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- 🛠️ Investment Fund Key Terms, Part 12
🎉 Happy Friday, funds family!
Today, we have Part 12 in our many-part series walking through each term in an investment fund term sheet in detail.
Here’s the index of each article in this series (so far):
This week focuses on LP Withdrawals.
But first..
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Thanks for reading. Now, let’s jump into the article 😃
Can investors withdraw from a fund whenever they want? No!
In most private funds, investors commit capital for the long haul. But not all funds are structured the same. The rules on LP withdrawals depend on whether the fund is closed-end or open-end. Let’s examine both.
🔒 Closed-End Funds: No Withdrawals
In a traditional closed-end fund — like a private equity, venture, or real estate fund — LPs make a capital commitment and remain invested until the fund winds down. That’s because these funds invest in illiquid, long-term assets. Allowing withdrawals would force the GP to sell assets prematurely, disrupting returns and fairness across investors.
Example: “No Limited Partner shall have the right to withdraw capital or require redemption of its Interests, except as required by law or as permitted by the General Partner in its sole discretion.”
As a result, LPs get their money back only through:
1️⃣ Distributions from realized investments
2️⃣ Liquidation at the end of the fund’s term
The illiquidity is part of the design — it gives the GP time to execute the investment strategy without worrying about redemptions.
♻️ Open-End Funds: Periodic Liquidity (with Gates & Lockups)
Open-end funds are different. They’re designed for ongoing subscriptions and redemptions, often used by credit, hedge, or other evergreen vehicles.
But liquidity still comes with guardrails.
Typical features include:
🔒 Lock-up periods: Investors can’t redeem for the first 12–36 months after investing.
🔒Redemption notice: LPs must give 30–90 days’ notice before withdrawal.
🔒Gates: The fund can limit redemptions — for example, to 5–25% of NAV per quarter — if too many LPs want to exit at once.
🔒 Suspensions: The GP can temporarily suspend withdrawals during market stress or valuation uncertainty.
🗓️ Next up in Part 13: Key Person Event.
Thanks for reading, everyone.
Have a great weekend! 🙌
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