SEC seen eyeing hedge fund 'side letters'; More than half of managers are thought to cut deals.(News)

Investment News, August, 2006

Byline: Jeff Benjamin DETROIT - The $1.2 trillion hedge fund industry's use of so-called side letter agreements has attracted the attention of the Securities and Exchange Commission. Observers estimate that at least half the more than 8,000 hedge fund managers make separate and sometimes secret deals with certain investors, known as side letter agreements, which outline fees and services.

These side letter agreements aren't part of a fund's general offering memorandum and can run the gamut from providing increased liquidity to lower management fees to greater portfolio transparency or access to the fund's prime brokers, lawyers and accountants said. "I would say you see the use of side letters more often than not,'' said Thomas Westle,...

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