On Oct. 10, 2024, the Ontario Securities Commission released a consultation paper proposing the creation of a new investment fund category, the Ontario Long-Term Asset Fund (OLTF). The proposal attempts to create a quasi-liquid mutual fund that would provide retail investors improved access to higher risk, illiquid long-term assets that have historically been limited to accredited investors with the wealth to absorb large losses, while also serving as a potential funding mechanism for government infrastructure projects.
The consultation paper reads like a marketing promotion piece for the OLTF. One question in the paper asks what else could be done to increase investor interest in long-term assets.
Ontarians already have plenty of indirect access to illiquid securities via the Canada Pension Plan, company pension plans and public companies that own illiquid investments. They have direct access via mutual funds (which can hold up to 10% of their net asset value in illiquid holdings, according to National Instrument 81-102), REITs, alt funds and lightly traded small caps.
The Mackenzie Northleaf Private Credit Interval Fund, launched in January 2022, is available to retail investors. The fund had $42.8 million in assets as of Feb. 28, 2025. No other interval funds exist in Canada at this time, suggesting Canadian retail investor interest in private credit funds may be limited.
Opportunity to increase diversification
According to a 2022 FAIR Canada retail investor survey, the median investor had just $125,000 invested. We do not believe such modest portfolios require a risky fund to increase diversification given all the alternative choices.
“Investors can access long-term assets through some existing investment vehicles,” according to the consultation paper. “For example, retail investors may hold securities in public companies that own a variety of long-term assets, including natural resource projects, infrastructure projects, real estate, mortgages and pools of these assets.”
But they “may be unwilling or unable to invest in long-term assets through these channels,” according to the paper. “Additionally, many long-term assets are privately funded and unavailable to retail investors.”
In fact, millions of Canadians invest in dividend-paying companies that own long-term assets.
The elusive illiquidity premium
The consultation paper suggests that access to long-term, illiquid assets can potentially yield higher returns via the “illiquidity premium.” A number of published peer-reviewed empirical research papers have been unable to confirm the premium’s existence. The lack of a premium would mean that investors would be confined to a risky fund for an extended period, without any incremental return.
Increased risk
Retail investors in OLTF would be exposed to higher-risk assets, illiquid assets, less transparency, valuation risks, redemption suspension risk and conflicts of interest on the part of portfolio managers. In the extreme, the fund could be wound up if redemptions were excessive, with dispositions at fire-sale prices.
The lack of control will impede an investment fund manager’s ability to oversee private assets.
The majority of retail investor assets are held in registered accounts. If OLTF does not qualify as an eligible investment in registered accounts, the tax deferral benefits of a TFSA or RRSP would not be available.
The limited redemption aspects of the fund are unattractive — an extended holding period, complexity, withdrawals subject to gating and even temporary suspension.
The resolution of an estate might not be compatible with the cash needs of beneficiaries if the OLTF has an extended time remaining on the locked-in period. If a client relocates outside of Ontario, it is unclear if the OLTF could be transferred to an account in another province.
There is a deep concern about the impact of cash drag, layers of fund fees and expenses on the percentage of the fund available for long-term asset investment, and on overall fund performance.
Suitability
The fund would not be suitable for retail clients with short time horizons, dependent on income from investments or with a low risk tolerance/capacity profile. A robust know-your-product review would not be possible given the limited information available on the assets held.
Advisor qualifications should include the proficiency to assess long-term asset managers, recommend OLTF suitability and allocation within a portfolio and maintain a balanced portfolio containing a OLTF.
While the inclusion of cornerstone investors was intended to increase investor confidence in the fund, it is unlikely that institutional investors will be interested in investing alongside retail investors. Even if they were, they would demand rights not available to retail investors.
Furthermore, private equity funds’ performance can vary widely, and top funds are typically oversubscribed. Better collective investment vehicles (CIVs) will not need funds from the OLTFs, thereby limiting the OLTFs’ pool of investment opportunities to laggard CIVs.
Bottom line — there is more work to do, supported by evidence.
Ken Kivenko is president of Kenmar Associates, a privately-funded organization focused on investor education.
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