Redemption
Redemption is the process and timing by which investors can withdraw capital from a fund, subject to contractual terms.
Definition
Redemption terms define when and how an investor can withdraw capital, including notice periods, redemption frequency, settlement timelines, and any restrictions such as gates or suspension rights. Redemption design is central to fund liquidity management and investor expectations. Allocator Context Allocators evaluate redemption terms against their own liquidity needs and the liquidity of the fund’s underlying assets. Strategies invested in less liquid instruments typically impose stricter redemption terms to prevent forced selling and protect remaining investors. Decision Authority Accepting restrictive redemption terms may require governance approval because it affects liquidity budgets and cash planning. In some institutions, funds with certain redemption restrictions must meet additional diligence or approval requirements. Why It Matters for Fundraising Redemption clarity reduces friction. Managers who transparently explain redemption mechanics, liquidity management, and scenarios where restrictions may apply are easier to approve and retain. Key Takeaways Redemption terms shape real liquidity Restrictions must match underlying assets Governance review increases with restriction severity Transparency builds trust and reduces churn risk