The soft lock on a semi-liquid fund is small in percentage terms and large in annualised ones, and it is paid to the investors who stay, not to the manager.
An early repurchase fee, often called a soft lock, deducts a fixed percentage, typically 2 per cent, from the value of shares tendered within a set period after purchase, usually one year, and leaves it in the fund. An illustrative $100,000 subscription worth $104,800 after nine months is paid $102,704: the fee is $2,096, and it cuts an annualised 6.45 per cent return to 3.62 per cent. The money goes to the investors who stay.
Worked in full in The Evergreen Fund Handbook by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
The fund and the figures are fictional. Fee levels, periods and calculation bases vary by prospectus.
| Input | Value |
|---|---|
| Subscription | $100,000 |
| NAV per share at subscription | $25.00 |
| NAV per share at repurchase, month 9 | $26.20 |
| Early repurchase fee, within 12 months | 2% of repurchase value |
| Fund NAV | $1,000m |
| Early repurchases in the quarter | $15m |
Shares = $100,000 / $25.00 = 4,000
Repurchase value = 4,000 × $26.20 = $104,800
Fee = $104,800 × 2% = $2,096
Net proceeds = $104,800 − $2,096 = $102,704
Excel: =Shares*NAV_t*(1-Fee*(Months_held<12))
The fee is charged on the value redeemed, not on the original $100,000. It takes 43.7 per cent of the $4,800 gain.
Gross holding return = 4.80%; annualised = 1.04812/9 − 1 = 6.45%
Net holding return = 2.704%; annualised = 1.0270412/9 − 1 = 3.62%
Cost of leaving early = 2.83 points a year
A 2 per cent fee sounds like a rounding difference against a private markets return. Over nine months it is close to half of the annualised result, which is exactly the point: it is sized to make short holding periods unattractive, not to earn anything.
Fee retained = $15m × 2% = $0.30m
NAV uplift for remaining holders = $0.30m / ($1,000m − $15m) = 3.0 bp
In most semi-liquid structures the deduction is not revenue for the manager. It stays in the fund and accrues to the investors who did not leave, which is the right economic answer: early leavers draw on the liquidity sleeve, may force sales, and leave the remaining holders with a portfolio that is less liquid than before. Swing pricing addresses the same fairness problem on every dealing day, worked in how swing pricing works in a semi-liquid fund. The soft lock targets only the short-term holder, and it is flat: it is triggered by the calendar, not by what the redemption costs the fund. A charge sized on the liquidity cost a specific transaction forces is a different tool, worked in how an anti-dilution levy is calculated.
With the NAV growing at an illustrative 6.00 per cent a year, the annualised cost of the same 2 per cent fee falls quickly with the holding period.
| Months held | NAV return over hold, % | Net of fee, % | Net annualised, % | Annualised cost, pts |
|---|---|---|---|---|
| 3 | 1.47 | −0.56 | −2.23 | 8.23 |
| 6 | 2.96 | 0.90 | 1.80 | 4.20 |
| 9 | 4.47 | 2.38 | 3.18 | 2.82 |
| 11 | 5.49 | 3.38 | 3.69 | 2.31 |
The nine-month row is lower than the worked case because the NAV here grows at 6.00 per cent a year, not the 6.45 per cent of the example. At twelve months or more the cost is zero. An investor who could wait for the next quarterly tender window after the anniversary should almost always do so, unless the fund is gated and the queue is long, in which case the timing problem is the one in how long it takes to exit a gated semi-liquid fund.
Investors who subscribe in several tranches have several clocks. Suppose 4,000 shares were bought at $25.00 in month 0 and 2,000 more at $25.75 in month 8, and 5,000 shares are tendered at $26.75 in month 14, a redemption of $133,750. Only the second lot is inside its first year.
Same investor, same day, a fee that doubles depending on a definition in the prospectus that few people read. Advisers placing clients through platforms that aggregate many subscriptions into one account should check how the platform tracks lots, because the fund sees only the omnibus holding. The other frequent error is computing the fee on the original subscription: $2,000 instead of the $2,096 actually deducted, a small gap here that grows with the NAV.
The book's evergreen-versus-drawdown comparison, with the liquidity sleeve and share class costs live, is in the free workbook for this case.
In most semi-liquid structures the deduction is retained by the fund, so it accrues to the investors who stay, compensating them for the cost of providing early liquidity. In the illustrative case $15m of early redemptions, 1.5 per cent of a $1,000m fund, leave $0.30m behind, a 3.0 basis point lift to NAV for the remaining holders.
It depends on the holding period. On a fund growing at an illustrative 6.00 per cent a year, redeeming after 11 months cuts the annualised return to 3.69 per cent; after six months to 1.80; after three months the investor loses money, an annualised -2.23 per cent. The shorter the hold, the larger the annualised cost.
Usually on the value of the shares repurchased, at the NAV used for the tender. On a $100,000 subscription worth $104,800, that is $2,096 rather than $2,000. The prospectus defines it, together with whether the one-year clock runs from each subscription or from the first.
This article is one calculation from The Evergreen Fund Handbook. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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