What Moved
Canadian unemployment surged to 13% in April (peaking at 14.8% during the month), as pandemic shutdowns rippled through the economy. The private lending sector felt the COVID impact directly, with borrower stress rising across the country. Over three million Canadians lost work in March and April combined — the sharpest employment decline in Canadian history (StatsCan, Apr 2020).
Romspen Investment Corporation, one of Canada's largest mortgage investment companies with approximately $3.2 billion in AUM, gated investor redemptions in April. The fund cited the inability to liquidate mortgage assets quickly enough to meet withdrawal requests — the classic mismatch between illiquid assets and liquid redemption promises (Globe and Mail, Apr 2020).
Government stimulus programs ramped up. CERB payments began flowing to millions of Canadians. The Canada Emergency Wage Subsidy (CEWS) helped employers maintain payroll. Emergency business loan programs provided liquidity to small and medium enterprises.
Despite the economic devastation, financial markets began recovering. The TSX was up roughly 10% from its March 23 low by the end of April. Credit markets, supported by central bank bond-buying programs, began to thaw.
What It Means
The Romspen gate was the Canadian private credit sector's defining moment of the pandemic — and it highlighted a structural reality that many investors hadn't fully appreciated.
MICs and other open-ended private credit funds often offer quarterly or even monthly redemptions. But the underlying assets — mortgages, construction loans, development financing — are inherently illiquid. In normal markets, this mismatch is manageable because redemptions are modest and predictable. In a crisis, when many investors want out simultaneously, the mismatch breaks.
The lesson wasn't that Romspen was a bad manager or that MICs were flawed products. It was that liquidity terms in private credit must be understood before you need them. Gating provisions exist precisely for moments like this — to prevent forced liquidation at fire-sale prices that would harm all investors.
For private market investors broadly, the government stimulus was a critical backstop. Without CERB and CEWS, borrower defaults would have been far more severe, tenant evictions would have accelerated, and private credit losses would have been substantially higher. The pandemic experience demonstrated how dependent alternative investments in Canada can be on fiscal policy in extreme environments. The interconnection between government action and private market outcomes had never been more visible.
What We're Watching
Whether other MICs or private credit funds would follow Romspen in gating redemptions was the immediate concern. Managers with higher exposure to construction and development lending were most vulnerable.
The trajectory of the economic reopening would determine how quickly private markets normalized. Provincial reopening timelines varied, creating uneven recovery across geographies.
CERB uptake data would signal the extent of income disruption — and by extension, the risk to mortgage borrowers and tenants in private credit portfolios.
Closing
April was the month the private credit sector's liquidity assumptions were tested in real time. The outcome — gating rather than fire sales — was painful for investors needing access to capital but structurally sound. The survival phase had begun, and the market would sort managers by the quality of their books and the candour of their communication.
For the full quarterly analysis, see Q2 2020: Stimulus and Survival.
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