Lockup
A lockup is a period during which an investor cannot redeem or withdraw capital from an investment vehicle.
Allocator relevance: A binding liquidity constraint—lockups must match liquidity preference and liquidity budget reality.
Expanded Definition
Lockups are common in private funds and some semi-liquid vehicles. They exist because underlying assets are not immediately sellable without discounting or disrupting the strategy. Lockups can be hard (no redemptions) or paired with gates and notice periods that further restrict liquidity.
Allocators evaluate lockups as part of liquidity mismatch risk: how long capital is truly inaccessible and how that aligns with obligations.
How It Works in Practice
Lockup terms are defined in fund documents. Investors commit capital with the understanding that liquidity will come primarily through distributions or scheduled redemption windows (if any) after lockups expire.
Decision Authority and Governance
Governance requires that lockup exposure is tracked, stress-tested, and limited. In institutions, IPS constraints often define maximum lockup exposure.
Common Misconceptions
- A lockup is the only liquidity constraint (gates/queues also matter).
- Lockups are irrelevant if expected returns are high.
- Lockups are comparable across vehicles without reading the terms.
Key Takeaways
- Lockups define real liquidity boundaries.
- Always evaluate lockup + gates + redemption mechanics together.
- Fit depends on cash obligations, not just time horizon.