What is a lock-up in a hedge fund?

A hard lock-up bars withdrawals outright, while a soft lock-up allows them for a fee. After the lock-up, redemptions usually follow a set schedule with a notice period, and many funds can limit how much leaves at once, known as a gate. The terms sit in the fund’s offering documents.

Say an investor puts money in a hedge fund with a one-year lock-up. For that year there are no withdrawals. After it ends, the fund’s terms set when the investor is paid.

It tells investors how liquid their money really is, and gives the manager time to hold positions.