investor. A side letter exists for the exceptions.

The terms most often negotiated

Most side letters are built from the same small set of recurring provisions. What changes isn't the menu of terms — it's which combination applies to each LP.

The one provision that changes the fund's obligations

Every other provision is about terms. MFN is about administration. The most-favored-nation clause entitles an LP to elect the same terms the fund grants anyone else on a covered provision — the one line in a side letter that turns an individual agreement into an ongoing obligation to a defined group of other investors. See Most-favored-nation clauses, explained.

Side letters outlive the negotiations

Which LP negotiated which provision, what triggered it, and whether it's still in effect five years and two fund extensions later are questions that come up long after the closing dinner is forgotten. A side letter filed correctly today is only useful if someone can still find and interpret it when an auditor, a departing employee's replacement, or a new LP's counsel eventually asks.

A side letter is a small document with an outsized shelf life. The negotiation ends in a matter of weeks. The obligations it creates can outlast the person who negotiated them.