Side pocket.

In plain English

A side pocket is a walled-off portion of a fund where illiquid or hard-to-value holdings are moved so they do not distort the main fund. Investors who were in the fund when the asset was side-pocketed keep their share of it, while new investors do not participate. The side-pocketed interest normally cannot be redeemed on the regular schedule, so an investor who exits the main fund still waits for the pocket to resolve. Performance fees on side-pocketed assets are usually deferred until an actual sale produces a real number. The mechanism protects fair pricing for everyone else and traps the specific investors who owned the asset.

01Why it matters

You can redeem from a fund, receive most of your money, and still be holding an unsellable slice for years without any control over when it ends.

02The math, step by step

Say an investor holds $500,000 in a fund and 8 percent of the portfolio gets side-pocketed. That is $40,000 moved into the pocket. A full redemption returns $460,000 now, and the remaining $40,000 stays until the pocketed asset is sold, at whatever price it eventually fetches.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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