In this series. This note is how to read a redemption clause. Whether a redemption right exists at all, and which Cayman statute usually follows, is open-ended versus closed-ended. A feeder that must wait on another fund is feeder versus parallel. Who may suspend dealings is board, GP, manager, and administrator. The practice page is Cayman funds.

An open-ended Cayman fund gives investors a contractual right to redeem. It does not give them cash on demand. The right is whatever the documents say about notice, lock-ups, gates, suspensions, valuation, and the date proceeds are paid. Investors and sponsors get into trouble when a presentation says “quarterly liquidity” and the limited partnership agreement, or the articles, says something slower. This note is about how to read the slower document.

Three questions, kept separate

Ask them in this order, and do not let one answer stand in for the others.

  1. When can a request be submitted? The documents may allow a request only on a dealing day, only on a stated number of days’ notice, and only after an initial lock-up. A right that can be exercised on the last business day of each quarter, with 90 days’ notice, is not a right that can be exercised on any Tuesday.
  2. When is the redemption effective, and what value is used? The effective date and the valuation date are often the dealing day, but the valuation may be the net asset value struck under a stated policy, and it may be adjusted for reserves, holdbacks, or a redemption fee. “Quarterly” describes the dealing day. It does not describe the number.
  3. When must the fund pay? Payment is often a further period after the dealing day, sometimes in installments, sometimes in cash or in kind, and sometimes subject to the fund having the cash or having received it from an underlying investment. The date the investor may ask, and the date the wire is due, are different dates.

A pattern that shows up often, and that should be treated as an illustration rather than a form, is a monthly or quarterly dealing day, notice measured in weeks or months, a lock-up of a year or more at the start, a gate if requests exceed a stated percentage of net asset value, and payment several weeks after the dealing day. None of those terms is required. All of them are the sort of term that decides whether the investor’s expectation and the document are the same thing.

A lock-up is a timing limit, not a classification

A lock-up is a period during which the investor may not redeem, or may redeem only by paying a fee or only in circumstances the document lists. It is there because the portfolio cannot prudently be treated as a checking account, particularly at the start, when positions are still being built. A lock-up does not, by itself, turn an otherwise redeemable interest into a closed-ended fund, and the absence of a lock-up does not turn a committed-capital fund into an open-ended one. Classification is the question in Open-Ended vs. Closed-Ended Cayman Funds. Hybrids — a long lock-up, a narrow gate, and a marketing label that still says “open-ended” — need particular care. The statutory definitions look at whether the interest is redeemable or repurchasable at the investor’s option, not at the adjective on the cover.

A gate limits the amount. A suspension stops the process.

A redemption gate limits how much can leave on a dealing day. Documents often cap redemptions at a percentage of net asset value and then either prorate the requests or carry the excess to the next dealing day. Investors who asked in full may receive a fraction. The unpaid fraction is still subject to the next gate, the next valuation, and any suspension that is later imposed. A gate slows withdrawals. It does not, by itself, cancel the right.

A suspension is different. The documents permit the operator — the board, or the general partner, depending on the vehicle — to stop dealing for a period. The circumstances should be written down: an inability to value, a market closure, a breakdown at the administrator, or another event the draft actually names. They should not be assumed from the word “suspension.” Who may suspend, and who must be told, belongs with the operator’s role, covered in Who Does What in a Cayman Fund. A side letter that gives one investor shorter notice, a smaller gate, or immunity from suspension is a different liquidity right. It is also a conflict and a disclosure point. How side letters accumulate is discussed in Side Letters.

The payment date has to be a date the assets can meet

A clause that says the fund will pay in cash is only as good as the assets. Listed securities are not the same as a fund interest, a private loan, or a building. If the portfolio is itself an interest in another fund, the feeder’s payment date has to work with the date the feeder can receive proceeds. Lining those dates up is a caution to the drafter. It is not a representation that either fund is redeemable, and it is not a representation that matching the words will produce cash if the underlying fund suspends. That layer of the structure is Cayman Feeder vs. Parallel Funds.

Documents sometimes allow payment in kind, or a holdback while a valuation is finalized, or a reserve for expenses and contingencies. Each of those is a real limit on what arrives in the investor’s account. For a mutual fund, section 4(6) of the Mutual Funds Act (2025 Revision) requires the offering document to describe the equity interests in all material respects and to contain the information a prospective investor needs in order to decide whether to subscribe. Liquidity terms are part of that description. They do not belong only in a presentation.

A closed-ended fund is the contrasting case, and it should not be forced into this vocabulary. Investors generally cannot require redemption. Cash comes back through distributions, realizations, and winding down. A transfer to another investor, if the documents allow it, is not a redemption. In-kind distributions at the end of the life of a fund raise their own issues, discussed in Winding Down an Investment Fund. CIMA’s FAQ also makes a useful separation for private funds: the Authority expects assets to be valued at least annually, in line with the fund’s valuation policy, even when investors cannot redeem and have not asked for a valuation. An annual number for reporting is not a dealing day.

Registration does not fill the gap. A fund that is registered under the Mutual Funds Act has not thereby promised daily cash. A redemption clause that the portfolio cannot fund is still a clause the portfolio cannot fund.

What to read before the first subscription

  1. The definition of dealing day, and the notice required before it.
  2. Any lock-up, and any fee for leaving during it.
  3. The gate: the percentage, whether excess requests are prorated or deferred, and whether the deferral is automatic.
  4. Suspension: the circumstances, who decides, and what happens to a request already in.
  5. The valuation policy, the payment period, any holdback, and any right to pay in kind.
  6. If the fund holds another fund, the same six items in the underlying documents.
  7. Any side letter that changes those items for one investor.

Sponsors should be able to answer those items before they accept a subscription. Family offices should be able to find them before they send one. Recalde Law leads the U.S. documents in which those answers have to appear, and coordinates with qualified Cayman counsel on the Cayman constitutional documents, the Cayman offering materials, and the registration. We do not practice Cayman law. If you are launching a fund, or reading one, the consultation is on the Cayman funds page. Other U.S. vehicles are on Fund Formation.

Official references