Editing Hedge fund (section)

===Side pockets===
A side pocket is a mechanism whereby a fund compartmentalizes assets that are relatively [[illiquid]] or difficult to value reliably.<ref name=Travers>{{cite book |url=https://books.google.com/books?id=fOUKPCVl29QC&pg=SA7-PA98 |title=Hedge Fund Analysis: An In-Depth Guide to Evaluating Return Potential and Assessing Risks |first=Frank J. |last=Travers |year=2012 |publisher=Wiley |isbn=978-1-118-17546-0}}</ref> When an investment is side-pocketed, its value is calculated separately from the value of the fund's main portfolio.<ref name=StrachmanBook>{{cite book |url=https://books.google.com/books?id=4YsogxfEsNQC&pg=PA63 |first=Daniel A. |last=Strachman |title=The Fundamentals of Hedge Fund Management |year=2012 |isbn= 978-1-118-15139-6 |publisher=Wiley |location=Hoboken, New Jersey |pages=63–64}}</ref> Because side pockets are used to hold illiquid investments, investors do not have the standard redemption rights with respect to the side pocket investment that they do with respect to the fund's main portfolio.<ref name=StrachmanBook/> Profits or losses from the investment are allocated on a ''[[pro rata]]'' basis only to those who are investors at the time the investment is placed into the side pocket and are not shared with new investors.<ref name=StrachmanBook/><ref name=Duc>{{cite book |url=https://books.google.com/books?id=jQ_W-2vqw-4C&pg=PA16 |title=Market Risk Management for Hedge Funds: Foundations of the Style and Implicit Value-at-Risk |last1=Duc |first1=Francois |last2=Schorderet |first2=Yann |year=2008 |publisher=Wiley |pages=15–17 |isbn=978-0-470-72299-2}}</ref> Funds typically carry side pocket assets "at cost" for purposes of calculating management fees and reporting net asset values. This allows fund managers to avoid attempting a valuation of the underlying investments, which may not always have a readily available [[market value]].<ref name=Duc/>

Side pockets were widely used by hedge funds during the [[2008 financial crisis]] amidst a flood of withdrawal requests. Side pockets allowed fund managers to lay away illiquid securities until market liquidity improved, a move that could reduce losses. However, as the practice restricts investors' ability to redeem their investments it is often unpopular and many have alleged that it has been abused or applied unfairly.<ref name=SECprobes>{{cite news |url=https://www.reuters.com/article/hedgefunds-sec-idUSN2713105420100428 |title=SEC probes hedge funds' use of side pockets-WSJ |work=Reuters |date=27 April 2010 |access-date=15 April 2013 |first=Joseph A. |last=Giannone |archive-url=https://web.archive.org/web/20131230234050/http://www.reuters.com/article/2010/04/28/hedgefunds-sec-idUSN2713105420100428 |archive-date=30 December 2013 |url-status=live |df=dmy-all }}</ref><ref>{{cite news |url=https://www.wsj.com/articles/SB115465505123626547 |title='Side-Pocket' Accounts Of Hedge Funds Studied |last1=Zuckerman |first1=Gregory |last2=Patterson |first2=Scott |date=4 August 2006 |work=The Wall Street Journal |access-date=18 April 2013 |archive-url=https://web.archive.org/web/20150327070810/http://www.wsj.com/articles/SB115465505123626547 |archive-date=27 March 2015 |url-status=live |df=dmy-all }}</ref> The SEC also has expressed concern about aggressive use of side pockets and has sanctioned certain fund managers for inappropriate use of them.<ref name=Lins>Gerald T. Lins, Thomas P. Lemke, Kathryn L. Hoenig & Patricia Schoor Rube, ''Hedge Funds and Other Private Funds: Regulation and Compliance'' § 5:23 (2013–2014 ed.).</ref>