Lockup
A lockup is the period during which investors cannot redeem or withdraw capital from a fund.
Definition
A lockup is a contractual restriction that prevents investors from redeeming capital for a defined period after subscription. Lockups are common in hedge funds, private credit vehicles, and other strategies where liquidity management is essential to executing the investment approach. Allocator Context Allocators accept lockups when the underlying strategy requires time to deploy capital, manage positions, or avoid forced selling. Lockup terms are evaluated alongside the manager’s liquidity profile, underlying asset liquidity, and the allocator’s own liquidity budget. Decision Authority Lockup acceptance is often governed by mandate and policy. Long lockups, gates, or redemption restrictions can trigger escalation because they affect portfolio liquidity and cash planning. Institutions typically evaluate lockups within their overall illiquidity limits. Why It Matters for Fundraising Lockups frequently determine feasibility. Managers must articulate why the lockup is necessary, how it matches underlying assets, and how redemptions are managed. Vague lockup explanations increase risk perception and slow approvals. Key Takeaways Lockups restrict redemption rights Must match underlying asset liquidity Evaluated through liquidity budgets Clear rationale improves allocator comfort