# Most-Favored-Nation (MFN)

A **Most-Favored-Nation (MFN)** clause in an LP's [side letter](/side-letters-and-mfn/side-letter.md) gives that LP the right to review and elect into any more favorable provisions subsequently granted to other LPs in the same fund. MFN rights ensure that LPs who committed early do not get disadvantaged if later LPs negotiate better terms.

## How MFN Rights Work

When a new LP joins the fund (at a [subsequent close](/fund-mechanics/subsequent-close.md)) with a side letter containing favorable provisions:

1. **GP reviews** the new side letter against all existing LPs' MFN clauses.
2. **Eligible LPs are identified** — typically those with equal or lesser commitment than the new LP (they can elect into terms granted to larger investors, not smaller ones).
3. **Notification is sent** — GP notifies each eligible LP of the new terms and their election window (typically 30–60 days per the LPA).
4. **LP elects or declines** — the LP reviews the new terms and notifies the GP whether they wish to elect into any or all of them.
5. **Side letter is updated** — elected terms are added to the electing LP's side letter via an amendment.

## Tiered MFN Rights

MFN rights are typically tiered by commitment size:

| LP commitment   | Can elect into terms granted to                          |
| --------------- | -------------------------------------------------------- |
| €10M LP         | LPs committing ≥ €10M                                    |
| €50M LP         | LPs committing ≥ €50M                                    |
| €100M (largest) | No other LP has larger commitment — MFN rarely triggered |

A small LP cannot elect into terms specifically negotiated for a €100M anchor investor. The tiers are defined in each LP's side letter.

## What Is and Is Not Electible

Not all side-letter provisions are MFN-electible. Typically **not** electible:

* ERISA, VCOC, or other regulatory provisions specific to the LP's legal status.
* Provisions that are specific to the LP's investment mandate or jurisdiction.
* Provisions that would be meaningless or harmful to a different LP type (e.g., a US-specific tax provision for a European LP).

**Typically electible:**

* Fee discounts and waivers.
* Reporting enhancements.
* Co-investment rights.
* Key person provisions.

The LPA and each LP's side letter specify what is and is not subject to MFN.

## MFN and Fund Governance

MFN rights create a complex web of GP obligations across the fund's life. Every new side letter potentially triggers cascade notifications to dozens of existing LPs. This is one of the most operationally intensive aspects of fund administration. See [MFN Cascade](/side-letters-and-mfn/mfn-cascade.md) for how Gildi manages this process.

## How Gildi Stores MFN Terms

Each LP's MFN rights are stored on their commitment record:

* MFN tier (commitment threshold for triggering notifications)
* Electible provision categories
* Election window (days from notification to deadline)
* History of elections made and declined


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