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June 30, 2026
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It can be done. It’s called a side letter. It is highly recommended that side letters are disclosed to all LPs, but I don’t believe there is a legal requirement.
Whats the overall feeling on this?
I understand no one likes to pay fees but I also feel that the ethical method would be everyone paying the same fees regardless of investment level.
Not sure if legally each has to know what the other is getting. However, there is almost always an "operating agreement" for the LLC...herein it will detail each partner, and the distributions they receive..
But as mentioned before, yes it can be done. I've seen a few deals do this -- whether it's friends and family money, or just two separate equity partners with different investment requirements.
Not sure how common it is in the industry, but common at my firm through side letters during the subscription process. We're not required to disclose details to other investors.
Examples would be better promotes for larger lead investors or reduced fees, etc.
Nothing unethical about it to me but only if the increased promote comes out of the GP promote after other LPs hit their hurdles, otherwise you'd kind of be robbing Peter to pay Paul in my mind. If you have 3-5 investors willing to put in 70% of the capital, why shouldn't they be compensated? From fund management perspective, it's much more enjoyable to deal with 20 investors than 200 investors. It's just up to how desperate GPs are for the funds. The other smaller investors were willing to accept risk with lower hurdles, and maybe in their portfolio they reduced risk by only putting up $1M for a 10% IRR, while the LP who put in $25M needs a 15% IRR to say yes to your fund.
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