When investing in private funds, institutional investors will often require fund managers to agree to take or refrain from taking certain actions that the investor may find desirable or undesirable. These arrangements are typically memorialized in side letters and framed as covenants by the fund that are subject to an undertaking standard, such as “best efforts,” “commercially reasonable efforts,” or “reasonable efforts.”
This latest issue of Morrison Foerster’s Sovereign Investor Insights series explores the meaning of the primary undertaking standards under Delaware law, which is frequently the governing law for these side letters. The article also outlines a few pragmatic solutions that an investor should consider if a high degree of clarity or a deviation from the default interpretation of these provisions is necessary.
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