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Glossary · Fund economics

What is an MFN clause?

A most favored nation clause lets an investor choose terms the manager has given other investors in side letters, usually those given to investors with similar or smaller commitments.

In practice

The MFN right usually sits in a side letter, and the manager typically delivers a disclosure of other side letters after the final close, giving a short window to elect. Carve-outs are common: LPAC seats, regulatory or tax-driven terms, and rights tied to an investor’s legal status are often excluded. It is often confused with fee discounts tied to commitment size.

An example

Round numbers, not a real fund

Say a manager gives a $100 million investor a fee discount. A $50 million investor with an MFN clause can usually elect that discount too, if the terms are open to it.

Why it matters

It is how investors make sure a bigger or earlier investor cannot quietly get a better deal than they do.

A definition, not advice; where usage varies the entry says so. Something wrong? Tell the desk.