When a position becomes untradeable, valuing it for daily or monthly dealing becomes guesswork, and any guess transfers value between subscribers and redeemers. Moving it to a side pocket freezes each investor's share of that position as of the date it was pocketed.
No management or performance fee is normally charged on side-pocketed assets until they are realised, and new investors do not participate in them. Proceeds are distributed when the position is finally sold or written off.
The mechanism is legitimate and sometimes necessary, but it has been abused to hide losses by pocketing positions that were simply falling in value rather than genuinely illiquid. Check how the decision is made and who audits the valuation.
Related: redemption-gate, net-asset-value, illiquidity-premium, hedge-fund, liquidity