Most Favored Nation Clause (MFN)

MFN clauses appear in side letters and occasionally in the LPA itself. Their purpose is to level the playing field: an investor with MFN protection can review a summary of material terms granted to others and choose to adopt any of those terms for their own investment. In practice, managers typically provide a redacted schedule of side letter terms, and the MFN investor selects only the provisions they want — they cannot cherry-pick one term from each side letter simultaneously if the manager structures MFN with restrictions.

For families investing in private funds, an MFN right is often seen as a protective mechanism rather than a negotiating starting point. A hypothetical family office that committed early to a venture fund might later discover that a larger sovereign investor received preferential co-investment rights; an MFN clause would give the family the option to elect those same rights.

Important distinctions apply. MFN provisions are frequently tiered by commitment size, meaning a family committing an illustrative $10 million may only be eligible for terms granted to investors in the same size bracket, not those given to a $200 million anchor investor. A qualified attorney should parse the specific MFN language, as "most favored" carries very different practical weight depending on how it is drafted.