A lockup period for hedge funds restricts a multi-period investorís ability to rebalance his portfolio and has non-trivial e§ects on the allocation decision and portfolio e¢ ciency. Investors compensate for a hedge fund lockup period by making adjustments to their equity and bond holdings. Adding hedge funds with a lockup period to the portfolio of stocks and bonds generates large, negative hedge demands for stocks. More importantly, an investor with a portfolio of stocks, bonds and hedge funds under both the unconditional strategy and conditional strategy is hurt by the presence of a hedge fund lockup period. In an unconditional setting, we Önd a Sharpe ratio of 1.10 for the portfolio of stocks, bonds and hedge funds adjusted for stale pricing, with a three-month lockup period for hedge funds and monthly rebalancing of stocks and bonds. For the same portfolio, but without a hedge fund lockup period, we Önd a signiÖcantly higher Sharpe ratio of 1.42. The certainty equivalent is 1.9%, i.e. the investor is willing to pay 1.9% per year in order to move to the ideal situation of unlimited rebalancing or no lockup.