A lock-up period is a contractual span during which an investor cannot redeem or sell — new hedge fund capital barred from withdrawal for its first year, IPO insiders barred from selling for 180 days. Lock-ups exist to protect strategies and markets from the disruption of early exits, and they are among the first liquidity terms to read in any document.
The two main habitats
Fund lock-ups. Hedge funds commonly impose one-year (sometimes multi-year) lock-ups on each investor’s capital from subscription — hard lock-ups prohibit redemption outright; soft lock-ups permit early exit for a fee (often 2–5%, paid to the fund) — after which the standing redemption terms (quarterly windows, notice periods, gates) take over. Longer lock-ups should purchase something: strategies holding less liquid assets legitimately need them; liquid strategies demanding long lock-ups are asking for stability without paying for it. The non-traded market’s version is the early-repurchase deduction — the typical ~5% haircut on shares repurchased within a year — a soft lock-up in NAV-product clothing.
IPO lock-ups. Underwriters require insiders — founders, employees, and sponsor funds — to hold for typically 180 days post-IPO, preventing an immediate supply flood. The expiration is a known trading event (supply overhang pricing in around the date), and for private equity and venture investors it’s the mechanical reason IPO exits realize in installments: the listing prices the stake, but the DPI arrives after lock-ups lapse and sell-downs execute, at whatever prices those months deliver. Both habitats teach the same suitability lesson: locked capital must be capital the client won’t need — the lock-up is enforceable precisely when exiting would be most tempting.
Related terms
Gate Provision · Redemption Program · Hedge Fund · Initial Public Offering (IPO) · Liquidity
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