Hedge Fund Unlocks Speed & Savings with Digital MFN Elections

Challenge

Hedge fund seeks digital solution for expensive, inefficient MFN process

This global hedge fund’s legal team needed a better solution to replace its MFN election process, which was expensive and time-consuming when conducted manually by outside counsel. This process dragged out each phase for days or even weeks and drove up organizational costs. Legal team members worried about hitting the organizational expense cap by the time they finished negotiating side letters, making the cost of cumbersome MFN elections an issue for the firm and its investors.

Additionally, the sheer volume of provisions in the PDF election forms caused confusion about which provisions investors could elect and how the provisions differed from one another, leading to more inefficiencies. According to Senior Counsel at the hedge fund, “The process was really manual, and the margin for error was very large. Things could easily slip through the cracks.”

As the firm prepared to run MFN elections for a new closed-end fund, the in-house legal team was eager to try a different approach with a more efficient, affordable solution.

Solution

Insight’s digital MFN elections tool slashes cost and time

The hedge fund had already successfully digitized other areas of its business, so it was open to a new MFN elections solution that could reduce cost, time, and effort. For the launch of a new closed-end fund, the firm chose Insight’s digital MFN feature, which enables fund managers to generate election forms quickly. As an Ontra customer who already used Insight, the firm’s legal team knew how easy it was to upload side letters into the AI-powered platform to digitize and categorize provisions into a searchable repository.

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 using commitment thresholds and investor characteristics to determine the display of general and limited electability provisions.

Digitizing the MFN process with Insight significantly reduced the expenses and delays associated with the typical MFN process. The firm’s Senior Counsel explained how Insight boosted efficiency: “Automating the process eliminated a lot of the tedious work. With a digital solution, we didn’t have to conduct as many rounds of reviews to ensure the election forms were correct. ”

Plus, the ability to filter provisions by category and investor made it easy for the hedge fund to quickly and effectively onboard new team members into the process, even mid-fundraise. New hires who had never seen the provisions before could still get up to speed quickly. Legal team members reported that MFN elections for sophisticated fundraises could take up to 12 to 14 months to complete. After leveraging Insight to automate the process, election form creation and reviews took no more than a few weeks for a fund with as many as 50 side letters.

The team was also impressed by Insight’s built-in redlining tool, designed to improve the investor experience. This tool allows LPs to quickly identify differences between electable provisions, reducing the likelihood of unintentional provision selection. Since this was the firm’s first time digitizing the MFN elections process, the legal team reviewed the forms to ensure accuracy. However, this review was significantly faster and more cost-effective than a manual process, and the team was more confident in how Insight structured and tagged the data.

Summing up the firm’s overall experience, its Senior Counsel said: “Insight distilled an onerous and expensive process into something straightforward and easy to tackle every step of the way.”