Private funds are gating withdrawals.

In the News: Private Funds and Gating Withdrawal Requests

The Globe and Mail recently reported on a growing issue in the exempt market and private debt space: private funds are increasingly gating investor withdrawals, leaving many retail investors surprised and financially constrained.

As the article notes, alternative investments often come with higher risk, steep fees, and limited transparency, and many retail investors may not fully understand the products being sold.

“But critics warn that these alternative investments can come with higher risk, steep fees, limited transparency, and that many retail investors may not fully understand what they are buying into.”

Historically, private debt products were used primarily by large institutional investors who accepted long‑term capital lockups. Over the past decade, however, these products have increasingly been pushed into the retail market, especially in Canada, where income‑generating products are in high demand.

“These are risky products, and they are sold as being safer than equities but bigger returns, and that should be a red flag,” said Benjamin Felix, Chief Investment Officer at PWL Capital. “Most retail investors don’t have the financial acumen to understand these products.”

I noted in the article that:
“Rarely, if ever, can a financial adviser perform their mandatory duty to ensure that a recommendation to purchase, or even facilitating your instructions to buy, an exempt market security is suitable for you,“ due to limited disclosure and the challenges in performing meaningful due diligence.

Regulators require advisers to disclose the material risks associated with private debt funds, but these disclosures are often not delivered in plain language or with sufficient clarity for the average investor.

In my interview, I explained the core mismatch between investor expectations and adviser incentives:
There is a “fundamental conflict” when advisers receive higher compensation for selling exempt market products. This creates misaligned incentives that can undermine the duty to act in a client’s best interest.

What do you think? See:  Private funds are gating withdrawals. Here’s what investors need to know - The Globe and Mail

At Geller Law, we continue to advocate for transparency, proper suitability assessments, and fairness in the sale of exempt market and private debt products.

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