Redemption gates have been applied more than ever before in the past few years. This article discusses various aspects of gates that should be considered by managers and investors, including different types of gates and their various features, drawbacks and benefits within the overall context of liquidity issues confronting hedge funds. As such, it provides a framework for discussion related to the establishment of a gate and negotiation between a hedge fund and its investors with respect to the gate’s attributes. Gates which apply on a fund-wide basis and gates that apply on an investor by investor basis are addressed.
Originally published by Bloomberg Finance L.P. in the Vol. 5, Nos. 34 and 35 editions of the Bloomberg Law Reports—Securities Law. Reprinted with permission. Bloomberg Law Reports® is a registered trademark and service mark of Bloomberg Finance L.P.