Structures · room 10 of 11
Liquidity and redemption.
A redemption right is a promise to convert an illiquid asset into cash on a stated timetable, and no document makes the promise and the portfolio agree. What decides whether the promise is keepable is the sleeve of assets that can be sold inside the notice period, and the honest size of that sleeve is a fact about the portfolio rather than a term in the constitution.
01 · The designed mismatch
Open and closed ended
Liquidity here is a designed mismatch. The vehicle promises a date the assets cannot keep on their own.
The promise runs on a stated date and the portfolio runs on a sale process, and no document makes the two agree. The two shapes below answer that in opposite directions, and a vehicle is one or the other before it is anything else.
Closed ended · the cost sits in the price
Nobody leaves except by transfer. A holder who wants out finds a buyer and takes whatever the discount for illiquidity is on the day, so the cost of the exit falls on the seller and never reaches the vehicle. The portfolio is untouched by the departure, which is the whole design.
Open ended · the cost sits in the portfolio
The vehicle meets the leaver in cash. Assets that can be sold are sold first because they are the only ones that can be, and what remains is a portfolio that is less liquid after the exit than it was before it. The cost falls on the holders who stay.
Open ended and closed ended are not two products. They are two answers to one question, and the question is who carries the cost of another holder leaving.
02 · The machinery
The brakes
A redemption right is one line in a document. Seven pieces of machinery decide what it is worth.
Five of them buy time, one changes what the holder owns, and the seventh fixes the price at which anybody leaves. In an ordinary quarter the notice period runs and the valuation policy sets the price. The brakes that allocate the cost of an exit are read for the first time on the day they matter.
- The notice period
The interval between a request and the dealing date it catches. It is the only period in which the manager can turn assets into cash for that request, so it is the number every other term on this page has to be read against. A notice period is not a courtesy to the manager. It is the length of the sale process the vehicle has promised it can complete.
- The lock-up
A period after subscription in which a request is refused, or met subject to a stated deduction. It fixes how long capital is committed before the machinery is available to it at all, and it is tested against the individual holding rather than against the queue, which makes it the one brake that never depends on what anybody else did.
- The gate
A cap on total redemptions at a dealing date, ordinarily expressed against net asset value. It decides what happens when requests are larger than the vehicle can meet, which means it decides nothing at all until the first date on which that is true. Every vehicle carrying one has an untested clause in it for as long as conditions are good.
- The scaling rule
What the machinery does with requests above the cap. Requests are met to a common proportion and a balance is left unsatisfied, and what the document says about that balance is the single most consequential drafting decision on this page. It is ordinarily one subordinate clause long.
- The suspension power
A power to stop dealing entirely, on stated triggers, for a stated review interval, with a stated route back. It is the only term here that stops the machine rather than slowing it, and it is the only one whose use is itself an event the holders will read as information about the portfolio.
- The side pocket
The mechanic by which an asset that cannot be valued or realised is segregated, so the interest in it is separated from the interest that redeems. It changes what a holder owns rather than delaying what a holder receives, and it resolves on realisation and on nothing else, which means it has no date in it.
- The valuation policy
Who values, on what basis, at what frequency, and what happens when a mark is stale. This is not an accounting annexe to the liquidity terms. In a vehicle that deals, the valuation policy is the redemption price, and every argument about liquidity that reaches a court reaches it through this document.
Six brakes and a price. The only thing in the vehicle that actually produces cash is the sleeve of assets that can be sold inside the notice period, and the honest size of that sleeve is a fact about the portfolio rather than a term in the document.
03 · The journey of a request
The pathway
A request does not have one outcome. It has three, and the constitution decides which one it meets.
Below is a single redemption request moving through the machinery, from the notice deadline to the point at which cash leaves or does not. The brakes engage in a fixed order: the notice period on every request, the lock-up on the individual holding, then the gate on the aggregate.
One request, from the notice deadline to the cash
- 01 The request is lodged At or before the notice deadline for a dealing date. A request that misses the deadline is not late; it belongs to the next date, together with whatever the machinery does in between.
- 02 The lock-up is tested Inside the lock-up the request is refused, or met subject to a stated deduction. Tested on the individual holding, and tested before anything is aggregated.
- 03 The requests are aggregated Every surviving request for that dealing date is added together and expressed against net asset value. From here the holder stops being an individual case and becomes a proportion.
04 · the point of divergence · what the machinery does with the aggregate
04a · under the cap
Every request met in full
- 04a.iThe valuation is struck for the dealing date
- 04a.iiCash is paid on the payment date, in one instalment or in stated instalments
- 04a.iiiThe sleeve is smaller than it was, and the portfolio behind it is less liquid than it was
The branch the offer document describes. It is available while the sleeve can fund it, so it is a statement about the portfolio rather than about the drafting.
04b · over the cap
Requests scaled to a common proportion
- 04b.iEach request is met to the same proportion, and a balance is left unsatisfied
- 04b.iiEither the balance is carried forward, with priority at the next dealing date
- 04b.iiiOr the balance is cancelled, and the holder has to request again from the back
04b.ii and 04b.iii are alternatives and the constitution carries one of them. Under stress they produce opposite behaviour, and neither is visible in a document that states only the cap.
04c · dealing suspended
The machinery stops
- 04c.iEntered on a stated trigger, and reachable from 03, from 04a and from 04b
- 04c.iiReviewed at a stated interval, with a stated route back to dealing
- 04c.iiiThe unrealisable asset is side pocketed, and the interest in it resolves only on realisation
The terminal state, and the only one with no date in it. Everything else on this page runs to a calendar. A suspension runs to a condition, and the condition is in the document rather than in the market.
The choice between 04b.ii and 04b.iii is made once, in a subordinate clause, years before anything tests it. Carried forward, the queue is orderly and it is visible. Cancelled, holders learn to ask for more than they want in order to be scaled into what they need.
04 · When it is reached for
The occasions
Three conditions call for this structure. Two defeat it, and neither of those two is in the liquidity clause.
The question is never whether a redemption right can be drafted. It is whether the portfolio behind it can meet the timetable the drafting promises.
Reached for where the investor base will not commit for a full closed-ended term. Capital that cannot be admitted in any other form is a real reason to carry the machinery, and the machinery is the price of admitting it. What has to be decided at that point is not whether to offer liquidity but how much of the portfolio is permanently reserved to fund it.
Reached for where a channel will not admit the vehicle at all without periodic liquidity. The requirement arrives from outside the strategy and it arrives as a condition rather than a preference. Where it arrives after the strategy is settled, the liquidity term is being fitted to a portfolio that was designed without it, and that order is the whole of the problem.
Reached for where the portfolio genuinely holds assets with different realisation periods, so a sleeve can be built out of the short ones without distorting the strategy. This is the only one of the three that is a fact about the assets rather than about the investors, and it is the only one that makes the promise keepable.
The wrong answer where the shortest realistic sale process for anything in the portfolio runs materially longer than the notice period, and the sleeve is not large enough to bridge the difference. That vehicle has not created liquidity. It has relocated risk onto the holders who stay, and the gate is the only thing standing between the manager and that outcome.
The wrong answer where the redemption price rests on valuations no independent party tests. At that point the manager is setting the price at which value transfers between its own holders, on every dealing date, in both directions, and it is doing so on a mark it produced. No drafting cures that, because the defect is in who holds the pen and not in what the pen wrote.
Neither of the last two is cured by better drafting. A redemption right written against an asset that takes five years to exit is a structural contradiction, and it survives review only because nobody put the notice period and the sale process on the same page.
05 · The dealing calendar
The sequence
Six dates carry every redemption. Two of them close behind the holder.
The calendar reads as administration and is not. Where the constitution puts the two doors below is a drafting decision, taken years before anybody notices it was taken.
- 01 Notice deadline The last moment a request can be lodged for this dealing date. In a quarterly vehicle, missing it by a day costs a quarter.
- 02 The point of no withdrawal Somewhere between the deadline and the payment, the request stops being revocable. The constitution fixes where, and the clause that fixes it is not always the one headed liquidity. One-way
- 03 Valuation date The price is struck. Once struck it is the price for everyone dealing on that date, including the holder who would rather have waited for the next mark. One-way
- 04 Dealing date Requests are aggregated, the cap is tested, and the scaling rule runs if the aggregate is over it. This is the date the machinery actually executes.
- 05 Payment date Cash leaves, in one instalment or in the instalments the constitution states. Between the valuation and this date the holder is out of the market and not yet holding cash.
- 06 The next dealing date Where a carried-forward balance re-enters with priority, or where a cancelled request has to be lodged again from the back. The same cap produces two different queues.
Two of these six cannot be taken twice: after the point of no withdrawal the request stands whatever the holder learns next, and after the valuation the price stands for everyone dealing on that date. Both are settled in the constitution, so both are read before 01 rather than discovered at 05.
06 · The binding constraints
What creates each one
The constitution creates the redemption right. The rung it stands on decides the standard its description is judged against.
Nine constraints bind this structure, and not one of them is created by the machinery itself. Each is created by an instrument or a document settled before the first request was ever lodged.
| The constraint | What creates it | Where it surfaces |
|---|---|---|
| The redemption right itself | The constitution. Whether the rung the vehicle stands on bears on the terms a constitution may carry is a question for the primary text of each centre, and it is the first one to put rather than the last. | At formation, if anyone asks. Otherwise on the day a channel that requires liquidity arrives. |
| The rung, fixed at formation | Both centres build their fund regimes as a ladder, and the rung is fixed when the fund is formed. The machinery on this page is drafted after that choice, never before it. | Whenever a manager assumes a liquidity term can be added to a vehicle later. |
| The audience the rung admits | The ladder, drawn at vehicles and legal form. A vehicle built for a wealth channel meets the rung before it meets the channel, and the rung was fixed at formation. | The first conversation with a distributor. |
| The oversight of the property | At the public rung, oversight of the fund's property by a party independent of its manager, and on this site's reading of the DIFC an eligible custodian between the manager and the assets. The requirement lightens as the audience narrows. | Document review, and again at every valuation. |
| The valuation policy | The constitution, settled by the manager with its own advisers. Nothing in the liquidity terms fixes the price. The valuation policy does, and it is drafted in another part of the document by another set of people. | The first quarter in which a mark moves materially. |
| The unsatisfied balance | The constitution, in the scaling rule. Carried forward with priority, or cancelled and re-requested. The two produce opposite behaviour under stress and identical behaviour in every other quarter. | The first stressed dealing date, and never before it. |
| The suspension trigger | The constitution. A suspension is a power with a stated trigger, a stated review interval and a stated exit, and one exercised outside them is challengeable on the document. | At the moment it is used, in front of the holders it affects. |
| The side-pocket mechanic | The constitution again. Creating a side pocket, valuing it and valuing it out are constitutional acts, not discretionary ones, and the mechanic has to exist before the asset does. | When an asset stops being valuable enough to value. |
| The operating commitment | The manager's operating model, the administrator and the oversight arrangements. A vehicle that deals carries a standing obligation to a timetable that a closed-ended vehicle does not carry at all. | The first month-end after launch. |
07 · Where it breaks
The failure points
Five failures recur. None of them needs a market event.
Each of these is drafted rather than stumbled into. Finding one takes reading a clause against another clause, which is not how a document is read on the day it is signed.
- 01 The price nobody tests Redemption at valuations the manager produces, with no independent party checking them. Every exiting holder is met at a price the remaining holders did not set, and value transfers in whichever direction the mark is wrong. This is the failure that produces litigation rather than complaint, because the holders who stayed can name the amount and the date.
- 02 The cap with no carry forward A gate expressed against net asset value, with the unsatisfied balance cancelled at every dealing date. The queue resets on every date, the requests inflate to survive the scaling, and the manager loses control of a number it is also reporting.
- 03 The notice period shorter than the sale The sleeve is the only liquidity, so the sleeve is what is sold, and it is sold first every time. The portfolio degrades on each dealing date until what is left for the holders who stayed is the part nobody could sell, which is also the part that was never marked against a transaction.
- 04 The suspension exercised off its trigger Commercially obvious and contractually indefensible. The power is a contractual power with stated conditions, and a manager who uses it outside them has handed every affected holder the same argument on the same paragraph.
- 05 The liquidity marketed, the brakes scheduled The vehicle sold on its dealing frequency, with the cap, the scaling rule and the suspension power in a schedule at the back. The gap between the two is the whole of the complaint, and the standard the description is judged against is the one attaching to the rung the vehicle stands on.
Four of these five can be found in the document before it is signed. The third can only be found in the portfolio, by putting the sleeve beside the notice period and doing the arithmetic while both are still open to change.
08 · ADGM and the DIFC
The two centres
The rung is settled at formation. A liquidity term asked for later meets a door already closed.
Three things in this site's reading of the two ladders bear directly on a liquidity term. One of the three is a difference between the centres, and what neither reading carries is stated at the foot of this band.
- The rung, and when it is chosen
The ladder is drawn at vehicles and legal form and the rung is fixed at formation, which is before any liquidity term is drafted. What the two centres do not share is procedure: this site's DIFC reading carries two facts its ADGM reading does not, that at the exempt rung the number of holders is capped by rule, and that the fund is notified to the regulator rather than registered by it. Each centre writes its own rulebook, and the detail does not travel.
Published on this site at The funds · ADGM and The funds · The DIFC.
- What stands between the manager and the property
Heaviest at the public rung and lighter as the audience narrows, and on this site's reading of the DIFC an eligible custodian sits between the manager and the assets. On a vehicle that deals this is the entry to read twice: a redemption price is a valuation, and what stands between a manager and the property it is valuing is one of the things the ladder trades away as the audience narrows. Ask what the arrangement is, ask who performs it, and ask to see the paragraph that says so.
Published on this site at The funds · ADGM.
- Who is standing in the queue
The rung decides the population of the vehicle, and the population decides how the vehicle behaves on the first stressed dealing date: on redemptions, on valuations, and on the patience the arrangement requires. The queue is the thing the gate was drafted for, so the rung is a liquidity decision taken years before any liquidity term is written.
Published on this site at The funds · ADGM.
Where the reading stops · August 2026
The ladder decides who is standing in the queue. What each rulebook does to the brakes, on redemption rights, dealing frequencies, gates, suspensions, side pockets and valuation, is read from that centre's primary text and dated, and it is the first question this room puts.
09 · Where our part ends
Your own advisers
They answer for the document. We design the machinery inside it, and stress-test it against the promise you meant to make.
The mechanics can be drawn and the honest size of the sleeve can be stated before launch. Six things sit outside that, each with somebody who answers for it, and the last row below is what the room hands them.
Whether the vehicle may lawfully carry the redemption terms proposed, at the rung it stands on, in the centre it is seated in. That is a reading of the primary text by advisers regulated to give it. The question is put before the machinery is drawn rather than after, and the drawing frames it in the terms those advisers answer in.
The gate, the scaling rule, the suspension power and the side-pocket mechanic, drafted by counsel that stands behind what it drafts. A structure that has been drawn is not a structure that has been written, and the distance between the two is where most of the failures on this page live.
The policy, the basis, the frequency, and the appointment of whoever performs it. The auditor arrives later and asks the same questions in a different order, and the answers have to be the same both times.
The description of the liquidity, written to the standard the rung requires. This is the document that will be read back to the manager in any dispute, sentence by sentence, against what the machinery actually did on the date it was tested.
Whatever each channel is required to do in its own country before it can admit the vehicle. That is local counsel in each of those countries, and a condition that arrives from a channel lands on a constitution that is already settled.
The administrator, the register, the calendar as it is actually run, and a month-end that has to produce a number by a date. A term that cannot be operated on that timetable is a term that will be missed, and it will be missed first in the quarter that matters.
What this room ends on: the journey of a request through the machinery, the six dates with the two that close behind the holder marked, the sleeve set beside the promise so the two can be read together, and each constraint attached to the document that creates it.
We draw the journey of a request through the machinery, state which brake engages first, and put the sleeve beside the promise so the two can be read together. The drafting, the valuation and the signature stay exactly where they are.
Read against the tier ladders published on this site · August 2026