Hypothetical situation Let say you operate a fund that has $100 on 12/31. One of your investors plans on pulling out $75 from your fund and sends you a redemption note. Redemption are typically 90 days. 90 days from that notice, 3/31, the stock market has been tanking and your fund is down to $65. How much does the investors, who originally wanted to withdraw $75, get back?
They would get $75 x 0.65 = $48.75. In reality, they would get less than that. Most funds have a “holdback” written into their partnership documents, which means that they hold, say, 10% of the redemption amount until that year’s audit is complete. Once the audit is complete, the investor gets their remaining 10% (subject to any audit adjustments) plus interest.