What Is a Hedge Fund Gate?

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Hedge fund gates are the limitations place on investors relating to withdraw amounts and time periods. Understand the limitations of hedge funds due to gates with information from a financial consultant in this free video on investments.

Part of the Video Series: Money Management & Personal Finance
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Video Transcript

Are you an ultra-sophisticated investor, and have you put your money into hedge funds? Well, I'm Roger Groh of Groh Asset Management, and today, we're here to talk about hedge funds and the limitations that there may be on withdrawals, otherwise known as gates. If you pick up today's Wall Street Journal, frequently there are articles about investors wanting to remove their money from hedge funds and not being able to do so because they had agreed that only a certain amount of cash could be withdrawn at any specific time. Those are called gates. Typically, hedge funds operate different from a traditional investment account where investors do not have the right to get out at any time that they wish. They can only get out in specific time periods, and then only specific dollars in total can be withdrawn. Why do that? Well, in many cases, hedge funds have put their money into illiquid investments. Perhaps they've bought a building. Perhaps they've bought a private business, and there just isn't any quick way for them to raise cash in order to pay out whoever wants to get out of the hedge fund. So in some ways, it protects all investors because you wouldn't want to have to be a forced seller at any point in time. Now, the negative is if you think you're going to be needing your money at any point during the life of that hedge fund, and it's spelled out in the prospectus, then that's probably not the right place for you to be and you should consider alternative investments. So remember, in hedge funds, there are two things. There are only specific times you can get out, and there are only specific amounts in total that can be withdrawn. Those are called gates. I'm Roger Groh at Groh Asset, and thank you very much for spending time with me.

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