SD-10.5 — Side-Letter & Fund-Term Compliance

Business Domain: BD-10 Investment Compliance & Guideline Monitoring (Middle office) · Applies: PRIV

Purpose

Tracks and enforces the negotiated obligations a fund owes its investors under side letters and fund terms — the most-favoured-nation elections, the excuse and exclusion rights, the bespoke reporting and notification clauses, the fee and co-investment provisions an LP negotiated outside the main fund agreement. SD-10.5 exists because a private-markets fund does not have one set of terms — it has the limited-partnership agreement plus a stack of side letters, each granting a particular investor something specific, and those promises must be tracked and kept. It is the compliance capability for the contractual obligations a fund carries to its investors, distinct from the regulatory and mandate compliance the rest of BD-10 handles.

Service Operations

Maintain the side-letter obligation registry — record every side-letter and fund-term obligation, the investor it is owed to, and what it requires.
Process MFN elections — run the most-favoured-nation process: disclose the side-letter terms to electing investors and apply the elections.
Enforce excuse and exclusion rights — apply an investor’s right to be excused from, or excluded from, a particular investment when the trigger arises.
Track bespoke reporting and notification obligations — ensure the specific reporting, notice and consent clauses individual investors negotiated are met on time.
Confirm side-letter compliance — produce the evidence that the fund’s contractual obligations to its investors are being honoured.

Inputs and outputs

Inputs: the executed side letters and the LPA / fund terms (PM-10 Fund Terms); the investor register; the fund’s investment pipeline from SD-04.5 for excuse / exclusion triggers.
Outputs: the obligation registry, MFN-election outcomes and side-letter-compliance evidence — consumed by SD-12.8 Capital Call & Distribution Processing (excuse / exclusion affects the funds flow), SD-16.2 Owner & Investor Reporting, and BD-14.

Entities

Consumes: PM-10 Fund Terms, E-01 Legal Entity (the investors), PM-06 LP Commitment; the SD-04.5 fund’s investment pipeline.
Owns: the side-letter obligation registry — currently a process artefact over PM-10 Fund Terms.
Open question: whether a Side-Letter Obligation entity is warranted — each obligation a recorded, owned, trackable item with the investor it is owed to and its trigger.

Standards

ILPA guidance on side letters and most-favoured-nation elections.
The limited-partnership agreement as the governing contract; the ILPA Reporting Template for the reporting obligations side letters often vary.

Open extensions

A Side-Letter Obligation entity.
The MFN-election sub-model.
The Service-Operation-level input/output contracts.