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B. G., Opalesque Geneva: As the COVID-19 pandemic continued to spread uncertainty and volatility in the financial markets over the last year, participants in the hedge fund industry took refuge in familiar deal terms and experienced managers, but also hedged their bets and allocated to newer managers, according to a yearly study that examines the industry's use of side letters.
The study by law firm Seward & Kissel LLP revealed strong side letter activity in the midst of the pandemic. Indeed, investors continued to allocate funds to mature managers, whose average regulatory AuM in the study increased from $5.1bn last year to $6.3bn this year, while still engaging with newer managers (those with less than two years of experience). It appears investors have become comfortable with the "new" fundraising environment and leveraged virtual manager and diligence meetings.
The study also indicates that in a return to past form, funds of funds once again became the most common type of side letter investor, reversing a downward trend of recent years. Additionally, the consistently popular fee discount clauses continued to be a common term used in side letters, tied this year with most-favored-nation clauses.
For the first time, the study examined capacity rights, finding that they appeared in 17% of side letters.
Other notable findings include:
• Accounting for 54% of all side letters, funds of funds reached their highest level since 2017/2...................... To view our full article Click here
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