Early Withdrawal Penalty or Lock-Up Period

Some investment companies charge penalties (normally a fixed percentage based on assets) if clients withdraw their funds before a certain period of time; usually between 1 to 5 years. Managed account programs do not normally have early withdrawal penalties, so clients can remain in the program for any amount of time they desire.

Even though these programs are not known for these types of fees, some managed forex companies request a reasonable amount of time (if necessary) to allow the manager the ability to manage open positions correctly before the withdrawal is processed. This makes it easier for portfolio managers to attempt to close open positions at more favorable prices if possible.

Lock-Up Period – Are My Funds Frozen?

Hedge funds are known for having what is known as a “lock-up period.” This is a period of time in which investors are not allowed to redeem their shares or investment in the fund. During this period, investors would still receive statements and know the value of their portfolios, but they would not be able to withdraw any money. Hedge funds are known to have lock-up periods sometimes as long as 2 years or more.

One purpose of a lock-up period is to give money managers time to close positions in illiquid investments, so they don’t have to take big hits, but this is not always the case. Many times, funds want to have the investor “locked-in” and paying fees for at least a few years. This is definitely a financial advantage for the money manager, who knows he would be receiving fees for a longer period of time from each investor if the fund has a lock-up. While this may be advantageous for the portfolio manager, the investor runs the risk of being stuck in a poorly performing fund for the length of the entire lock-up period.

Managed accounts, on the other hand, do not typically have lock-up periods. Clients can usually redeem their investments at any time. This can be one advantage managed investments have over currency hedge funds.