Series 7 practice questionmediumAlternative Investments — Hedge Funds
A hedge fund has a lock-up period of 2 years. This means:
- AInvestors cannot redeem their investment for 2 years after initial purchase✓ Correct answer
- BThe fund manager cannot change investment strategies for 2 years
- CThe fund cannot accept new investors for 2 years
- DPerformance fees cannot be charged for the first 2 years
Explanation
Why A — Investors cannot redeem their investment for 2 years after initial purchase
A lock-up period restricts investors from redeeming (withdrawing) their capital from the hedge fund for a specified period, typically 1-3 years. This allows fund managers to pursue longer-term strategies without being forced to liquidate positions to meet redemption requests. After the lock-up period expires, redemptions are typically permitted on a quarterly or semi-annual basis with advance notice.
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