When can investors take money out of a hedge fund?
Beginners · Video 4 of 12 · 0:40 ·
It depends on the fund's terms. A hard lock-up keeps each deposit in for a set time, such as 12 months, and each new deposit starts its own lock-up; the manager can waive it in writing, for example for a hardship. Some funds instead let investors leave without full notice for an early withdrawal fee, which stays in the fund for the investors who remain. The point is to stop one investor's exit from forcing the fund to sell at a bad time.
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
- A hard lock-up holds each deposit for a set time, such as 12 months.
- Each new deposit starts its own lock-up.
- A lock-up can be waived in writing, for example for a hardship.
- An early withdrawal fee for leaving without full notice is kept by the fund, not the manager.
- Exit terms protect remaining investors from forced selling.
Transcript
Founder: I invested in January. Can I get my money out in March?
Operator: Depends on the lock-up. Think of every deposit as having its own timer.
Operator: A hard lock-up: each deposit stays in for a set time, like 12 months. No fee buys an early exit.
Founder: Each deposit?
Operator: Each one. Add more in June, and that money starts its own 12 months.
Operator: The manager can waive it in writing, say for a hardship.
Operator: Or a softer option: leave without giving the full notice, and pay an early withdrawal fee.
Founder: And the manager pockets that fee.
Operator: Nope. It stays in the fund, for the investors who stay.
Founder: Why lock money up at all?
Operator: So one investor rushing out doesn't force the fund to sell everything at a bad time.
Founder: So, January to March...