Glossary
Returns and fees
What is redemption?
Investors withdrawing capital from an open-ended fund.
Redeemable seats (hedge funds, most asset management mandates, some quant vehicles) hand your investors an exit you cannot veto. Weak trailing returns arrive as a capital call in reverse: you sell into the same market that hurt you.
A worked example
A hedge fund with $1bn of AUM has a bad year and investors redeem 20%. It has to sell $200m of positions, often into the same falling market that caused the bad year, and its fee income drops by a fifth.
Where it catches you in the game
- Weak IRR and reputation at year close can trigger a redemption notice that cuts AUM and cash.
It comes up most on the hedge fund desk, the asset management desk and the quantitative investing desk.
Related terms
Learn it by using it
Definitions stick once they've cost you money. Take a seat, make three calls a year and watch what redemption does to your returns.