Private market funds don't trade on an exchange, so getting your money back works differently than selling a stock — and understanding the rules before you invest can save you from an unpleasant surprise.
You've probably had a moment where you needed cash fast. Maybe the furnace died in February, or a deal on a cottage came together quicker than expected. If your money was in publicly traded stocks or exchange-traded funds (ETFs) (or better yet, a high-interest savings account for emergencies) you could sell and have the proceeds in your account within a couple of days. Private market funds don't work that way. Private market funds don't work that way. Your capital is committed for a defined period — anywhere from a few quarters to several years, depending on the fund's structure — and when you want to withdraw it, you may face restrictions you never encounter in public markets. That trade-off is the price of admission for a different kind of return profile, and it's worth understanding exactly how it works before you commit a dollar.
What makes private markets illiquid
Public markets have a built-in escape hatch: an exchange. Buyers and sellers meet continuously, prices update in real time, and you can exit a position in seconds. Private market funds invest in assets — real estate developments, infrastructure projects, private companies, credit portfolios — that don't trade on any exchange. There's no live order book. Selling your stake means either waiting for the fund to return your capital or finding a buyer on a limited secondary market.
The underlying assets are the main reason. A half-built apartment tower or a stake in a private software company can't be sliced into tiny pieces and sold in milliseconds the way a share of a bank stock can. Valuing these assets is slower, too. Instead of market prices that update every second, private holdings are typically appraised quarterly — sometimes less often. That gap between valuations creates uncertainty, which makes quick exits harder for everyone involved.
None of this means private markets are bad. It means liquidity is a real constraint, and the fund structure you choose determines how much flexibility you actually have.
Open-ended vs. closed-ended funds
Not all private market funds lock up your money the same way. The two main structures — open-ended and closed-ended — handle subscriptions, redemptions, and liquidity on fundamentally different timelines.
How open-ended funds work
An open-ended fund accepts new investors and allows existing investors to redeem on a rolling basis, usually at set intervals. Think of it as a pool that can grow or shrink over time. New capital comes in, redemption requests go out, and the fund manager balances the two.
Key features:
Ongoing subscriptions. You can typically invest at designated entry points (monthly or quarterly) rather than committing all your capital on day one.
Periodic redemptions. Investors can request to withdraw money, but only during specific windows — usually quarterly. Even then, liquidity is limited, not guaranteed: the fund manager typically retains the right to limit or suspend redemptions under certain conditions, such as periods of market stress.
Net asset value (NAV) pricing. Units are priced based on the fund's most recent NAV calculation, not a live market price.
Variable fund size. The total capital in the fund changes as investors come and go.
Open-ended structures are now common across all major private asset classes — including private equity, private credit, private real estate, and infrastructure. They offer more flexibility than closed-ended funds, but "more flexible" is relative — you still can't sell on demand the way you can with a publicly traded security.
How closed-ended funds work
A closed-ended fund raises a fixed amount of capital during a fundraising period, then closes the door. Your money is committed for the full life of the fund — often 7 to 12 years — and you get it back as the fund sells its underlying investments.
Key features:
Fixed fundraising window. Capital commitments happen upfront. Once the fund closes, no new investors are admitted.
Capital calls. The fund may not take all your money on day one. Instead, it "calls" your committed capital in stages as it finds investments — sometimes over 2 to 4 years.
No scheduled redemptions. There is generally no mechanism to withdraw early. You wait for distributions as the fund exits its holdings.
Defined fund life. Most closed-ended funds have a stated term (say, 10 years plus optional extensions), and they wind down by liquidating assets and returning proceeds to investors.
Limited secondary sales. Some investors sell their fund stakes on secondary markets, but pricing is often at a discount and the process is neither fast nor guaranteed.
Closed-ended funds are a traditional structure across all major private asset classes — private equity (PE), venture capital, real estate development, and more. The trade-off is straightforward: you give up liquidity in exchange for the fund manager's ability to invest patiently without worrying about redemption pressure.
That trade-off also has a quiet effect on returns. Open-ended funds offer limited periodic liquidity, while closed-ended funds offer no interim liquidity at all — they return your capital through realizations as investments are sold over time. To meet potential redemptions, open-ended funds typically hold a portion of cash or other liquid assets as a buffer. That buffer can dilute returns relative to the underlying strategy, since not all the capital is working in the investments themselves. A closed-ended fund, by contrast, can stay fully invested for the whole term — which is part of why an open-ended structure may underperform an equivalent closed-ended one.
How redemption windows work
If you're in an open-ended fund, redemptions don't happen on your schedule — they happen on the fund's schedule. Most open-ended private market funds offer quarterly redemption windows, though some allow monthly requests.
The process typically works like this:
You submit a redemption request before a deadline, often 30 to 90 days before the redemption date.
The fund manager reviews total redemption requests against available liquidity.
If the fund has enough cash, your request is fulfilled at the next NAV calculation — usually within a few weeks of the redemption date.
If total requests exceed available liquidity, the fund may not honour every request in full. This is where gating comes in.
Notice periods exist for a reason. The fund manager needs time to plan — selling a commercial building to raise cash isn't like selling shares on the Toronto Stock Exchange (TSX). Planning ahead protects both you and every other investor in the fund.
Some funds also impose minimum holding periods — say, 1 to 2 years — before you're eligible to redeem at all. Others charge early redemption fees if you exit within a certain window. Read the offering documents carefully; these details vary fund by fund.
How redemption caps work
A redemption cap is a limit on how much money can leave a fund during any single redemption period. Caps exist to prevent a stampede — if every investor tried to withdraw at once, the fund manager would be forced to sell assets at fire-sale prices, which would hurt everyone, including the investors who weren't trying to leave.
There are two types, though one is far more common than the other:
Fund-level caps. The fund limits total redemptions to a set share of NAV — typically 5% or less per quarter, or 20% or less per year. If requests exceed the cap, redemptions are processed pro rata (everyone gets the same proportion of their request filled) and the remainder queues for the next period. This is the standard approach in most evergreen funds.
Investor-level caps. Individual investors are limited on how much they can redeem in a single period — for example, a set percentage of their holdings per quarter. This is a rare provision in practice; most funds rely on fund-level caps instead.
When a cap is triggered, your unfulfilled redemption doesn't disappear. It rolls into the next queue. But if redemption pressure continues, you could wait multiple quarters to get your full amount back.
Beyond redemption caps, most private market funds also retain the right to suspend redemptions entirely under certain circumstances — particularly in periods of market stress, or when liquidity management requires it. A suspension is a more serious step than a cap: rather than limiting withdrawals, it halts them altogether for a period. It's an uncommon measure, but it's one the fund manager can take to protect the portfolio and all the investors in it.
Redemption caps can feel frustrating when you're the one waiting. But they serve a genuine protective function: they stop forced selling, preserve the portfolio's value, and give the fund manager room to raise cash in an orderly way. Without them, a liquidity crunch could spiral into a loss for everyone.
What happens during stress events
Market stress — a recession, a credit crisis, a sudden repricing of real estate — is when liquidity constraints get real. During a stress event, several things can happen:
Redemption queues grow. More investors want out at the same time, redemption caps get triggered, and your 90-day expected wait might become 6, 9, or 12 months.
NAV adjustments lag reality. Private asset valuations are updated quarterly at best. During a fast-moving downturn, the NAV you're redeeming at may not fully reflect how much values have dropped — or, conversely, the fund may mark assets down sharply, and you sell at a trough.
Funds suspend redemptions entirely. In extreme cases, a fund manager can temporarily halt all redemptions to protect the portfolio. This has happened in real estate funds during past credit crunches globally. The suspension may last months. You have no access to your capital during that period.
Secondary market discounts widen. If you try to sell your closed-ended fund stake on the secondary market during a stress event, expect a steep discount — sometimes 20% to 40% below NAV. Buyers know you're under pressure, and they price accordingly.
Distributions slow down. Closed-ended funds may delay exits. The manager holds assets longer rather than selling into a weak market, which means your capital is tied up beyond the original expected timeline.
None of this is hypothetical. These dynamics have played out repeatedly — in the 2008 financial crisis, during the pandemic liquidity squeeze in early 2020, and in various regional real estate corrections. Understanding that they can happen is part of making an informed decision.
The illiquid asset mindset
The most important thing about private market fund liquidity isn't a mechanism or a rule — it's a mindset. Investors who commit capital to private markets are working with money they do not expect to need for a defined period. The capital is genuinely unavailable — not probably available, and not accessible on demand.
That means:
Emergency reserves stay liquid. Private market capital is generally structured around multi-year time horizons. Capital with a shorter expected availability window — say, 2 to 3 years — tends to be better suited to more liquid structures.
Allocation percentages help. Thinking in terms of what share of a total portfolio to lock up — 5%, 10%, 20% — keeps illiquid positions manageable. The rest stays in liquid assets that can be accessed quickly.
Planning for the full fund term reduces surprises. If a closed-ended fund has a 10-year life, treating that money as unavailable for the full 10 years avoids being caught off guard. If it comes back sooner, that's a bonus.
Temperament matters. Market downturns make people anxious. Investors who tend to panic-sell when stocks drop 15% may find a fund that won't let them sell at all to be either a blessing or deeply frustrating. Self-awareness goes a long way.
Limited liquidity isn't a flaw in private market investing. It's the feature that allows fund managers to pursue long-term strategies without being forced to sell assets at the worst possible moment. Illiquidity is the mechanism that generates the return premium — you're being compensated, in theory, for giving up flexibility. Whether that trade-off works for you depends on your financial situation, your time horizon, and your temperament.
Key terms to know
Closed-ended fund: a fund that raises a fixed amount of capital, closes to new investors, and returns money as it exits investments over a defined term.
Open-ended fund: a fund that accepts new subscriptions and allows redemptions on a rolling basis, usually at set intervals.
NAV: the total value of a fund's assets minus its liabilities, divided by the number of outstanding units. Used to price buy-ins and redemptions.
Redemption window: a scheduled date or period when an open-ended fund processes withdrawal requests — often quarterly. This is when capital can actually leave the fund.
Notice period: how far in advance you must submit a redemption request before a given window — typically 30 to 90 days. The window is when you can get out; the notice period is the lead time you owe beforehand.
Redemption caps: a cap on the total amount of redemptions a fund will process in a single period, designed to prevent forced asset sales.
Pro rata: proportional allocation. When redemption caps are triggered, each investor receives the same fraction of their requested redemption.
Capital call: a demand from a closed-ended fund for investors to deliver a portion of their committed capital, usually to fund a new investment.
Secondary market: an informal market where investors buy and sell existing stakes in private funds, typically at a discount to NAV.
Initial lockup period: the minimum time an investor must hold their position before becoming eligible to request a redemption.
Suspension: a temporary halt on all redemptions, used by fund managers during extreme market stress to protect the portfolio.
