MFN (most favoured nation) clause
Also called Most favoured nation, MFN rights, MFN election.
An MFN, most favoured nation, clause is a side letter provision that gives a limited partner the right to see the terms granted to other limited partners in their side letters and to elect any that are more favourable, usually limited to LPs with an equal or smaller commitment and excluding terms that exist because of another LP's legal, tax or regulatory status.
Example
In a $50M fund, LP A commits $10M and negotiates a tiered MFN. LP B commits $5M and gets a 15% management fee discount. LP C commits $15M and gets 25%. After final close the GP circulates the side letter terms. A can elect B's 15% discount, because B's commitment is no larger than A's, but not C's 25%, because C committed more. A's fee at 2% is $200,000 a year, so the election saves A $30,000 a year, and the GP is now giving the discount to two LPs instead of one. C's regulatory reporting term, granted because C is a public pension, is carved out and nobody can elect it.
Confused with
Side letter. The side letter is the agreement. MFN is one term inside it, and the one that makes every other side letter term spread.
Equal treatment under the LPA. The LPA already treats all LPs alike. MFN is about the exceptions negotiated outside it.
In practice
The election usually runs after final close: the GP sends a compendium of side letter terms, LPs elect within a window set in their letters, and the elections go into the side letter register. From then on every fee calculation, notice and report has to honour them, and the register is what the auditor tests fee allocations against.