For pension funds or other large institutional investors, lock-up periods for private asset investments can reach a decade or more.Nathan Denette/The Canadian Press
The value of the traditional 60 per cent equities, 40 per cent bond portfolio is in question in today’s more complex economy, including the higher correlation among publicly traded assets.
Riding shotgun is the investment industry’s marketing push for retail investors to own multi-asset portfolios, similar to pension funds, that include exposure to private assets such as credit, equities, infrastructure and real estate.
A slew of new, “semi-liquid” private asset funds is being sold on the basis that they will produce superior returns and lower volatility than public assets over the long term.
However, as some of Canada’s largest pension funds have reported losses in 2025 on their private assets, is the case for “doing what the pension plans do” less compelling?
Chay Ornthanalai, associate professor of finance at the University of Toronto’s Rotman School of Management, says the semi-liquid retail products are a positive development by providing diversification.
“The illiquidity premium is a real thing. You’re getting paid extra for forfeiting the ability to buy and sell anytime,” he says.
However, he adds the caveat that retail investors have very different withdrawal requirements from pension funds.
Whereas redemptions by pensions are diversified by demographics, “for a retail investor, if something happens to you or your family tomorrow, you might need those funds immediately. That’s harder for a fund provider to diversify away,” he says.
For pension funds or other large, institutional investors, lock-up periods can reach a decade or more. The newer “semi-liquid” retail funds permit up to 5 per cent redemptions each quarter.
“The fund companies dangle the illiquidity premium in front of retail investors,” but Mr. Ornthanalai questions how much of that premium is captured when capital is withdrawn frequently.
“A retail investor can never be a pension fund that can commit all its capital for 50 years or more. However, if someone is thinking in generational terms, like a quasi-family office, then locking up the funds can be beneficial for compounding returns for heirs.”
Sean O’Hara, co-founder and chief investment officer of Toronto-based Obsiido Alternative Investments Inc., views the current challenges in private credit as being primarily liquidity-related.
“There are no flashing signals with respect to credit quality,” he says.
The main issue is investor suitability, particularly their tolerance for illiquidity, he adds.
“In contrast to the behaviour of many individual investors who are exiting these funds, institutions are seeking to take advantage of mispricing caused by market dislocations.”
Mr. O’Hara calls this a “teachable moment” for the industry and investors alike.
“The ‘semi-liquid’ tag is probably not helpful as it implies there is more liquidity – because, bottom line, the underlying assets are illiquid,” he says.
For products marketed to individual investors, large global private asset managers such as KKR & Co. Inc., Apollo Global Management Inc. and Carlyle Group Inc. structure their funds with a liquidity sleeve to provide enhanced liquidity features compared to what would be typical in a closed-end institutional fund structure.
This liquidity sleeve causes a small drag on performance, but the investor is still getting the extra yield over tradable bank loan portfolios, Mr. O’Hara says.
He recommends investors diversify among private asset classes, portfolio managers and a range of differentiated strategies.
“Where investors can run into trouble is if you’re in a single fund within a single sector that works until it doesn’t.”
For example, many investors are overly exposed to sectors of the Canadian real estate market through funds that have suddenly gated and frozen redemptions, he says.
Obsiido runs two open-ended, multi-asset, multi-manager private asset portfolios that provide investors with quarterly liquidity features.
If the current challenges facing private markets are indeed a “teachable moment,” what would the perfect retail product look like?
For Mr. Ornthanalai, that would include greater transparency on how yield and total returns are calculated, and it would have a minimum lock-up period of 20 years and an investment threshold of $10-million or more.
In response to the growing demand from advisors to understand private market products, Rotman is redesigning the Master of Finance program for September, 2026, with an enhanced private markets curriculum.