Lock-up Period or closed period. It is a term that refers to the time frame in which investors are not allowed to buy or sell shares of a particular investment, and there are two main uses of the Lock-up Period : the first is related to hedge funds, and the second is related to start-ups or initial public offerings (IPOs).
Lock-up Period goals
For the first use associated with hedge funds, the purpose of the Lock-up Period is to allow the hedge fund manager or administrator enough time to exit investments that do not provide enough cash or affect the balance of the investment portfolio too quickly.
Usually, the Lock-up Period is sufficient to give the hedge fund manager the necessary period of time to exit these investments without affecting the prices of other investment tools, which in turn may affect the performance of the financial portfolio as a whole.
As for the second use related to startup companies, or companies that wish to offer their shares for public subscription, the Lock-up Period aims to emphasize the balance of the company’s business model that is built on solid foundations, and it also allows the company (the issuer of the public offering) to maintain its cash flow. to monitor its growth and development.
The duration of the Lock-up Period is usually between 90 and 180 days, depending on the decision taken by the company, as investors and employees usually want the freezing period to be short so that they can monetize their investments as quickly as possible.
While issuers of public subscriptions prefer a long Lock-up Period to prevent speculators (insiders) from affecting and lowering stock prices, companies usually prefer a medium Lock-up Period , that is, one that is neither too short nor too long to ensure investor happiness while not affecting stock prices.
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