Key points
- Your fund terms decide what happens when redemption requests are higher than the fund can pay, so reading them comes before any reply.
- Notice often runs from 30 to 180 days in evergreen credit funds. It only helps if you add up requests as they arrive.
- Many funds limit total redemptions in a period. Limits of 5 to 10 percent of NAV per quarter are common, and the excess is often queued.
- Pro rata and first-come pay the same cash to very different people. A worked example shows both.
- A sample letter shows what to tell each affected investor: the amounts, the next date and the rule behind it.
It is the second week of the quarter, and three redemption requests are already in. Together they ask for $3.2M. The fund can pay $2.0M. Someone has to decide who waits, and soon.
The pull is to reply fast, but a reply that ignores the fund terms can promise money the fund cannot pay.
The fund terms come first
The documents set the rules. Three questions cover most of it:
- Can the manager suspend or gate redemptions at all?
- Must you tell investors, or ask an advisory committee, before you do?
- Who approves the decision?
If your documents are silent or unclear, ask your lawyer before you reply to any investor. This article is not legal advice.
Why notice periods matter
Timing is the next thing the terms control. A notice period gives the fund time to prepare, but only if someone adds up requests as they arrive. A total made at the end shows a shortfall too late to plan for.
That running total means most beside the cash on hand, the cash you expect to receive, and the period limit. Cash can also move between review and payment, which is why the figure is worth checking again just before the money goes out.
What a limit does
Many evergreen funds cap total redemptions in each period. A common cap is 5 to 10 percent of NAV per quarter. NAV, or net asset value, is the value of the fund's assets minus its debts, set by your administrator. Your terms say whether a cap applies to the whole fund or to each investor.
When requests pass the cap, the fund cannot pay all of them in full. In many funds, the excess is queued and handled in later periods. Your terms should say whether a queued request keeps its place and whether the investor must ask again.
- Fund NAV
- $40M
- Quarterly limit (5% of NAV)
- $2.0M
- Requests this quarter
- $3.2M
- Paid now $2.0M
- Queued for later periods $1.2M
Worked example: $3.2M of requests, $2.0M to pay
Say a fund has a NAV of $40M and a fund-level limit of 5 percent per quarter. It can pay $2.0M this quarter. Three investors ask for $3.2M in total. All names and numbers here are made up.
Pro rata. Every request is scaled by the same percentage. $2.0M divided by $3.2M is 62.5 percent, so each investor gets 62.5 percent now.
| Investor | Asked | Paid now | Queued |
|---|---|---|---|
| A | $1.6M | $1.0M | $0.6M |
| B | $1.0M | $0.625M | $0.375M |
| C | $0.6M | $0.375M | $0.225M |
| Total | $3.2M | $2.0M | $1.2M |
First-come. Requests are paid in the order they arrived until the $2.0M runs out. Say A asked first, then B, then C.
| Investor | Asked | Paid now | Queued |
|---|---|---|---|
| A | $1.6M | $1.6M | $0 |
| B | $1.0M | $0.4M | $0.6M |
| C | $0.6M | $0 | $0.6M |
| Total | $3.2M | $2.0M | $1.2M |
Either way, the fund pays $2.0M and queues $1.2M. What changes is who waits. Under pro rata, everyone waits for part of their money. Under first-come, Investor C waits for all of it. The queued amounts are shown at this quarter's NAV. If your terms price queued requests at a later NAV, the dollar amount paid later will differ. That is why the method in your terms needs confirming before anyone runs the numbers.
Partial payment
The example assumes the fund can pay part of a request, and not every fund can. The documents decide whether partial payment is allowed, whether every investor is scaled the same way or request order matters, and whether the unpaid part keeps this period's NAV or takes the NAV of the period when it is paid. Where the terms are silent, a written answer from counsel and the administrator settles it.
Telling investors early
A letter before the payment date gives each investor time to plan, and shows the decision follows a rule. It covers how much the investor asked for, how much the fund will pay and when, what happens to the rest and the next date it will be considered, and where in the fund terms the rule comes from. Here is that letter for Investor A in the pro rata case, with brackets for the details only you know.
Sample letter to Investor A.
Dear [investor name],
You asked to redeem $1.6M for the quarter ending [date]. The fund will pay you $1.0M, which is 62.5 percent of your request, on [payment date]. The other $0.6M is queued. It will be considered on the next redemption date, [date]. [Add whether the investor must ask again.] [Add whether the queued amount is priced at this quarter's NAV or at the NAV of the quarter it is paid.] This follows section [number] of the fund terms, which limits redemptions to 5 percent of NAV per quarter and scales requests pro rata.
The record behind the decision
An auditor may ask later how the decision was made. That answer lives in the record for each redemption period: the requests, their dates, the cash position, the decision, who approved it, and what each investor was told.
Back in that second week, the numbers have not changed. But now the terms are read, the method is confirmed, and every investor hears early what they will get, when, and why.
Where Tahoe fits
Deciding who waits is the hard part, and on redemptions the manager makes that call. We are building Tahoe, fund operations infrastructure for tokenized funds, so that investors request redemptions in a portal that carries your fund's brand, and the manager reviews, approves and signs each request and keeps an audit log.
Tahoe does not apply gates or split payments. The manager handles that under the fund terms.