Lockup

The exam loves to bundle the three liquidity controls and ask which one does what: a lockup blocks redemption for a fixed initial term, a notice period delays an allowed redemption (typically 30–90 days), and a gate caps the fraction redeemed in any one window. A common item gives a redemption scenario and asks why investors stayed trapped in 2008 — the answer hinges on gates and side pockets, not the lockup, since by then many initial lockups had already lapsed. Another classic asks why hedge funds impose these terms; the “tell” is illiquid or hard-to-value positions that would force fire-sales if redemptions spiked.

Don’t confuse a hedge-fund lockup with the private-equity structure: PE investors face a multi-year capital-call/drawdown commitment with no redemption right at all, exited only through portfolio-company sales — a structural illiquidity, not a contractual gate. Also keep lockups separate from carried interest, which governs profit splits (the GP’s ~20% share), not liquidity. Memory hook: lock (entry), notice (exit warning), gate (exit cap) — three distinct doors, not one.