Side letters: caveat scriptor

Side letters are now common employed by fund managers to lure blue-riband investors, but are they legal? Alex Erskine from Appleby Spurling & Hunter explains Bermuda's stance

A hedge fund that secures a significant part of its funding from a major investor, and as a consequence, enhanced marketability, may be prepared to grant such an investor preferential rights to such an investor.

Such rights are typically in the form of fee-rebate arrangements, rights to early redemption without penalty, or the right to more information than other investors who hold, ostensibly at least, shares of the same class. These arrangements are commonly entered into by the investment