A prospective investor to a private investment fund will likely be asked to sign a confidentiality agreement by a manager early in the investment cycle. These contracts are typically presented as “off-the-shelf” forms by managers. A confidentiality agreement can be one-sided when first presented and commit a prospective investor to ongoing obligations even if they do not invest in a fund. Based on my experience, here are ten one-sided conditions related to confidentiality agreements that investors should be aware of:
1. Definition of confidential information is overly broad
2. Agreements are open-ended with no termination date
3. Contract terms conflict with confidentiality provisions in fund documents
4. Limitations on investor’s ability to share information with advisers
5. Exceptions to confidential information are too limited
6. Manager exculpation clauses on information provided don’t account for anti-fraud concerns
7. Contract terms interfere with investor’s ability to respond to legal matters unencumbered
8. Onerous choice of law provisions
9. Investor unfairly responsible for ongoing expenses
10. Agreements lack basic contractual clauses (e.g., amendments, entire agreement)