A gate provision limits how much capital investors can withdraw from a fund in a given period — a cap on redemptions that, when triggered, prorates everyone’s exit. Gates exist so a rush for the door doesn’t force fire sales that damage remaining investors, and their activation is always news.
How gates work
Two designs dominate. Fund-level gates cap aggregate redemptions per period (say 20–25% of fund NAV per quarter): requests beyond the cap are filled pro rata, with the excess deferred to later windows — so a large redemption might pay out over several quarters. Investor-level gates cap each investor’s own redemption (a fraction of the holding per quarter), avoiding the perverse incentive fund-level gates create — the “gate rush,” where investors over-request to secure pro-rata share, accelerating exactly the stampede the gate meant to slow — which is why investor-level designs gained favor after 2008, the era that made “gated” a verb. The mechanism’s respectable cousins are everywhere in the advised market: interval funds' 5%-per-quarter repurchase offers and NAV products’ redemption program caps (2%/month, 5%/quarter) are gates by architecture — disclosed, standing, and triggered by arithmetic rather than board panic — and the 2022–24 proration queues were gate mechanics functioning as designed. Reading gates in diligence: the gate’s level and design, what discretion overlays it (boards and GPs often retain suspension powers beyond the stated gate), the fund’s history of gating, and the honest client conversation — a gated structure’s liquidity is a ceiling, not a promise, and positions should be sized as if the gate will someday matter, because the periods when it does are precisely the periods clients most want out.
Related terms
Redemption Program · Lock-Up Period · Side Pocket · Interval Fund · Hedge Fund
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