Side Letters and Side Pockets: Back Office Time Bombs?
Are so-called "side pockets" and "side letters" potential back-office time bombs? And if so, can technology help to defuse them?
A side letter is a special arrangement between a fund and an investor, granting preferential terms. For example, an investor may negotiate a reduced fee arrangement or may increase liquidity by eliminating a lock-up period. A side pocket is a portion of a hedge fund with a different liquidity provision--a kind of fund within a fund with its own redemption and contribution rules, amounting essentially to a different class of shares--and is a way for the funds to put money into less liquid investments, such as private companies and real estate, which are more difficult to value than assets that trade frequently (Securities Industry News, May 8).
|
||||||||||||||||||
