At present, there are very few guidelines or powers on the types of provisions that can be included in the letters and, as a result, the options seem almost limitless. While such flexibility and freedom allow general partners and sponsors to close their own business commitments, there are some practical concerns about the “anything goes” approach of letters. These practical concerns are based on issues relating to the obligation of loyalty and the interpretation of the contract, given the contradiction between the APA and a specific note. It is not uncommon for an investor to request an investor inspection procedure by subsidiary letter. At one end of the spectrum, subsidiary letter requirements that do not apply to other sponsors (with the exception of a significant amount), such as additional reporting obligations, should not raise legal concerns, as the APA explicitly addresses inconsistencies between an APA and registration. At the other end of the spectrum, the provisions of the subsidiary letter that clearly and substantially relate to other sponsorships should be carefully considered, even if the APA expressly authorizes inconsistencies between the APA and the letter of mail. For example, an LPA for an infrastructure fund could indicate that it intends to invest heavily in North American infrastructure in different sectors. If the co-manager of such an infrastructure fund issued a subsidiary letter requiring the Fund to invest only in a narrow infrastructure sector in a country, such a letter would significantly alter the nature and nature of the Fund. In such circumstances, one might imagine that a Canadian court would see such a provision differently from a provision that provides only for additional reporting obligations.
There are many other types of terms between the two ends of the spectrum and it is proposed that any term proposed to be included in a letter of receipt be considered in light of this spectrum. A reference letter negotiated for an indeterminate fund may include a termination provision for the withdrawal of significant or significant individuals. These provisions are often accompanied by an improvement in liquidity rights (see “Withdrawal Rights” above). To the extent that a fund has a credit facility and one of the provisions described above is also covered by an MFN right, these issues may be strengthened, as several investors may be able to obtain problematic provisions. Managers can therefore include an abgunika clause in their standard MFN clause with respect to the subsidiary letter provisions affecting the Fund`s credit facility. P.A.s, who authorize the letters, can adjust the “how and when” that will be forwarded to other sponsors. It is not surprising that some financial market supervisors and private equity and hedge fund groups and associations have developed general positions regarding the disclosure of incidental letters between sponsors. For example, the Task Force on The Modernization of Securities Legislation in Canada recommends that any regulatory regime for hedge funds requires “mandatory advertising of “ancillary letters” and other collateral agreements between the hedge fund and investors with specific pricing or liquidity agreements. 2 Essentially, the MFNs says, “We [the commander] agree with the terms of our letter, but if you give more favourable terms to any other commander in a separate secondary letter, we will also benefit from those conditions. It makes sense.