Fund Terms: Soft Lock-UpOperational due diligence is a multidisciplinary subject. An investor beginning the operational du...
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Hedge fund operational_due_diligence_corgentum_insights_soft_lock_up


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Originally posted in the May 2012 edition of Corgentum Consulting's Operational Due Diligence Insights.

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Hedge fund operational_due_diligence_corgentum_insights_soft_lock_up

  1. 1. Fund Terms: Soft Lock-UpOperational due diligence is a multidisciplinary subject. An investor beginning the operational duediligence process for the first time may encounter subjects with which they have little to nofamiliarity. As the scope of operational due diligence has become broadened in recent years, evenseasoned operational due diligence professionals may encounter terms which they may beunfamiliar. The purpose of this section of Operational Due Diligence Insights, is to cast a spotlight onsome of the words and terms, investors may have not previously encountered, or that tend to getoverlooked during an operational due diligence review.This issues word: Soft lockupDefined: A soft lockup refers to the ability of the fund to charge a penalty for investors redeemingcapital prior to the expiration of a pre-defined time period. Soft lockup penalties are not universaland may vary among fund managers. Additionally, some fund managers may offer soft lockuppenalties which vary on a sliding scale based on the amount of time an investor remains invested ina fund. So for example, consider a fund with a three year soft lockup. Under a sliding scale structurea penalty of 2% may be applied for investors which redeem capital anytime during the first 12-24months of investment. This penalty could decrease to 1% for redemptions anytime during the last 12months (i.e.- months 25 through 36) of the entire three year period. Investors should take measuresto understand soft lockup penalties and terms. Additionally, soft lockups may interact with otherfund terms such as gates, which investors should also consider during the operational due diligenceprocess.What investors should know: Soft lockups can be contrasted with hard lockups, which aresometimes just referred to as lockups. By comparison, under a hard lockup an investor cannotredeem capital prior to the the expiration of a pre-defined time periodOriginally posted in the February 2012 edition of Corgentum Consultings OperationalDue Diligence Insights.For More info@corgentum.comInformation | Blog | Twitter FeedTel. 201-360-2430About Corgentum Consulting:Corgentum Consulting is a specialist consulting firm which performs operational due diligencereviews of fund managers. The firm works with investors including fund of funds, pensions,endowments, banks ultra-high net-worth individuals, and family offices to conduct the industrysmost comprehensive operational due diligence reviews. Corgentums work covers all fundstrategies globally including hedge funds, private equity, real estate funds, and traditional funds.The firms sole focus on operational due diligence, veteran experience, innovative originalresearch and fundamental bottom up approach to due diligence allows Corgentum to ensurethat the firms clients avoid unnecessary operational risks. Corgentum is headquartered at 26Journal Square, Suite 1005 in Jersey City, New Jersey, 07306. Phone 201-360-2430. For moreinformation visit, or follow us on Twitter @Corgentum© 2011 Corgentum Consulting, LLC