Side pocketing in mutual funds

The illiquid investment that is kept aside is isolated from the rest of the fund.

WHAT IS IT?

Notebook with mutual funds sign on a table. Business concept. (Getty Images/iStockphoto)

In mutual funds, side pocketing is an account built to segregate illiquid assets from the rest of the fund. The illiquid investment that is kept aside is isolated from the rest of the fund. It is a mechanism to separate distressed, illiquid and hard-to-value assets from other more liquid assets in a portfolio. This prevents the distressed assets from damaging the returns generated by more liquid, better-performing assets.