Gates
Gates are limits on how much capital investors can redeem from a fund within a given period.
Allocator relevance: A key liquidity constraint that impacts redemption planning and can become binding precisely during stress periods.
Expanded Definition
Gates are common in vehicles offering periodic liquidity (e.g., semi-liquid funds) and are designed to protect the fund and remaining investors from forced selling. They can be fund-level or investor-level and may apply per quarter, per month, or per redemption window.
Allocators treat gates as a real risk: when markets are stressed and liquidity is most needed, gates are most likely to be triggered.
How It Works in Practice
If redemption requests exceed a threshold, the fund prorates redemptions and carries unmet requests into a redemption queue. Terms define whether gates apply to NAV, what notice periods exist, and how queues are processed.
Decision Authority and Governance
Governance requires that liquidity budgets and risk limits incorporate gated scenarios. Allocators also evaluate whether gate terms align with underlying asset liquidity and whether the manager has a track record of handling redemption pressure fairly.
Common Misconceptions
- A redemption feature guarantees liquidity.
- Gates are rare and irrelevant in planning.
- Gates only affect “weak” funds.
Key Takeaways
- Gates are a structural liquidity limitation.
- Plan for gates as part of downside liquidity management.
- Evaluate gates against asset liquidity reality.