Clifford Chance
A new solution for the MFN process
Fund sponsors manage and oversee the portfolios of their funds and negotiate with investors the terms of those funds.
One of the challenges they face is related to the most favoured nation (MFN) process. This process deals with the disclosure of so-called "preferential treatment" agreed with certain investors to the other investors and, subject to sometimes complex conditions, offering those preferential terms to other investors that are eligible to elect such treatment.
The Luxembourg Funds team developed MFN_ABLE - a new, faster solution that leaves less room for error and offers additional benefits both for the internal team as well as clients. Benefits include a better overview and insight into what investors have been granted as preferential treatment, which also facilitates compliance with those obligations.
CASE STUDY | LEGAL PROJECT MANAGEMENT | CONTINUOUS IMPROVEMENT | DELIVERY CENTRES
The challenge
Fund sponsors face challenges with the Most Favoured Nation (MFN) process, primarily due to the time and effort required to conclude the necessary disclosure and election process. The process often involves multiple rounds of discussion and revisions, sometimes stretching over several months. Further complications arise when there are numerous side letters agreed with investors, making it difficult to track the treatment granted to each investor. The process also involves a large number of documents, which can be time-consuming and increase the risk of errors. Despite these challenges, fund sponsors have to engage in the MFN process to ensure fair distribution of their funds. Clifford Chance is aiding these sponsors in understanding and managing the complexities of the MFN process.
The solution
The Clifford Chance team has created a solution to streamline the tracking of side letter provisions, including details of who they were agreed with and under what conditions. This system enables quicker production of relevant documentation, reducing turnaround time from months to weeks or even days.
Clients also have access to a platform to view the provisions granted, the investors involved, and the investors who have opted into certain provisions following the MFN process. The platform provides a searchable and filterable overview, making it easier to use than 'traditional' master side letters.
While the main focus is on preparing election and disclosure forms, the platform can also be used to prepare traditional master side letters and conformed side letters - i.e. side letters that include both the original and the elected provisions of the relevant investor, particularly relevant for funds running multiple MFN processes.
The overview can also serve as a reference for future fund raisings.
The result
MFN_ABLE significantly accelerates the MFN process timeline. It also makes the overall process easier for both fund sponsors and investors as the documentation produced provides all sides with the necessary information in a clear form.
Fund sponsors benefit from a clear and filterable overview of negotiated provisions. This facilitates on-going compliance with these terms. It also provides a clear reference point for future fund raisings as it is easy to appreciate and understand which terms have been previously agreed, and under what conditions.
The solution can be tailored to every type of fund, regardless of whether such fund is closed-ended or open-ended.
