Blog Series Part 1: Understanding Side Letters - Customization Without Chaos
January 2025
Blog Series: Private Fund Terms That Matter
Part 1: Understanding Side Letters: Customization Without Chaos
Side letters are part of modern fund management. For many private fund managers, they’re a practical way to address investor-specific needs without overhauling the entire LPA. But when not handled carefully, they create confusion, inconsistency, and legal risk. At Moeller Law PLLC, we help fund managers negotiate and manage side letters that align with their governing documents, investor expectations, and operational realities. As outsourced general counsel, we also coordinate across fund counsel, placement agents, administrators, and compliance professionals, ensuring side letter terms don’t just look good on paper but actually work in practice.
Why Side Letters Exist — and Why They Get Complicated
Side letters are used to provide customized rights or accommodations to certain investors. These might involve reduced fees, customized reporting, regulatory language, or clarifications around transfer rights. They’re especially common when negotiating with institutional LPs, seed investors, or foreign limited partners. But with each new side letter comes risk. Promises made in isolation can conflict with the LPA, create inconsistent treatment among investors, or introduce obligations that are difficult for the operations team to fulfill. In some cases, managers unintentionally bind themselves to terms that exceed their authority under the fund’s governing documents. When terms are too vague, too generous, or not tracked carefully, side letters become liabilities rather than helpful tools.
What Makes a Side Letter Work
The most effective side letters are narrowly tailored, clearly written, and internally vetted before being signed. They should not introduce rights that contradict or override key provisions of the LPA unless expressly permitted. We often help fund managers clean up language drafted by investors, or revise templates that have become bloated over successive fundraising rounds. Negotiation is only part of the job. Fund managers must also ensure they can actually deliver what the side letter promises. That means working with administrators, tax professionals, and compliance staff to confirm what can realistically be implemented, tracked, and reported over the life of the fund.
How Moeller Law PLLC Adds Value
We work with fund managers to build side letter programs that are efficient, compliant, and scalable. For some clients, we draft the initial templates and help review investor redlines. For others, we serve as the centralized point of legal coordination during fundraising, aligning internal and external teams around what’s being offered and to whom. As outsourced general counsel, we help ensure that side letter terms align with your fund’s governing documents, investment strategy, and operations — not just in theory, but in execution.
Side letters are a powerful tool, but they come with responsibilities. The right process doesn’t just protect you from regulatory or contractual missteps, it also shows investors that your fund is professionally managed and ready for institutional relationships. Moeller Law PLLC provides strategic legal support for private fund managers navigating complex investor negotiations, side letters, and fund documentation. If you’re preparing for a fundraise or want to improve your side letter process, we’d be glad to help.
Let’s connect to discuss how to make your side letter process more effective.
Up next: What Should Be in Your LPA (But Often Isn’t)
