At their core, side letters are about defining specific rights and obligations with respect to a specific investment. Accordingly, the legal and practical issues raised by side letters, and best practices for addressing those issues, are often context-specific. This theme of specificity – the idea that effective solutions must be narrowly tailored to specific problems where side letters are concerned – was a leitmotif in our recent conversation with Michael Neus, Managing Partner and General Counsel of Perry Capital LLC. We posed some of the harder questions generally raised by side letters to Neus, and his answers – transcribed in this article – were typically nuanced, insightful and informed by current market practice. In particular, we covered trends in the use of and rights granted in side letters; the advisability of and approach to selective disclosure; concerns related to modification of fund redemption terms through side letters; the impact of different regulatory regimes on side letter drafting; strategies for drafting effective most favored nation provisions; strategies for gracefully declining side letter requests; the approach to using single-investor funds and managed accounts to address side letter requests; strategies for monitoring obligations in side letters; the proper party for executing side letters; and trends in negotiating capacity rights. See also “Proskauer Partner Christopher Wells Discusses Challenges and Concerns in Negotiating and Administering Side Letters
,” Hedge Fund Law Report, Vol. 6, No. 5 (Feb. 1, 2013). Our interview with Neus was conducted in connection with the Regulatory Compliance Association’s upcoming Regulation, Operations & Compliance 2013 Symposium, to be held at the Pierre Hotel in New York City on April 18, 2013. That Symposium is scheduled to include a panel on side letters entitled “Navigating the Side Letter Negotiation & Due Diligence Process.” Subscribers to the Hedge Fund Law Report are eligible for a registration discount.