By Jeffrey Ryall, CFA, CFP®
Private credit often refers to lending financed by non-bank entities, usually with customizable terms. Lenders and their underlying investors accept the lower liquidity in exchange for higher yields. However, if market conditions change and the risk of default rises, retail investors tend to be the first to run for the exit. Excessive redemption requests (greater than 5% of the fund’s value) can lead the fund manager to place restrictions on withdrawals to preserve the fund’s net asset value for all investors. As concerns have grown in Q1 2026, retail investors have requested over $20 billion in redemptions, with many funds being forced to limit redemptions.
Private real estate refers to investment in physical, income-producing properties such as apartments, office buildings, and retail centres. Private real estate funds saw large inflows of capital for over a decade following the low-interest rate environment of the post global financial crisis (2008). Returns in private real estate have been muted over the past three years, significantly below long-term averages. Higher interest rates have reduced property valuations, and inflation has increased the cost of property management. At the same time vacancy rates peaked (mid 2024), as organizations and businesses continue to see the rise of remote work policies post Covid. Coldwell Banker estimates that almost 40% of Canada’s private real estate funds have now locked redemptions.
The common theme here is the illiquid nature of the underlying assets being pushed to retail investors with finite time horizons and changing cash flow needs. Marketing liquidity that is not necessarily there has helped alternative fund managers drive sales. When returns don’t meet expectations or economic uncertainty rises, the potential for a liquidity mismatch can increase systemic risk for all investors. During crises, correlations between risky assets often rise towards 1, reducing the benefits of diversification. In these cases, too much financial engineered products in the wrong hands does exactly the opposite of what the fund managers are touting in the first place: diversification.
