Investment managers, funds and investors – particularly high value investors – often wish to enter into arrangements (side letters) relating to a specific investment conferring rights more beneficial than the raft of rights given to all investors, as an inducement to invest.  However, several cases in the Cayman Islands Grand Court in recent years, as well as a decision of the Cayman Islands Court of Appeal in April 2015, have raised questions as to the enforceability and legality of these side letters.  In a guest article, Christopher Russell and Jeremy Snead of Appleby (Cayman) examine the practical considerations for funds, managers and investors in crafting side letters, including the three fundamental questions that must be considered when entering into a side letter, in light of the Cayman Islands case law.  For additional insight from Russell and Snead, see “How Can Investors in Cayman Hedge Funds Maximize Protection of Their Investments When the Fund Is Near or At the End of Its Life? (Part One of Two),” Hedge Fund Law Report, Vol. 6, No. 46 (Dec. 5, 2013); and Part Two of Two, Vol. 6, No. 47 (Dec. 12, 2013); “Pitfalls and Solutions in Trading Shares in Corporate Hedge Funds in Liquidation in the Cayman Islands,” Hedge Fund Law Report, Vol. 5, No. 41 (Oct. 25, 2012); and “Fund Misrepresentations Inducing Investment: Claims and Remedies Available to Fund Investors and Protections Available to Promoters, Fund Managers and Directors,” Hedge Fund Law Report, Vol. 5, No. 35 (Sep. 13, 2012).