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December 15, 2005
Hedge Funds Push for Longer Lock-ins
An emerging trend in the hedge fund industry is the requirements of increased lock-in period. Nowadays, hedge fund investors are required, in some cases, to lock-in their money for longer duration of up to five years. This new strategy is perhaps to match the longer duration of investments in areas such as private equity. Traditionally, hedge funds have been known to impose much shorter lock-in period than this. The usual tie-up period was anywhere between three months to one year.
Hedge fund detractors opine that such a move towards a longer lock in period would turn people away from hedge funds. However, the counter argument to this is if investors want that sort of liquidity they can choose to purchase shares of hedge fund firms listed on the stock exchange. Even the investment pattern of many hedge funds has changed, with funds increasingly investing in less liquid investments such as credit and emerging markets, to boost returns, which are in-part softened by low volatility on traditional stock and bond markets in Europe and the United States.
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