When redemption requests exceed the quarterly cap, the fill ratio, not the cap, decides how fast an investor gets its money back.
When requests exceed the cap, every request is filled pro rata: fill ratio = cap ÷ total requests. With a 5 per cent quarterly cap and requests of 12 per cent of NAV, each investor receives 41.67 per cent of what it asked for. If the pressure persists and the investor resubmits the remainder each quarter, getting 90 per cent of a holding out takes 4.3 quarters, not the 20 quarters a 5 per cent cap seems to imply, and not one.
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 →
Semi-liquid funds, the evergreen vehicles sold to wealth clients with monthly or quarterly dealing, typically limit redemptions to around 5 per cent of NAV a quarter. Most of the time the limit never binds. When it does, investors ask two questions: how much will I get this quarter, and when will I have all of it. The answers depend on what every other investor does, which is why they are worth computing before the quarter in which they are asked.
| Input | Value |
|---|---|
| Fund NAV | €1,000m |
| Redemption cap, per quarter | 5% of NAV |
| Redemption requests this quarter | 12% of NAV |
| The investor's holding, all requested | €2.0m |
| Treatment of unfilled requests | resubmitted next quarter |
Fill ratio = cap ÷ requests = 5% ÷ 12% = 41.67%
The investor receives €2.0m × 41.67% = €0.833m; €1.167m stays in the fund. In Excel: =MIN(1,B2/B3)*B4.
The fill ratio applies to the request, not to the holding. An investor who asks for all of a holding gets 41.67 per cent of it; one who asks for half gets 41.67 per cent of half. This is the mechanism that makes a run self-reinforcing: once investors expect to be prorated, the rational move is to request more than is needed, which lowers the fill ratio for everyone.
Suppose requests stay at 12 per cent of NAV every quarter, a mixture of resubmissions and new requests, and the investor keeps resubmitting. Each quarter it receives 41.67 per cent of what is left.
Share still in after q quarters = (1 − fill)q
Quarters to get a share x out = ln(1 − x) ÷ ln(1 − fill). For 90 per cent: ln(0.1) ÷ ln(0.5833) = 4.27 quarters. In Excel: =LN(1-B6)/LN(1-B5).
| Quarter | Paid, €m | Cumulative, €m | Share out | Still in, €m |
|---|---|---|---|---|
| 1 | 0.833 | 0.833 | 41.7% | 1.167 |
| 2 | 0.486 | 1.319 | 66.0% | 0.681 |
| 3 | 0.284 | 1.603 | 80.2% | 0.397 |
| 4 | 0.165 | 1.768 | 88.4% | 0.232 |
| 5 | 0.096 | 1.865 | 93.2% | 0.135 |
| 6 | 0.056 | 1.921 | 96.1% | 0.079 |
The tail is long. Two thirds is out in two quarters, but each quarter returns only 41.67 per cent of what remains, so under persistent pressure the holding is never fully redeemed: 1.3 per cent of it is still in after eight quarters.
Pressure rarely stays constant. Model it instead as a backlog of 12 per cent of NAV, with new requests of 2 per cent of NAV a quarter, against a cap that falls as NAV shrinks.
| Quarter | NAV, €m | Queue, €m | Capacity, €m | Fill ratio | Investor out |
|---|---|---|---|---|---|
| 1 | 1,000.0 | 120.0 | 50.0 | 41.67% | 41.7% |
| 2 | 950.0 | 89.0 | 47.5 | 53.37% | 72.8% |
| 3 | 902.5 | 59.5 | 45.1 | 75.78% | 93.4% |
| 4 | 857.4 | 31.6 | 42.9 | 100.00% | 100.0% |
The investor is fully out in four quarters and past 90 per cent in three. Over the same year the fund pays out 174.2 of its NAV, 17.4 per cent, and ends at 825.8: the fourth quarter clears the queue below capacity. A 5 per cent cap is a 5 per cent cap on each quarter, not on the year.
| Requests, % of NAV | Fill ratio | Quarters to 90% out |
|---|---|---|
| 6% | 83.3% | 1.3 |
| 8% | 62.5% | 2.3 |
| 12% | 41.7% | 4.3 |
| 20% | 25.0% | 8.0 |
| 30% | 16.7% | 12.6 |
The non-linearity: the time to exit depends on the fill ratio through a logarithm, so it grows faster than the requests do. Requests going from 12 to 30 per cent of NAV, two and a half times, triple the time to exit, from 4.3 quarters to 12.6.
Compute the fill ratio, then the quarters to exit under a persistent and a draining queue. Tell investors both numbers before the cap binds, not in the letter after. The redemption runbook for an oversubscribed quarter and the investor letter for the quarter the cap binds are among the working documents in the free companion files for this book. How large the sleeve behind the cap should be is worked in how big an evergreen fund's liquidity sleeve should be.
The share of each redemption request a fund pays when requests exceed its cap: cap divided by total requests. With a 5 per cent cap and requests of 12 per cent of NAV it is 41.67 per cent, so an investor requesting €2.0m receives €0.833m and must resubmit the rest.
No. That reading treats the cap as a personal limit. The investor's share is the fill ratio on its request. At 12 per cent requests a resubmitting investor gets 90 per cent out in 4.3 quarters under persistent pressure, and in three if the queue drains.
Because each quarter's cap is 5 per cent of a shrinking NAV, four full quarters pay out 185.5 of a 1,000 fund, or 18.5 per cent, leaving 814.5. The cap limits each quarter, not the year.
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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