Private Funds’ Secretive ‘Side Letter’ Deals Are Targeted by SEC

An SEC proposal on investment funds’ “side” deals, on track to be enacted early next year, has some institutional investors worried that they’ll lose a favorite negotiating tool.

The Securities and Exchange Commission’s proposal would prohibit private investment funds from giving “side letters” to chosen investors for preferential terms on cashing out or getting information about portfolio holdings or exposures. The proposal would also ban funds from providing other preferential treatment to an investor unless it was disclosed to other investors.

It’s part of the agency’s broader push, under Biden-nominated SEC Chair Gary Gensler, to heighten oversight and transparency on ...