A side letter is a private agreement between a fund and one investor granting terms that differ from the offering memorandum, such as reduced fees, better liquidity, extra transparency or capacity rights. Other investors may claim the same terms under a most-favoured-nation clause.
Side letters are common with anchor and seed investors. They are legitimate but create obligations the manager and administrator must track, and they are a standard due-diligence question: allocators want to know what terms others have been given and whether they can claim them.
Many domiciles and many allocators require side letters to be disclosed, at least in summary, to all investors.
Side letters for POD funds are between the fund and the investor; the administrator applies any fee or liquidity variation to that investor's series. [CONFIRM: POD's policy on side-letter disclosure.]
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