When Redemption Limitations Make Sense

Hedge funds have redemption limitation which limits when you can withdraw your holdings in the fund. Some of these take the form of long term commitment requirements while others are a simply minimum notice period, i.e. kind of like the standard "two weeks notice" before quiting a job.

The limitation require the fund managers to focus on investing, not asset management and invest in illiquid assets. The important thing to remember when evaluating a fund is the redemption limitation should be reasonalbe in realation to the expected holding period and the underlying assets.

Hang on for a second and I'll explain. If the fund expects to invest in illiquid investments, such as private equity etc, then you would expect a lockup period similar to a private equity fund which is years, but if the underlying investments are being make in simple index funds, then the period should be daily or ever couple days. The middle case is the fund invests in very liquid assets however their hedges are such that unwinding their hedges to liquidate investors in a short period of time would cause undue losses to remaining investors in the fund. In this case, the fund might have a more stringent redemption limitation to protect the remaining investors in the fund.

In the end, as I said before the redemption limitation should be resonable given the investment assets of the fund and the corresponding hedges.