What Moved
November 2022 delivered a cascade of negative events for Canadian alternative investors — headlined by the FTX crypto collapse that reverberated through institutional portfolios worldwide.
On November 8, Romspen Investment Corporation froze investor redemptions for the second time in three years, citing "suppressed" loan repayment rates that made it impossible to meet withdrawal requests. The $3.2 billion MIC — one of Canada's largest — had now gated investors during both the pandemic and the rate-hike cycle (Globe and Mail, Nov 2022).
On November 9, FTX — once the world's third-largest cryptocurrency exchange — filed for bankruptcy, revealing a massive fraud. The Ontario Teachers' Pension Plan disclosed it would write off its entire US$95 million FTX investment. The collapse raised governance and due diligence questions that extended well beyond crypto (OTPP, Nov 2022; various news outlets, Nov 2022).
Canadian CPI for October came in at 6.9%, matching September's level. Inflation was moderating but remained stubbornly elevated (StatsCan, Nov 2022).
The Bank of Canada had no scheduled decision in November, holding at 3.75% ahead of the December meeting.
What It Means
November was the most challenging month for the "alternatives" narrative in recent Canadian history. Two headlines — Romspen gate and OTPP-FTX — threatened to damage investor confidence in the entire sector. But distinguishing between these events was essential.
The FTX collapse — covered in our event-driven analysis — was a fraud in a largely unregulated market. Crypto lending platforms like Celsius and exchanges like FTX operated outside the regulatory frameworks that govern traditional private credit and PE. OTPP's loss was a due diligence failure in a novel asset class, not an indictment of alternatives broadly.
The Romspen gate — also covered in our event-driven analysis — was a different kind of problem: a traditional MIC facing a traditional liquidity mismatch in an extraordinary rate environment. The fund's underlying assets were real Canadian mortgages secured by real property. The issue was the mismatch between the fund's redemption terms and the pace at which those mortgages could be liquidated.
For MIC investors, the Romspen gate reinforced the lesson from 2020: liquidity terms in private credit are not theoretical. If a fund offers quarterly redemptions backed by 12-24 month mortgage assets, the liquidity is conditional. Understanding those conditions before investing — not during a crisis — is fundamental due diligence.
Despite November's headlines, the broader private credit market continued to function. Hundreds of Canadian MICs maintained distributions and met their obligations. Across the wider spectrum of Canadian alternative investments, the stress was concentrated in the largest and most visible funds, not distributed across the sector.
What We're Watching
The December BoC decision was expected to bring another 50bp hike to 4.25%, likely marking the end of the most aggressive phase of tightening.
Romspen's path forward — whether the gate was temporary or the beginning of a longer restructuring — would signal the depth of stress in the large-MIC segment.
The FTX bankruptcy proceedings would reveal the scale of the fraud and inform the regulatory response to crypto assets. The Canadian Securities Administrators had already been tightening rules around crypto trading platforms, and the FTX collapse was likely to accelerate that regulatory trajectory.
The combined impact of the Romspen and FTX events on investor sentiment toward the broader alternatives sector was also a key variable. If retail accredited investors pulled back from all private market strategies indiscriminately, it would create both a challenge for fundraising managers and an opportunity for those with available capital and the conviction to deploy it.
Closing
November tested investor confidence in alternatives like no month before it. The events were real and significant, but they were also distinct — a crypto fraud and a mortgage liquidity crunch are different problems with different lessons. For Canadian alternative investors, the task was to learn the right lessons from each without painting the entire sector with the same brush.
For the full quarterly analysis, see Q4 2022: The Year Private Credit Cracked.
Alts Insider provides educational content for Canadian accredited investors. This is not investment advice. Always consult qualified professionals before making investment decisions.