Fund Terms: Soft Lock-Up Operational due diligence is a multidisciplinary subject. An investor beginning the operational due diligence process for the first time may encounter subjects with which they have little to no familiarity. As the scope of operational due diligence has become broadened in recent years, even seasoned operational due diligence professionals may encounter terms which they may be unfamiliar. The purpose of this section of Operational Due Diligence Insights, is to cast a spotlight on some of the words and terms, investors may have not previously encountered, or that tend to get overlooked during an operational due diligence review. This issue's word: Soft lockup Defined: A soft lockup refers to the ability of the fund to charge a penalty for investors redeeming capital prior to the expiration of a pre-defined time period. Soft lockup penalties are not universal and may vary among fund managers. Additionally, some fund managers may offer soft lockup penalties which vary on a sliding scale based on the amount of time an investor remains invested in a fund. So for example, consider a fund with a three year soft lockup. Under a sliding scale structure a penalty of 2% may be applied for investors which redeem capital anytime during the first 12-24 months of investment. This penalty could decrease to 1% for redemptions anytime during the last 12 months (i.e.- months 25 through 36) of the entire three year period. Investors should take measures to understand soft lockup penalties and terms. Additionally, soft lockups may interact with other fund terms such as gates, which investors should also consider during the operational due diligence process. What investors should know: Soft lockups can be contrasted with hard lockups, which are sometimes just referred to as lockups. By comparison, under a hard lockup an investor cannot redeem capital prior to the the expiration of a pre-defined time period Originally posted in the February 2012 edition of Corgentum Consulting's Operational Due Diligence Insights. For More info@corgentum.com Information Corgentum.com | Blog | Twitter Feed Tel. 201-360-2430 About Corgentum Consulting: Corgentum Consulting is a specialist consulting firm which performs operational due diligence reviews of fund managers. The firm works with investors including fund of funds, pensions, endowments, banks ultra-high net-worth individuals, and family offices to conduct the industry's most comprehensive operational due diligence reviews. Corgentum's work covers all fund strategies globally including hedge funds, private equity, real estate funds, and traditional funds. The firm's sole focus on operational due diligence, veteran experience, innovative original research and fundamental bottom up approach to due diligence allows Corgentum to ensure that the firm's clients avoid unnecessary operational risks. Corgentum is headquartered at 26 Journal Square, Suite 1005 in Jersey City, New Jersey, 07306. Phone 201-360-2430. For more information visit, www.Corgentum.com or follow us on Twitter @Corgentum
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