What's the difference between a lock-up and a gate?
Advanced · Video 13 of 16 · 0:42 ·
A lock-up limits when each investor can leave: money stays in for a set time after investing, such as 12 months. A gate limits how much the whole fund pays out in one period, such as 25% of the fund per quarter; if requests exceed it, each investor usually receives the same share of their request and the rest waits. Notice is how far ahead investors must ask, often 30 or 60 days. Gates protect the investors who stay from a forced sale.
Everything here is for educational purposes only and is not legal, tax or investment advice, or an offer to buy or sell any security. Laws and thresholds change and depend on your facts, so talk to a qualified attorney before acting.
Key facts
- Lock-up: a minimum holding period per investment.
- Gate: a cap on total withdrawals per period, e.g. 25% per quarter.
- Over a gate, requests are usually filled pro rata and the remainder deferred.
- Notice periods of 30 or 60 days are common.
- All of these terms come from the fund's documents.
Transcript
Founder: A lock-up and a gate. Aren't those the same thing?
Operator: No. A lock-up is about when each investor can leave. A gate is about how much can leave at once.
Operator: Lock-up: your money stays in for a set time after you invest, like 12 months.
Operator: Gate: a cap on how much the whole fund pays out in one period. Say, 25% of the fund per quarter.
Founder: And if more than 25% asks to leave?
Operator: Usually everyone gets the same share of their request, and the rest waits for the next period.
Operator: Then there's notice: how far ahead you have to ask. 30 or 60 days is common.
Founder: Why would investors accept a gate?
Operator: It protects the ones who stay. No fire sale because everyone ran for the door at once.
Founder: So a lock-up and a gate...