Gates Provide Safety Valves for Hedge Funds and Investors

  • A gate is a provision in a fund’s governing documents authorizing the adviser to suspend redemptions when redemption requests as of a certain date exceed a stated threshold of the fund’s net assets (usually from 15 to 25%).
  • By putting a damper on withdrawals, gates protect the interests of both fund managers and non-redeeming investors.
  • Consensus among investment professionals appears to be that gates are more palatable to investors than longer lockup periods.
  • Even with a gate, a fund manager needs to be a good communicator in order to have the best chance of convincing investors to hang in there during tough times.

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