in Private Equity Funds Like Platinum Ridge Private Equity Fund, L.P.
Investing in a private equity fund offers the potential for outsized returns, access to exclusive opportunities, and strategic diversification. However, it also comes with a unique set of structures and limitations designed to protect both the fund and its investors. One such feature is the policy of processing redemptions at 90% of the fund’s current net asset value (NAV) at the time of redemption.
At first glance, this might seem like a penalty or a disadvantage—but in reality, it serves several vital purposes. Here’s why this approach is in place and how it benefits long-term investors in funds like Platinum Ridge Private Equity Fund, L.P.:
1. Private Equity Assets Are Illiquid and Hard to Value Precisely
Unlike stocks or bonds traded daily on public exchanges, private equity investments consist of privately held companies, real estate, or other alternative assets that are not priced daily by the market. Valuations are determined periodically—often quarterly—based on appraisals, financial projections, and comparable transactions.
Because of this, any valuation at the time of redemption is inherently an estimate, not a guaranteed final value. By redeeming at 90% of the estimated NAV, the fund builds in a margin of safety to protect remaining investors from overpaying the exiting party or having to realize losses by liquidating assets prematurely.
2. Preserves Fairness for Remaining Investors
If redemptions were paid at 100% of the current NAV—based on a potentially outdated or estimated valuation—the remaining investors could be left holding the risk of those valuations being revised downward in the next audit or revaluation. This would result in a transfer of value away from long-term investors to short-term redeemers.
The 10% holdback ensures fairness. It allows the fund to wait for more accurate valuations or final exit proceeds before finalizing the full redemption value, helping protect the integrity of the fund for those who remain committed.
3. Provides a Buffer for Fund Liquidity Management
Private equity funds are not designed to handle frequent redemptions. The underlying investments are illiquid, often requiring months or years to exit profitably. If the fund were required to pay out 100% of a redemption request immediately, it might have to liquidate assets at a loss, borrow capital, or disrupt portfolio strategy.
By retaining 10% temporarily, the fund gains breathing room to manage liquidity prudently, avoid fire sales, and ensure redemptions are not disruptive to long-term performance.
4. Standard Industry Practice
Holding back a portion of redemption proceeds is not unique to Platinum Ridge—it is standard practice across many private equity and hedge funds. Often referred to as a “holdback,” “reserve,” or “escrow,” this amount is commonly settled once the fund finalizes valuations, collects final exit proceeds, or completes its year-end audit.
In some cases, this 10% is returned within a specified timeframe (e.g., 6–12 months after redemption). This approach offers investors both liquidity and discipline—they can exit the fund, but they must accept the constraints imposed by the nature of the asset class.
5. Aligns Investor Behavior with Long-Term Fund Strategy
The 90% redemption payout discourages short-term, speculative redemptions. Investors are incentivized to remain aligned with the fund’s long-term horizon rather than seeking to time the market or exit during valuation spikes. This alignment helps ensure that capital is stable, performance is protected, and managers can focus on value creation rather than liquidity management.
Final Thoughts: A Reasonable Tradeoff for Long-Term Value
Redemptions at 90% of current fund value are not a punishment—they are a necessary safeguard. In private equity, where assets are illiquid and valuations are not always final or precise, this practice balances the need for investor liquidity with the need for fund stability.
For investors in Platinum Ridge Private Equity Fund, L.P., this policy ensures that redemptions do not unfairly penalize those who remain committed, while still offering a pathway to exit in a responsible and structured manner. It’s a small concession in the short term for a larger promise: the integrity and performance of your long-term investment.
