Originally posted in the May 2012 edition of Corgentum Consulting's Operational Due Diligence Insights.

1. Fund Terms: Soft Lock-Up
Operational due diligence is a multidisciplinary subject. An investor beginning the operational due
diligence process for the first time may encounter subjects with which they have little to no
familiarity. As the scope of operational due diligence has become broadened in recent years, even
seasoned operational due diligence professionals may encounter terms which they may be
unfamiliar. The purpose of this section of Operational Due Diligence Insights, is to cast a spotlight on
some of the words and terms, investors may have not previously encountered, or that tend to get
overlooked during an operational due diligence review.
This issue's word: Soft lockup
Defined: A soft lockup refers to the ability of the fund to charge a penalty for investors redeeming
capital prior to the expiration of a pre-defined time period. Soft lockup penalties are not universal
and may vary among fund managers. Additionally, some fund managers may offer soft lockup
penalties which vary on a sliding scale based on the amount of time an investor remains invested in
a fund. So for example, consider a fund with a three year soft lockup. Under a sliding scale structure
a penalty of 2% may be applied for investors which redeem capital anytime during the first 12-24
months of investment. This penalty could decrease to 1% for redemptions anytime during the last 12
months (i.e.- months 25 through 36) of the entire three year period. Investors should take measures
to understand soft lockup penalties and terms. Additionally, soft lockups may interact with other
fund terms such as gates, which investors should also consider during the operational due diligence
process.
What investors should know: Soft lockups can be contrasted with hard lockups, which are
sometimes just referred to as lockups. By comparison, under a hard lockup an investor cannot
redeem capital prior to the the expiration of a pre-defined time period
Originally posted in the February 2012 edition of Corgentum Consulting's Operational
Due Diligence Insights.
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