Side Pocket


DEFINITION of 'Side Pocket'

A type of account used in hedge funds to separate illiquid assets from other more liquid investments. Once an investment enters a side pocket account, only the present participants in the hedge fund will be entitled to a share of it. Future investors will not receive a share of the proceeds in the event the asset's returns get realized.


Investors who leave the hedge fund will still receive a share of the side pocket's value when it gets realized. Usually only the most illiquid assets, such as delisted shares of a company, receive this type of treatment, because holding illiquid assets in a standard hedge fund portfolio can cause a great deal of complexity when investors liquidate their position. Overall, side pocket accounts resemble single asset private equity funds in structure.

  1. Hedge Fund

    An aggressively managed portfolio of investments that uses leveraged, ...
  2. Delisting

    The removal of a listed security from the exchange on which it ...
  3. Equity Fund

    A mutual fund that invests principally in stocks. It can be actively ...
  4. Illiquid

    The state of a security or other asset that cannot easily be ...
  5. Liquidate

    1. To convert assets into cash or equivalents by selling them ...
  6. Long-Term Capital Management - ...

    A large hedge fund led by Nobel Prize-winning economists and ...
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