Side pocket
InvestingDefinition
A separate account within a hedge fund holding illiquid or hard-to-value positions. Investors who redeem retain pro-rata exposure to the side pocket until those positions are exited.
Allows funds to participate in special situations (private deals, distressed credit) without forcing fire sales when redemptions hit. Sometimes abused — turning the side pocket into a graveyard for embarrassing positions.
Allows funds to participate in special situations (private deals, distressed credit) without forcing fire sales when redemptions hit. Sometimes abused — turning the side pocket into a graveyard for embarrassing positions.