What does a "soft close" signify in hedge funds?

A "soft close" in hedge funds specifically refers to the practice of limiting new investments while allowing contributions from existing investors. This strategy is often implemented when a fund has reached a certain size or is managing liquidity constraints, and it aims to maintain the fund's performance while preventing dilution of returns for current investors. By restricting new investments from outside parties, the fund can focus on managing the capital it already has while still permitting existing investors to increase their stakes.

This approach balances the need for growth and additional capital from existing stakeholders with the goal of maintaining an optimal investment environment. It allows the fund to sustain its strategies without the pressures that can come with a large influx of new capital, which might distort investment objectives or operational stability.