The Ontario Securities Commission (OSC) wants to open private markets to retail investors. Its proposed Ontario Long-Term Asset Fund (OLTF) framework — launched through Consultation Paper 81-737 in October 2024 and now advancing through the OSC’s LaunchPad initiative — would create a new category of prospectus-qualified investment fund giving ordinary Ontarians access to venture capital, private equity, private debt, real estate, infrastructure and natural resource projects.
The pitch is familiar: why shouldn’t the average Ontario investor access the same higher-returning private market assets that have fuelled pension fund performance for decades?
We have heard this siren song before. The structural parallels to the special purpose acquisition company (SPAC) debacle are not rhetorical. They are architectural.
SPACs — publicly traded shell companies created to raise capital and merge with a private business, bypassing the scrutiny of a traditional initial public offering — were marketed to retail investors on a familiar promise: ground-floor access to high-growth opportunities that institutional capital had traditionally monopolized.
The results were catastrophic. Companies that went public through SPAC mergers destroyed hundreds of billions of dollars in shareholder value between 2021 and 2023; more than 90% still trade below their original US$10 offering price. Retail investors absorbed the bulk of those losses. The sponsors who earned fees regardless of outcome walked away intact.
The core failure was not complexity or bad luck. It was structural misalignment. As L. Daniel Wilson documented in the December 2024 edition of Canadian Business Law Journal, the SPAC model embeds a fundamental conflict: sponsors earn their fees when a merger closes, regardless of whether the resulting company succeeds. Retail investors bear the risk if it doesn’t. The incentive was to close deals, not find good ones.
The OLTF risks an analogous misalignment — not between sponsor and investor, but between regulator and mandate. The Ontario government’s 2024 budget commits to working with the OSC to channel capital into infrastructure, natural resources and other illiquid assets.
That leaves the regulator in an impossible position: expected to fill a government-directed capital pipeline and protect the investors supplying it. When those objectives collide, the investor protection mandate is the one under strain — and retail investors risk becoming a source of patient, low-cost funding for projects that institutional investors may have already priced and passed on.
The illiquidity trap
Private market assets are the ultimate illiquid investment. Horizons are measured in decades, not fiscal quarters. Pension funds are built for lock-up periods. Retail investors are not.
The OSC’s own consultation acknowledges that OLTF redemptions could be limited to monthly at best, annually at worst, with suspensions during periods of stress. That’s exactly when a retail investor needs their capital most.
Canada has already produced the evidence. Trez Capital Mortgage Investment Corp., one of Canada’s largest private commercial mortgage providers, halted redemptions from five of its funds. Toronto-based Courtland Credit Group Inc. halted redemptions on its flagship fund, citing trouble with a single borrower comprising a large portion of its loan portfolio. Romspen Investment Corporation froze all investor redemptions in late 2022 — and that freeze remains in effect today, with monthly distributions cut multiple times in the years since.
These are not obscure edge cases. They are Canadian private credit funds failing in exactly the way the OLTF model would replicate at retail scale. Governor of the Bank of Canada Tiff Macklem cited all three last week at an event presented by the Global Risk Institute.
Macklem noted that these examples raise questions about the quality and transparency of underwriting — the first time the central bank’s governor has spoken publicly on the growing influence of private credit.
The U.S. has compounded this evidence base. Interval funds — the closest existing analogue to the OLTF — hold illiquid private assets and offer investors only periodic redemption windows for a fraction of their holdings. Moody’s Ratings has flagged two liquidity-related risks that apply directly to the OLTF model: retail investors do not grasp the lockup restrictions they are accepting, and in volatile markets, sudden redemption requests create a mismatch between available liquidity and what investors expect.
The OLTF would import both risks into Canada. The price of admission: trading the liquidity of your savings for the opportunity to watch asphalt dry over a 20-year horizon.
A transparency deficit
The SPAC era was defined by a transparency gap: retail investors were fed optimistic projections rather than audited historical performance.
The OLTF faces an equivalent deficit. Private market ventures are notoriously difficult to value and resistant to the continuous disclosure regime that disciplines public markets. The consultation proposes a new prospectus form and summary disclosure document, but the underlying assets — private funds investing in illiquid projects — will remain opaque by nature.
Macklem’s speech goes directly to this weakness. Private credit positions, he noted, are not regularly marked to market. Assessing underwriting standards, covenant quality and the true degree of embedded leverage is difficult. Investors may not have enough information about the quality of loans held in their funds. A spike in defaults, he warned, could prompt rapid exit attempts causing severe strains.
The Financial Stability Board — which Macklem chairs on vulnerability assessment — is actively working to improve monitoring because current surveillance is insufficient.
On what evidentiary basis, then, does the OSC conclude it can protect retail investors entering a market that the central bank governor says lacks the transparency regulators need to assess its risks?
The valuation problem is equally acute. How does one price a fractional interest in a half-finished bridge or an early-stage venture fund in year four of a 10-year commitment?
In the absence of market-clearing prices, valuations default to internal models and expert appraisals. As the SPAC collapse demonstrated, when valuations are untethered from market reality, the retail investor is the last to know when the ground floor turns out to be a trapdoor.
’Mixed views’
The OSC is required to protect investors and foster capital formation simultaneously. When the product being fostered is one investors may need protection from, the mandate collapses into contradiction. The referee has been asked to play for both teams.
That contradiction has already surfaced. The OLTF consultation drew approximately 40 comment letters — feedback the OSC diplomatically characterized as “mixed views.” Rather than reconsider, the OSC shifted the process to its LaunchPad program — a regulatory sandbox in which fund companies apply individually for permission to launch OLTF products. The broad public consultation was over. What replaced it was a series of private, one-on-one negotiations between the regulator and the firms seeking approval.
The logic is unsurprising. A regulator operating under a mandate to deliver has limited room to pause — even when its own consultation yields more caution than conviction.
There is a further dimension the OSC cannot ignore. Under Ontario’s Securities Act, the OSC’s mandate includes contributing to the stability of the financial system and the reduction of systemic risk.
Macklem was explicit: because private credit and banks are linked through lending, sponsorship, warehousing and risk transfer, weakness in private credit could spill back to the regulated sector. And because private credit is increasingly global, those spillovers could travel quickly across borders.
The OSC is proposing to deepen retail investor exposure to this sector at the exact moment the governor of the Bank of Canada is warning that current surveillance is insufficient to track how its risks evolve. That is not incidental.
An OSC that advances the OLTF framework without first satisfying itself that the systemic risk dimension is adequately monitored is not discharging its full statutory mandate — it is discharging half of it.
If these projects warrant public investment, the province has tools to fund them — bonds, institutional partnerships, the Building Ontario Fund. Instead, it is asking ordinary investors to underwrite provincial priorities they cannot price, cannot exit and did not choose.
History is consistent on this point. When we lower the barriers to complex, opaque and illiquid assets for the masses, the result is rarely the democratization of wealth. It is almost always the socialization of loss.