Lock-Ups, Notice Periods and Redemption Frequency

A mutual fund typically lets you redeem shares any business day and get your cash within a couple of days. A hedge fund almost never works that way, and for a good reason: if the fund's strategy involves holding assets that take time to sell without moving the price — corporate credit, private loans, concentrated equity stakes — then letting investors demand same-day cash would force the manager into fire sales that hurt everyone left in the fund. Hedge funds instead use three separate controls to slow down and stage redemptions, and understanding each one separately matters because they get bundled together in casual conversation but do different jobs.

A lock-up is a minimum holding period after initial investment during which redemption isn't allowed at all — commonly one to three years for strategies in illiquid assets, sometimes with a declining early-redemption penalty ("soft lock-up") instead of an outright ban ("hard lock-up"). Notice period is separate: even after any lock-up has passed, an investor typically has to give the manager advance warning — 30, 60, or 90 days is typical — before a redemption date, giving the manager time to raise cash without disrupting the portfolio. Redemption frequency is the calendar itself: monthly, quarterly, or annual windows on which redemptions are actually processed, rather than redemptions being available continuously.

These three terms are set based on how liquid the fund's underlying assets actually are, and a mismatch between the two is exactly what causes redemption crises. A fund holding assets that take six months to sell in size but offering monthly redemptions with 30 days' notice is promising liquidity it may not be able to deliver under stress — which is when funds resort to gates (capping the percentage of assets that can be redeemed in one period) or side pockets to bridge the gap. Reading a fund's redemption terms alongside its actual portfolio liquidity, not just its stated strategy, is the practical check every allocator runs before committing capital.