Lockup

Lockup means a restriction on when you may ask to withdraw from an investment. Its end does not by itself mean cash will be paid.

Why lockups matter to your portfolio

A bill can come due while an investment is still locked. Knowing the lockup will end doesn't mean the investment can pay that bill. Separate being allowed to ask for money from actually receiving it.

Angel, venture, private equity, private credit, real assets and small-business exposure all belong in your allocation discussion, but their category names don't establish withdrawal rights. Don't give every investment in a category the same access assumptions.

Record the stated access restriction next to what you intend the money for. A plan to use an investment for future spending stays conditional while the payment path is unclear. The private investment liquidity budget keeps uncertain receipts apart from money you already have.

How a lockup is used

A lawyer whose firm works on private fund agreements explains that an open-end fund typically bars withdrawal requests during a lockup and may also apply a gate that caps how much can leave at once after requests are permitted. Even after the lockup ends, a full exit can take a long time.

When reading a fund description, separate the statement about the lockup from the explanation of how you get paid. If it only says when a request becomes possible, the cash question is still open. Write that question down rather than filling it with the most convenient date.

Example: you pay an expense from available cash while an investment reaches the end of its lockup. The expense reduces your cash. The lockup ending doesn't put it back; any receipt stays unconfirmed until the money arrives.

A record can show the restriction has ended while still marking the receipt as unconfirmed. That's more accurate than moving the whole investment value into available cash.

Common mistakes with lockups

Treating the end of the lockup as a payment date hides the remaining uncertainty. Treating it as a guarantee that you can withdraw everything does the same.

Judging the investment by the restriction alone is the other mistake. A lockup describes access, not the quality of the underlying assets. The private market portfolio framework keeps the access question tied to your purpose without letting it stand in for an assessment of the investment.

Related terms

Liquidity risk is the chance that money isn't there when you need it. A redemption gate can limit withdrawals after requests are allowed. An open-end fund can keep operating while applying these restrictions.

Source notes

The explanation comes from an interview with a lawyer and is paraphrased; the example is illustrative.