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Universe

The below table categorizes the general types of illiquid assets hedge funds hold and the reasons for the lack of liquidity. Note that there is often overlap between these categories.
Side Pockets
Private Equity / PE-like
Gated / Suspended Funds
Fraud, Liquidation, Bankruptcy
In-kind redemptions
  • Investments understood to be long duration assets at inception; side-pockets created and not intended to be subject to same liquidity terms as traditional fund assets

 

  • Certain assets become illiquid or not marketable due to exceptional circumstances, i.e. Restructuring, Litigation, Bankruptcy, are then separated from other Fund assets

  • Traditional Private Equity investments, understood to be long duration investments typically within Private Equity Funds

 

  • Typically residual PE positions that were part of multi-strategy fund PE allocations where the liquid portfolio has been redeemed; may potentially be side-pocketed and not subject to standard Fund liquidity terms

 

  • Investments with PE-like profile - typically investments that were originally loans that subsequently defaulted, and now Fund owns the underlying assets and must now operate and sell them

  • Funds whose structures have collapsed due to changes in pay-off profile of certain assets, leading to liquidity mismatch at Fund level

 

  • Funds with assets that are subject to litigation, and liquidity is suspended to protect investors from potential claw-backs

  • Funds that have been exposed to large-scale frauds (i.e. Petters, Madoff), and assets are tied up in litigation, and bankruptcy-related litigation (i.e. Lehman)

  • Funds that have opted to satisfy redemptions in-kind in order to complete the wind-down of the Fund, and as a result, the investor now directly owns certain illiquid assets