Side Letter
Last updated 17 July 2026
A side letter is an agreement between a fund manager and a particular investor that supplements the fund's main governing and subscription documents. It can provide fee terms, reporting, co-investment access, excuse rights, confidentiality provisions, transfer permissions, regulatory accommodations, or notice obligations specific to that investor.
Side-letter rights vary and are subject to the wording, fund documents, law, and any most-favoured-nation process. A right to be considered for co-investments, for example, is different from a guaranteed allocation. Some terms may cease to apply if the investor's commitment or ownership changes.
Why it matters for family offices
A negotiated right has value only if the office knows it exists and acts before the deadline. Rights can require annual certifications, prompt notice of legal changes, minimum holdings, or elections after other investors receive better terms. The investment team, legal advisers, finance staff, and tax team may each own different obligations.
Side letters can also create differences between investors and potential conflicts for the manager. The family evaluates the practical benefit, enforceability, and interaction with the main documents rather than focusing on the number of special terms. Applicable disclosure and equal-treatment rules depend on the fund and jurisdiction.
How it shows up in practice
Suppose a family commits $10 million to a private fund and negotiates enhanced quarterly exposure reporting, a fee discount above a commitment threshold, and notice of co-investment opportunities. Eighteen months later, the family transfers part of its interest between related trusts. The transfer could affect the commitment level used for the discount.
The family office checks the side letter before completing the transfer, obtains the manager's consent, and confirms that aggregated related commitments still qualify under the exact wording. It records reporting dates and routes co-investment notices to the investment team. A document stored only in counsel's closing folder would not protect those rights in daily administration.
Related terms
Limited Partner (LP)
An investor in a private markets fund who provides capital but plays no role in management and whose liability is limited to the amount committed. Family offices are among the most active LPs globally, valued by managers for their patient, long-term capital. LPs receive periodic capital calls, distributions, and quarterly reports that feed into the family's consolidated reporting.
General Partner (GP)
The manager of a private markets fund, responsible for sourcing investments, making decisions, and running the fund's operations. The GP typically earns a management fee plus carried interest, and usually invests its own capital alongside investors to align incentives. Assessing the quality, track record, and alignment of the GP is the heart of fund due diligence.
Co-Investment
An investment made alongside a private equity fund or lead investor into a specific deal, usually on reduced or zero fees. Co-investments let families increase exposure to their highest-conviction opportunities while keeping costs down. They are among the most sought-after opportunities in family office networks.
Management Fee
The annual fee a fund manager charges on committed or invested capital, typically 1.5 to 2 percent in private equity, to cover salaries, operations, and deal sourcing. Management fees are charged regardless of performance, which is why investors scrutinise them alongside carried interest. Over a fund's life, fees meaningfully reduce net returns, a key argument for direct investing and co-investments.
Lock-Up
A period during which an investor cannot withdraw capital from a fund, standard in hedge funds and inherent in private equity's ten-plus-year structure. Lock-ups let managers pursue strategies without forced selling but concentrate liquidity risk with the investor. Family offices map lock-ups across all funds to understand how much of the portfolio is truly accessible at any time.
Further reading
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