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By Dr. Sebastiaan Hooghiemstra, senior associate in the investment management practice of Loyens Loeff in Luxembourg.
The right of investors in an open-ended fund to redeem their full investment on each redemption date is the defining characteristic of the open-ended form. Yet for funds investing in less liquid assets, private credit, real estate, infrastructure or private equity wrapped in semi-liquid structures, an unqualified redemption right is incompatible with the investment strategy. Two mechanisms have therefore become central to the structuring of semi-liquid funds: pre-set redemption limitations, commonly called redemption caps, and redemption gates.
Although both are quantitative limitations with the same ultimate objective,...
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