Lock-up period

A contractual period during which you cannot withdraw money from a fund or sell a holding, however much you might want to.

Example

A private fund with a ten-year life may return capital only as its underlying investments are sold, on a schedule nobody can promise in advance.

Important

Read the clause that lets the manager suspend or gate redemptions as well as the stated lock-up, because that clause only ever matters at the exact moment you want your money.

Related terms

• Liquidity — How quickly and cheaply an asset can be converted to cash without moving its own price.
• Forced selling — Selling because you have to rather than because you chose to - triggered by a lender, a redemption request, or an unrelated need for cash.
• Private markets — Markets for ownership stakes that are not listed on a public exchange - startups, private companies, and many funds.

Lessons that explain it

• A listing gives you shares you cannot sell yet, at a price that can fall before you can — After an IPO, early investors typically hold shares subject to a lock-up period. The price at listing can change substantially before they are free to sell. (10 min)
• Illiquidity: when you cannot get out — A price you cannot transact at is a quote, not a value. The losses here come from needing money at a moment when the asset will not give it back. (9 min)
• Leverage turns a 35% fall into an 87% loss, and the fees arrive regardless — The main risks of buyouts are leverage working in reverse, illiquidity and layered fees, and tax treatment depends on jurisdiction and structure. (12 min)
• Lock-ups: what you actually give up when you cannot sell — A lock-up is a promise you make about your own future, and you make it without knowing what your future will need. Here is what is on the other side of that promise. (10 min)
• You are not buying startups. You are signing a ten-year promise to a manager. — An LP commitment in a venture fund is a legal obligation to hand over money when asked, for about a decade, to someone who decides everything about how it is used. (10 min)
• A decade locked up, a fifth of it paid in fees, and a tax treatment set by the structure — The main costs of a venture fund are illiquidity, fee drag that compounds, and taxes that depend on where you live and how the fund is set up. (12 min)

All 578 terms in the Investing glossary