Glossary · Operations and rules

What is a side pocket?

A side pocket separates hard-to-value or illiquid assets from the rest of a fund, typically a hedge fund, so redemptions do not force a sale of them.

In practice

Side pockets are set up under the fund’s offering documents, usually when an asset loses liquidity or a private holding is hard to price. Each investor’s share is fixed at the time of the transfer, so later subscribers do not participate. Fees on the pocket are often charged only on realization. A side pocket differs from a gate, which limits redemptions across the whole fund.

An example

Round numbers, not a real fund

Say a hedge fund holds $20 million of assets it cannot sell. It moves them into a side pocket. Investors who redeem get cash for the rest and keep their share of the pocket.

Why it matters

It protects investors who stay from being left with the illiquid assets, and it traps those who wanted to leave.

A definition, not advice; where usage varies the entry says so. Something wrong? Tell the desk.

Related terms

NAVNet asset value, or NAV, is a fund’s assets minus its liabilities. In private funds it is usually reported quarterly and rests on the manager’s valuations.
Fair valueFair value is what an asset would fetch in an orderly sale between willing buyers and sellers on the measurement day. Accounting standards require funds to report it.
EqualizationIn a private fund, equalization is the true-up for investors joining at a later close: they pay as if they had joined at the first, plus interest.
Fund administratorA fund administrator is an independent firm that keeps a fund’s books, calculates its net asset value, processes capital calls and distributions, and handles investor reporting.
Evergreen fundAn evergreen fund has no fixed end date and lets investors join and redeem on a regular schedule, often quarterly, instead of locking money up for a decade.

The terms, in the news each morning.

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