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From HedgeBay.com: The only way an investor can dispose of his interest in a hedge fund at   NAV,  and  actually  receive  that  NAV  value, is by using the secondary   market.   The  reality  is  that  the  structure of hedge fund redemption   provisions prevents investors from reinvesting redemption proceeds timely   or  efficiently,  with a consequent loss of value.  The following example   illustrates the problem.

How you get your money out of a hedge fund   Say you are invested in a typical hedge fund with quarterly liquidity and   45  day notice.  Your notice is given and confirmed by the fund.  Now you   wait  45  days  until  the  end  of  the  quarter,  but  no  money is yet   distributed  to  you.  It isn’t until approximately the 10th business day   of  the  next  month that you receive an estimated 90% of your redemption   proceeds,  far  too late to reinvest them in another hedge fund.  And the   remaining 10%?  That generally is distributed in the following year after   the audit is completed.

  When  you  boil it down, on average, an investor who redeems from a hedge   fund,  regardless  of  the liquidity, is uninvested for 2 months.  With a   12%  annual  return  target,  the  cost  is  2%.   This  is a significant   opportunity cost, particularly for a fund of funds that competes fiercely   for investor capital.

  Many  investors  utilize credit lines, but credit lines merely mitigate a   portion  of the lost opportuni......................

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