Lock-Up

A lock-up is simply a contractual blackout on withdrawals. Hedge funds historically imposed initial lock-ups lasting one to two years after an investor's entry date, after which periodic redemptions became available subject to notice periods and potentially gates. Private partnerships often have longer effective lock-ups tied to the fund's overall life rather than individual investor timelines.

Lock-ups exist so that managers can implement strategies—short selling, illiquid credit, arbitrage positions—without being forced to unwind them to meet unexpected redemptions. For families at the scale discussed on this site, lock-ups are a routine feature of alternative investment allocations, and modeling their cumulative impact across a diversified private portfolio is an important planning exercise.

A practical confusion arises around "soft" versus "hard" lock-ups. A hard lock-up permits no redemptions whatsoever during the period. A soft lock-up allows early redemption but charges a penalty fee—sometimes called an early redemption fee—that is paid either to the fund or to remaining investors as compensation. Another misunderstanding: the lock-up clock often resets when an investor makes an additional subscription, which can trap capital longer than anticipated. Investors should map out each fund's specific terms as part of their broader liquidity allocation review, with guidance from qualified legal and financial professionals.