Most Favored Nations elections are one of the most operationally burdensome workflows private fund managers face after a fund’s final close. As side letters grow longer and more complex, the MFN process that follows — creating forms, distributing them to investors, reviewing elections, and updating the fund compendium — has become slower, more expensive, and harder to get right.
For many firms, the MFN process still runs on manual workflows led by outside counsel, with limited visibility and costs that frequently exceed expense caps. But it doesn’t have to work that way.
This article explores why the election process is so painful and how a digital approach can reduce costs, accelerate timelines, and reduce the risk of election errors.
The current state of MFN clauses in private equity
An MFN clause is a side letter provision that gives an LP the right to elect certain favorable terms that the GP has granted to other investors of similar or smaller commitment size. It’s a transparency mechanism: it ensures that no LP is quietly given a better deal than comparably sized investors without others having the opportunity to elect the same terms.
The MFN process typically unfolds after a fund’s final close. The GP or its outside counsel prepares a summary of the side letter terms and distributes it to LPs with MFN rights. Each eligible LP has a defined window — usually 30 to 60 days — to review the terms and elect any provisions they want to adopt. Elected terms are then incorporated into that LP’s side letter.
There are important boundaries, as well. MFN comparisons are usually tiered by commitment size, so a smaller LP can’t elect a fee discount negotiated by a much larger investor.
Additionally, most MFN clauses include carve-outs that exclude certain categories of provisions from election:
- Legal, tax, and regulatory provisions tied to an investor’s specific circumstances (e.g., reporting obligations to a local regulator)
- LPAC or advisory committee appointments
- Fee concessions linked to first-close or anchor investor status
- Co-investment rights granted to strategic investors
These carve-outs define the scope of what’s actually electable — and where disputes or confusion often arise during the election process.
Why MFN elections are costly and slow
Private investment firms typically rely on outside counsel to run MFN elections, and most law firms lack a software solution to support the process. Instead, they rely on manual, repetitive tasks and decentralized sources of information, which limits the GP’s visibility and stretches timelines.
Most fund managers want MFN elections completed within 90 days of final close, but inefficient processes can push that timeline to 9–12 months. While waiting for counsel to complete the process, GPs can lose access to obligation details and investor commitments, blocking their view of what they’ve agreed to until the final compendium is delivered, long after elections have been made.
Here’s where MFN elections break down:
Deciphering electable side letter provisions
An increasing number of investors now demand longer and more complex side letters. When reviewing provisions, counsel must identify which investors are entitled to an MFN election and which provisions are electable to each investor based on carve-outs and capital requirements. This review is tedious and error-prone across dozens of side letters.
Creating MFN forms
Form creation is one of the most time-consuming steps. Counsel may choose a “universal” form with instructions to help investors identify their electable options — but complicated instructions on paper or PDF forms confuse investors and increase the risk of them selecting provisions that don’t apply to them. Alternatively, counsel can create investor-specific or investor-type forms, which reduces confusion but requires significantly more time.
A few years ago, a multi-billion-dollar, global hedge fund came to Ontra with a problem. It recognized its MFN process was too slow and too expensive. Legal team members reported that MFN elections could take up to 12 to 14 months to complete.
To handle the MFN process for its new closed-end fund, in-house counsel chose Ontra’s dMFN solution. Within a week of signing up for digital MFN elections, the firm converted side letters to digital agreements and contract obligations. It then took only one more week to create election forms.
Reviewing investor elections
Investors routinely make erroneous selections due to confusing form layouts. In some cases, LPs select all the elections, forcing the GP’s counsel to tell them which is best or which they’re actually eligible for. GPs and their counsel then spend weeks communicating with LPs to correct and confirm choices, adding further delays.
Updating the compendium
After accepting the LP elections, counsel updates the GP’s side letters and compendium. For firms relying on spreadsheets and Word documents, this can take months. Every investor’s provisions and the GP’s obligations must be updated correctly — accuracy here is essential to ongoing contractual and regulatory compliance.
Transparency still matters in the post-PFAR landscape
The SEC’s Private Fund Adviser Rules (PFAR) were vacated, but the transparency standards they sought to codify haven’t gone away. If anything, they’ve accelerated as LP-driven market expectations.
Institutional investors now routinely expect detailed MFN disclosures, shorter election windows, and more structured processes. At the same time, LP leverage in a compressed fundraising environment has led to longer, more complex side letters with more bespoke terms, increasing MFN election complexity and cost.
Firms that relied on manual processes before PFAR still face the same operational pressures. The regulatory moment may have passed, but the market expectations it spotlighted are now permanent.
How digital MFN elections solve these problems
Insight for Funds’ digital MFN (dMFN) workflow streamlines the entire MFN process from form creation and distribution to ongoing obligation compliance, while reducing election errors and costs.
With dMFN, private fund managers and their counsel can:
- Generate MFN election forms based on a fund’s digitized side letters in minutes, using commitment thresholds and investor characteristics to determine electable provisions.
- Distribute forms via a secure digital portal or export PDFs to send via email or another investor portal.
- Track investors’ completion status in real time.
- Review and approve investors’ elections in a single platform.
- Automatically update the fund’s digital compendium and living obligation data once elections are approved, creating a single source of truth for all investor obligations.
- Eliminate repetitive manual work such as redacting sensitive information, aggregating commitment amounts, formatting documents, and updating compendia.
The seamless automatic update of MFN elections into obligation data is a key differentiator. Instead of counsel spending weeks manually updating spreadsheets and documents, Insight for Funds reflects approved elections as obligations immediately. Your obligation data stays current without manual intervention, and automatically generates an MFN Compendium Word file of in-progress or completed elections for external counsel to leverage as needed.
For investors, the experience improves too. MFN forms delivered via Insight for Funds include a navigable table of contents and SmartLine redlining, which lets LPs compare electable provisions side by side. This reduces confusion, prevents erroneous elections, and minimizes the back-and-forth between counsel and investors.
Park Square Capital, a leading European credit investment firm, adopted Insight for Funds and saw measurable results: a 50% reduction in MFN completion time and cost, with the process completed in under five weeks. During a recent fundraise, 75% of their LPs completed elections digitally.
See digital MFN elections in action
MFN elections don’t have to take months and exceed expense caps. With Insight for Funds, GPs and their counsel can run faster, more accurate MFN elections in a single platform — from form creation to compendium updates.
