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Pushing Liquidity Risk Down to Those Who Can Least Afford It
The Ontario Securities Commission (OSC) is continuing work on a project intended to expand retail investor access to long‑term, illiquid assets — including private equity, private debt, infrastructure, and other hard‑to‑sell investments — through new or modified investment fund structures.
After consulting in October 2024 on a proposed Ontario Long‑Term Asset Fund (OLTF), the OSC has shifted to its Long‑Term Asset Fund Project, run through OSC LaunchPad. The initiative is designed to support and evaluate exemptive relief applications that could enable new products to come to market.
Liquidity Risks Are Well Known – and That Is the Point
Importantly, the risks associated with illiquid investments are not new, nor are they misunderstood by regulators. On the contrary, securities regulators have long recognized that these products carry significant liquidity, valuation, and complexity risks. That recognition is precisely why access to private and illiquid assets has traditionally been limited, in most cases, to high‑net‑worth or accredited investors — individuals who are generally better positioned to absorb losses, withstand long lock‑up periods, and cope with the possibility that their money may not be available when they need it.
From an investor protection perspective, the core concern remains straightforward: illiquid assets and retail investors’ need for reliable access to their money often make a poor fit.
Long‑term assets can be difficult to value and even harder to sell quickly. When too many investors seek redemptions at once — particularly in stressed markets — funds may limit withdrawals, delay redemptions, or suspend them altogether. For everyday investors facing job loss, illness, or family emergencies, restricted access to their own savings can create real hardship.
This Risk Is No Longer Theoretical
Since late 2022, a growing number of Canadian private funds and alternative investment vehicles have limited or suspended redemptions, including:
Taken together, these cases underline a hard truth: when illiquid products are sold with an implied promise of access on demand, that promise can disappear precisely when investors need liquidity most.
A Troubling Shift in Regulatory Direction
Against this backdrop, the troubling aspect of the OSC’s current initiative is not that it is exploring innovation, but that it risks shifting well‑understood liquidity risks onto a much broader population of retail investors — including those least able to bear them.
While the OSC has acknowledged that it is still studying retail demand and investor experience, it is simultaneously facilitating product launches through exemptive relief. From an investor advocacy standpoint, this creates a real risk that the market moves ahead of the evidence — before regulators have clearly answered critical policy questions about who these products are truly appropriate for, how they will be sold, what investors will be told (in plain language) about redemption limits and valuation uncertainty, and what happens when liquidity dries up.
Expanding access without fully resolving these questions risks undermining the very investor‑protection principles that have long justified keeping these products largely out of reach for the general public.
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