Hedge Funds

Side deals are here to stay but facing greater scrutiny

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SEC says it's not hostile; but managers face obstacles

Once the epitome of hedge fund exclusivity and secretiveness, so-called side letters were in the past largely private matters between fund managers and their most valued clients. The agreements would promise tailored investments that include everything from lower fees to more frequent chances to redeem capital.

But earlier this year, the U.S. Securities and Exchange Commission revamped its examination procedures for hedge funds and its examiners began collecting the letters as part of their routine audits of registered hedge fund firms. Since most managers will be