Redemption
An LP's request to withdraw some or all of its capital from an open-end fund, priced at NAV per unit as of a scheduled dealing date.
Definition
A redemption is a request by a limited partner (LP) to withdraw part or all of their invested capital from an open-end fund. Where a capital call or subscription pulls cash into the fund, a redemption pushes it back out — converting the LP's fund units back into cash at the prevailing NAV per unit.
Redemptions are almost never processed on demand. Funds run them on scheduled dealing dates — commonly monthly or quarterly — and typically require advance written notice, often 30 to 90 days, so the manager can plan the liquidity needed to fund the payout without disrupting the rest of the portfolio. The redemption is priced using the NAV per unit struck as of that dealing date, net of any fees the redeeming units still owe.
Many funds layer additional protections on top of the basic mechanic: a lock-up period restricting redemptions during an investor's early months or years, and a redemption gate capping the percentage of the fund that can be redeemed on any single dealing date if requests exceed a threshold.
Why it matters
Redemption terms are where a fund's liquidity actually gets tested. A fund holding illiquid crypto or DeFi positions can find itself needing to sell into a falling market to fund redemptions if too many LPs request out at once — the notice period and dealing-date structure exist specifically to give the manager time to unwind positions in an orderly way rather than a fire sale.
For an LP, redemption terms are as important to underwrite as the fee structure: an investor should know the notice period, dealing frequency, and settlement timeline before committing capital, not discover them when they actually want their money back.
The redemption cycle
1. The LP submits a redemption request — a dollar amount or a percentage of their holding — before the notice deadline for the next dealing date.
2. The manager aggregates all requests for that dealing date and checks the total against any gate threshold.
3. NAV per unit is struck as of the dealing date, after fees and any accrued performance fee on the redeeming units.
4. Payout is calculated as units redeemed × NAV per unit, and cash is wired once the manager has settled the underlying positions — commonly within a T+5 to T+30 business-day window depending on how liquid the book is.
Full versus partial redemption
An LP holds 10,000 units and the fund's dealing-date NAV per unit, after fees, is $118.40. A full redemption pays out 10,000 × $118.40 = $1,184,000.
If the LP instead redeems 40% of the position, that is 4,000 units × $118.40 = $473,600, leaving 6,000 units — 60% of the original holding — invested in the fund and still tracked against the fund's own high-water mark.
Common mistakes
Assuming redemption proceeds arrive on the dealing date itself — settlement commonly takes days to weeks afterward while the manager unwinds the positions needed to fund the payout.
Pricing a redemption off an estimated or preliminary NAV rather than the fully reconciled, batch-frozen NAV per unit that only becomes official once that dealing date's accounting close is complete.
Missing the notice deadline and assuming the request still processes on the next dealing date — a late request is typically pushed to the following cycle, an entire additional period away.
Believing a partial redemption resets the investor's high-water mark — the mark generally carries forward unchanged on the units that remain invested.
In practice
A crypto fund's redemption timeline is shaped by where its assets actually sit. A book held mostly on exchange with same-day withdrawal can settle a redemption faster than one with material DeFi or staked positions subject to unbonding windows or on-chain unlock schedules — which is why many crypto fund LPAs tie the settlement window to the liquidity of the underlying book rather than quoting one fixed number for every scenario.
Because a redemption converts units to cash at NAV, the accuracy of that NAV directly determines what an LP receives. A fund that reconciles its books against its administrator and can show precisely how a NAV per unit was struck gives an LP far more confidence in a redemption payout than one relying on an unreconciled internal estimate.
Questions, answered
What is a redemption in a hedge fund?
A redemption is a request by a limited partner to withdraw some or all of their invested capital from an open-end fund. It is processed on a scheduled dealing date and priced at the fund's net asset value per unit as of that date, net of fees.
How long does a fund redemption take to pay out?
It varies by fund, but redemption proceeds are rarely available on the dealing date itself. Settlement commonly takes anywhere from about five business days to a month afterward while the manager unwinds the positions needed to fund the payout, especially where the book includes less liquid assets.
Can a fund refuse a redemption request?
A fund cannot simply refuse a properly submitted request, but it can limit how much gets processed at once through a redemption gate, or restrict early redemptions altogether through a lock-up period — both of which are disclosed in the fund's governing documents before an investor commits capital.
Does redeeming part of a position reset the high-water mark?
No. A partial redemption typically reduces the investor's unit count but leaves the high-water mark on the remaining units unchanged, so the investor is not charged a performance fee on a recovery to a level the fund had already reached before the redemption.
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