Hedge fund side letters: guidance for UK managers

Purpose – This paper seeks to discuss the Guidance Note on disclosure of hedge fund side letters issued by the UK's Alternative Investment Management Association (AIMA) in September 2006. Design/methodology/approach – Explains the meaning of “material” and “non‐material” and recommends immediate actions and ongoing disclosure policies for funds and fund managers. Findings – Generally, it is more appropriate for disclosure to come from the fund than the fund manager. The manager has a degree of discretion as to what constitutes a “material” term. The new FSA approach does not prohibit the use of side letters. Originality/value – An interpretation of the Guidance that will help fund managers fine‐tune their policies on use of side letters and disclosure of terms in those letters.