Viking Global Investors, one of the largest US stock picking hedge funds, is imposing more restrictive redemption terms on some of its longtime clients, as it pushes deeper into venture capital and other difficult-to-value investments.

Last month, Viking told investors who put money into its $5.2bn Viking Global Opportunities fund in 2015 that they will be allowed redemptions only every two years, not annually as previously agreed.

Clients who do not consent to the change by September 30 will be handed back their money, the firm wrote in a letter reviewed by the Financial Times. The restrictions would begin affecting investors next year, after their initial five-year lock up expires.

Investors who have put money into VGO since last year are already subject to the two-year restriction, and affected clients can still make annual withdrawals on some proceeds from private investments.

The tighter restrictions reflect how hedge funds are increasingly interested in illiquid investments that may be tough to sell, especially in times of market stress, but can offer better returns to compensate for the risk. Neil Woodford, one of Britain’s best-known stock pickers, was forced to suspend redemptions from his Equity Income fund in June after accumulating outsize positions in illiquid securities.

Viking’s VGO funds, split roughly evenly between public and private companies, manage almost $3bn in illiquid investments, including stakes in the plant-based burger company Impossible Foods and make-up delivery service Birchbox. It has also been an investor in Uber, the ride-sharing pioneer than went public in May, since 2015.

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The firm said its plan to limit redemption opportunities for earlier investors was due to the “evolution” of its private investment program, which invested more than $580m in the first half of this year, according to the letter.

“While some of our deals have relatively short closing periods, others can take over a year to negotiate and obtain requisite approvals,” Viking wrote to investors.

“We believe this two-year rolling lock-up period better aligns VGO’s liquidity terms with our deal sourcing efforts by providing our investment staff with greater visibility into available dry powder.”

Viking is known as one of the most successful hedge funds tracing its roots to the legendary investor Julian Robertson, a group including Coatue Management and Tiger Global Management that has grown its Silicon Valley presence in recent years.

The new investor terms follow a June leadership shake-up that installed Ning Jin as Viking’s sole investment chief. Viking, which was founded in 1999 by the Norwegian investor Andreas Halvorsen, a protégé of Mr Robertson, said in the letter that it once again manages more than $30bn. It returned $8bn to investors two years ago, a move that shrunk the firm’s assets to $24bn at that time.

Viking said it plans to reopen the VGO funds to outside investors in January. They have been a relative bright spot for the firm, taking in $900m from investors while Viking’s flagship hedge fund and long-only strategies have suffered redemptions over the past two years, according to the letter.

As part of the changes, Viking also said it would begin dividing investments into “core” and “noncore” categories. The firm said core holdings include private equity investments and the “most liquid” public stocks in its funds, but did not give a definition for noncore holdings.

“While we do not currently have new fund strategies under development, we believe this update provides investors with increased clarity regarding VGO’s primary investment focus, while also giving us greater flexibility to launch future fund products focused on different strategies,” Viking wrote.

VGO made gains of 22.5 per cent in the first half of this year. The S&P 500 index rose 17.2 per cent, by comparison. BridgeBio Pharmaceuticals, a drugmaker targeting genetic disease that went public in June, accounted 7.5 percentage points of returns to the Viking fund.

Via Financial Times