Why Side Letters Become a Bottleneck — and What to Solve Earlier
A side letter is rarely just a legal document.
In practice, it is the point where LP expectations and GP limits are negotiated directly — without the buffer of the fund's standard documentation. And in fundraises involving Latin American LPs, it is also where the process can derail in ways that neither party anticipated.
Not from bad intent. From timing, incomplete information, and the gap between what the GP assumes is 'standard' and what the LP needs for regulatory or governance reasons.
The structural problem
In most international fundraises, side letters are addressed when the LP is already committed in principle — that is, toward the end of the process. It is the moment of least flexibility for both parties: the GP is under closing pressure, the LP is in internal approval, and any substantive negotiation automatically becomes delay.
The paradox is that many of the requirements that appear in the side letters of Latin American LPs are non-negotiable from the LP's side — they are regulatory mandates. There is no room for flexibility. But they are also not surprises: they are the same requirements that appear in every fund that LP has participated in.
The problem is not the content of the side letter. The problem is the moment it is addressed.
What Latin American LPs typically request in a side letter
Without going into each LP's specifics, the most recurring elements include:
→ Reporting clauses in specific formats and frequencies — often determined by the local regulator, not the LP directly.
→ Restrictions or conditions for parallel fund structures, co-investments, or alternative access vehicles.
→ MFN (Most Favoured Nation) provisions with commitment thresholds that determine which rights can be exercised.
→ Limitations on certain investment types that conflict with mandate restrictions.
→ Documentation requirements for internal audits or periodic regulatory reviews.
Where the bottleneck occurs
The bottleneck takes three typical forms:
First: the GP sends a standard side letter template that doesn't account for local requirements. The LP returns it with multiple modification requests. The GP channels them to their international counsel, who doesn't know the Latin American regulatory context. The process extends by weeks.
Second: the GP agrees to certain clauses without understanding which ones have MFN precedent with other fund LPs. What looks like a minor concession can open an obligation with all LPs who hold similar MFN rights.
Third: the LP cannot give final approval until the side letter is closed — but the side letter cannot close until the LP's investment committee has reviewed it.
The solution is upstream
Efficient preparation includes reviewing the fund documents from the perspective of local regulatory requirements before formal LP conversations begin. This allows identifying which clauses will need adaptation, which side letter provisions are inevitable, and which can be anticipated in the base template.
Anticipating 80% of recurring requirements, building a base template with those elements already incorporated, and reducing substantive negotiation to the 20% of truly specific conditions. That 80% anticipation can compress the closing process by weeks — sometimes months.