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LP RelationsReviewed 2026-07-21

Lock-Up Period

The minimum period an investor's capital must remain in a fund before it becomes eligible for redemption, sometimes with an early-redemption fee instead.

Definition

A lock-up period is the minimum length of time an investor's capital must stay invested in a fund before it becomes eligible for redemption at all. It is set out in the fund's LPA or subscription agreement and runs from each investor's own subscription date, so investors who joined at different times come off lock-up on different schedules.

Funds use two variants. A hard lock-up simply makes redemption unavailable for the stated period — there is no way to exit early regardless of the price an investor is willing to pay. A soft lock-up allows early redemption but charges a fee, commonly a percentage of the redeemed amount that declines the longer the investor has held the position, until it reaches zero at the end of the stated period.

A lock-up period is a separate mechanic from a redemption gate: the lock-up governs whether a given investor can redeem at all based on how long they've held their position; the gate governs how much of the whole fund can be redeemed on a single dealing date once redemptions are otherwise permitted.

Why it matters

A lock-up aligns the investor's capital with the actual liquidity profile of the strategy. A fund that holds positions with real underlying illiquidity — staked assets subject to an unbonding period, early-stage token allocations, or a multi-year thesis — cannot responsibly promise same-quarter liquidity to every investor without risking a forced, value-destroying sale to fund an early redemption.

It also protects remaining investors from short-term capital flight: without a lock-up, a strategy could see its capital base swing sharply after any rough month, forcing the manager to manage for redemptions rather than for the strategy itself.

Hard versus soft lock-up mechanics

A hard lock-up simply blocks any redemption request submitted before the lock-up end date; the investor's first eligible dealing date is the first one that falls on or after that date.

A soft lock-up instead applies a declining early-redemption fee schedule — commonly stepping down in bands (for example, a higher percentage in the earliest months, falling in stages to zero once the full lock-up period has elapsed) — deducted from the redemption proceeds rather than blocking the request outright.

A soft lock-up early-redemption fee

A fund imposes a 12-month soft lock-up with a declining fee: 3% if redeemed in months 13–18, 1% in months 19–24, and 0% after 24 months. An LP invests $1,000,000 at month 0 and requests a full redemption at month 15, when the fund's NAV happens to be unchanged.

The request falls in the 13–18 month band, so the early-redemption fee is 3% × $1,000,000 = $30,000. The LP receives $1,000,000 − $30,000 = $970,000, before any separate performance or management fee accrual on the position itself.

Common mistakes

Assuming a lock-up runs from the fund's inception rather than from each investor's own subscription date — an investor who joined two years into the fund's life is still subject to their own full lock-up counted from when they invested.
Confusing a hard lock-up (no exit available at any price) with a soft lock-up (exit available, subject to a fee) — the two produce very different outcomes for an investor who needs liquidity unexpectedly.
Overlooking that a lock-up and a redemption gate are independent provisions — an investor who is past their lock-up can still be scaled back by a gate if aggregate redemption requests exceed the fund's threshold on that dealing date.
Treating side-letter-negotiated lock-up exceptions for large or early investors as the standard term every LP receives — a side letter can shorten or waive a lock-up for a specific investor without changing the terms disclosed to everyone else.

In practice

Crypto funds with genuine underlying illiquidity — validator staking with an unbonding window, locked liquidity-provider positions, or early token allocations subject to on-chain vesting — commonly set lock-up periods that match that duration directly, so the fund is never contractually obligated to offer investors liquidity faster than the underlying assets can actually provide it.

By contrast, a fund trading liquid, exchange-listed majors may run a much shorter lock-up, or none at all beyond a standard notice period, precisely because its book can be unwound quickly without disrupting the remaining investors' positions.

Questions, answered

What is a lock-up period in a hedge fund?

A lock-up period is the minimum length of time an investor's capital must stay in a fund before it becomes eligible for redemption. It runs from each investor's own subscription date and is set out in the fund's governing documents.

What's the difference between a hard and a soft lock-up?

A hard lock-up makes redemption entirely unavailable until the period ends. A soft lock-up allows an investor to redeem earlier but charges an early-redemption fee, commonly one that declines the longer the investor has held the position.

Why do funds use lock-up periods?

Lock-ups align investor capital with how liquid the underlying strategy actually is, and they protect remaining investors from being forced into a rapid, value-destroying sale of assets to fund an early redemption. They're most common in strategies holding genuinely illiquid positions.

Does a lock-up period apply to every investor at the same time?

No. A lock-up runs from each investor's own subscription date, not from the fund's launch date, so investors who joined at different times come off lock-up on different schedules.