Severina Käppeli, Investment Funds Counsel and Arjan Krans, Senior Best Delivery Advisor at Clifford Chance Crédit photo : Clifford Chance

Severina Käppeli, Investment Funds Counsel and Arjan Krans, Senior Best Delivery Advisor at Clifford Chance Crédit photo : Clifford Chance

"Private funds", typically invested in by sophisticated investors, have their investment terms often negotiated through detailed and highly tailored side letters. These side letters contain specific terms in addition to those set out in the key fund documents. Over time, the number and complexity of these side letters have increased, presenting unique challenges for fund sponsors and their lawyers.

For instance, fund sponsors are required to disclose preferential treatment to other investors, and also grant them the option to elect such preferential treatment, all of this under specific criteria set for a given fund. This process is known as the Most Favoured Nation ("MFN") process.

Fund sponsors, managing and overseeing their fund portfolios, often encounter complexities with the Most Favoured Nation (MFN) process after having negotiated fund terms with their investors. This is due to the extensive time and effort required to conclude the necessary disclosure and election process. However, with a strategic approach and the right tools, these challenges can be effectively addressed.

Streamlining the Process and maximising value

Where, historically, the process was initiated by sending multiple packs of redacted documents to investors, the Clifford Chance team has developed a solution to streamline the tracking of side letter provisions, including details of who they were agreed with and under what conditions. This system enables quicker production of relevant documentation, reducing turnaround time from months to weeks or even days.

Clients also have access to a platform to view the provisions granted, the investors involved, and the investors who have opted into certain provisions following the MFN process. The platform provides a searchable and filterable overview, making it easier to use than 'traditional' master side letters, and thus significantly enhancing ongoing compliance.

Despite the complexity of the process, fund sponsors can derive significant benefits from it. "Where, previously, fund sponsors may have felt that that the MFN process is mostly a hassle and with limited benefit for themselves, our approach is not only reducing that hassle but also providing real value-add." notes Severina Käppeli, Investment Funds Counsel at Clifford Chance.

A Customizable Tool for Diverse Scenarios

The Innovation and Best Delivery team at Clifford Chance worked closely with lawyers to understand the challenges faced by clients during the MFN process. "We were able to develop a user-friendly, searchable, customizable online tool that provides our clients with timely, accurate information,” says Arjan Krans, Senior Best Delivery Advisor at Clifford Chance. MFN_ABLE can also be used by investor relations teams for future rounds of negotiation, ensuring that legacy data of previous fund raisings is readily available.

The positive feedback from clients and the growing recognition of the solution's benefits in the legal market have encouraged the team to explore options to configure the solution for other negotiation scenarios, such as negotiations in the context of finance, M&A and Real Estate transactions, bringing value add to clients and efficiencies to the deal process. "We have only just begun", Mr Krans noted.

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