what is a gate provision 
a gate provision refers to a statement in a fund s offering documents that establishes the fund manager s right to limit or halt redemptions the prospectus or offering documents may provide more detail on a gate provision such as scenarios where redemptions would be restricted or halted entirely gate provisions are intended to stop a run on a fund particularly when the assets a fund holds are illiquid and difficult to turn to cash for redemption in a timely manner even with scenarios and guidelines the decision to exercise the gate provision is the fund managers understanding gate provisionsgate provisions restrict redemptions and help to prevent runs on the fund when a fund particularly a hedge fund is holding complex investment products unwinding positions can take time the gate provision is built into the fund offering to prevent a situation where redemption requests cost the fund further by forcing liquidation in an adverse market situation the gate provision in practicefund managers usually need to inform investors in writing when invoking the gate provision the notification will usually state the need for the provision and outline how much if any investors will be able to receive when they request a redemption even though they are part of most fund documents invoking the gate provision is a serious business and usually involves a consultation with an attorney because a gate provision is invoked at the discretion of the fund manager investors who find their money locked in understandably question the fund manager s judgment interestingly a gate provision doesn t always affect all investors equally institutional investors and preferred clients may have a side letter a separate agreement with the fund stating that their money will never be locked in as a result some hedge funds have eliminated gate provisions altogether because it doesn t actually cover the majority of the capital in the fund a famous example of a gate provision