Opening
In March 2020, global capital markets experienced the fastest correction in modern history. Canada's TSX Composite Index fell 37% from its February peak in less than three weeks. For Canadian accredited investors with exposure to private markets, this moment raised urgent questions: What happens when the public markets seize up? Are my private investments safe? Can I even sell if I need liquidity?
The COVID market crash didn't just affect stock portfolios. It exposed a fundamental truth about private market investing that Canadian institutional and high-net-worth investors needed to confront immediately: the illiquidity that offers steady returns in calm times becomes a cage when panic spreads. Understanding what happened—and why it mattered differently for private investors—became essential to navigating the months ahead.
What Happened
March 2020 was brutal for Canadian markets. On March 9, the TSX dropped 10% in a single day as oil prices collapsed and COVID-19 fears gripped investors globally (TSX, March 9, 2020). Three days later, the situation worsened: on March 12, the TSX fell 12%, marking its largest single-day percentage decline since 1940 (TSX, March 12, 2020). By March 23, the index had hit its pandemic low, down 37% from the February peak (TSX, March 23, 2020).
The crash was driven by two simultaneous shocks. First, Saudi Arabia and Russia entered a price war, with crude oil prices collapsing below $30 per barrel—devastating for Canada's energy-dependent economy and major pension funds. Second, COVID-19 spread rapidly outside China, triggering global lockdowns and economic shutdowns that investors hadn't priced in. The combination was toxic.
Central banks responded with emergency measures. The Bank of Canada cut 50 basis points on March 4, bringing the policy rate to 1.25% (BoC, March 4, 2020). Nine days later, on March 13, another 50 basis point cut brought rates to 0.75% (BoC, March 13, 2020). By March 27, the BoC had cut again to 0.25%, essentially zero rates (BoC, March 27, 2020). Across the border, the US Federal Reserve slashed rates to the zero bound on March 15 and announced unlimited quantitative easing (US Fed, March 15, 2020).
For context on the human toll: Canadian unemployment would spike to 14.8% by April 2020, the highest level since records began (Statistics Canada, April 2020). The economic disruption was real and immediate. Investors watching their RRSP and TFSA accounts in real time saw wealth evaporate in hours.
Why It Matters
For Canadian private market investors, the March 2020 crash exposed something that prospectuses always warn about but few truly internalize: illiquidity cuts both ways.
On the surface, illiquidity looked like a penalty. Public market investors could panic-sell on the TSX in seconds. Private market investors could not. If you owned shares in a private company, held a position in a private credit fund, or had capital committed to a real estate syndicate, you couldn't call your broker and exit. Your capital was locked in. In March 2020, as public indices crashed 30%, 40%, some private investors felt trapped, unable to rebalance or reduce risk exposure.
But here's what happened next: many private markets didn't crash as severely as public markets. Private real estate held value better than public REITs. Private credit instruments—secured by real assets or operating businesses—didn't experience the fire-sale dynamics of public bond markets. Direct private equity positions in quality businesses had time to recover before their next valuation event. The investors who couldn't sell at the bottom also weren't forced to crystallize losses.
This revealed an uncomfortable truth: private market illiquidity is both shield and sword. It prevents panic selling, which sounds good until it prevents necessary liquidity when you actually need cash. Some Canadian pension funds and endowments discovered that their private market allocations, meant to be long-term, created stress when unexpected liquidity needs arose. Mortgage Investment Corporations (MICs)—popular among Canadian retail investors—began facing redemption pressures as investors demanded cash (MIC industry reports, March–April 2020).
The crash also exposed leverage risk in private markets. Some private credit funds had borrowed against their portfolios. Some real estate partnerships had floating-rate debt. When central banks cut rates aggressively and credit spreads widened, these strategies faced stress. Private market infrastructure, it turned out, was not as insulated from public market turbulence as marketing materials suggested.
Yet the core insight remained: for investors who could afford to stay invested, private market illiquidity meant they didn't face the psychological and financial devastation of watching their positions get marked down daily and feeling the urge to sell at the worst possible time. Public market chaos created private market opportunity.
What to Do
If you held private market investments in March 2020, several practical steps mattered:
First, communicate with your managers. Private credit funds, real estate sponsors, and direct investment firms should have been providing transparent updates on how the crash affected their portfolios, what they were seeing in their underlying assets, and how they were managing liquidity and covenant compliance. If you weren't hearing from them, that was a red flag.
Second, understand your liquidity terms. Review the documents you signed. When can you redeem from a fund? What are the notice periods? Are there gates or restrictions? Private equity and hedge funds often held the right to temporarily block redemptions during market stress. Real estate funds and MICs had stated redemption frequencies—often monthly or quarterly, sometimes gated. Knowing these terms ahead of market stress meant you wouldn't be surprised.
Third, resist the urge to panic. This was psychological work, not analytical. The public market crash was real and frightening. But illiquidity, while uncomfortable, also meant you couldn't make a bad decision in real time. This was an advantage if you could stomach the uncertainty. Many investors who couldn't access their private market capital during the March 2020 crash actually benefited from being forced to hold long enough to see the recovery.
Fourth, stress-test your portfolio. If you had borrowed against private market positions (margin lending on private equity shares, leverage on MIC holdings), the crash suddenly made those loans more expensive and riskier. Getting clarity on leverage and debt in your private holdings mattered immediately.
The core message wasn't reassuring—it was realistic: private markets offer illiquidity as a trade-off for better risk-adjusted returns over time. March 2020 was the moment that trade-off became visible and consequential.
Closing
The COVID market crash of March 2020 was a circuit-breaker moment for private market investing in Canada. It revealed that illiquidity is a feature, not a bug—but a feature that works only if you can afford to exercise it. For investors with adequate liquidity elsewhere, long time horizons, and the psychological tolerance for not knowing their portfolio value daily, private markets offered resilience. For those who needed flexibility, the crash was a painful lesson in reading fine print.
By April 2020, markets began stabilizing. By summer, most indices had recovered. But the lesson lingered: understand what you own, know your terms, and think carefully about whether private market illiquidity serves your actual needs or conflicts with them.
Alts Insider provides educational content for Canadian accredited investors. This is not investment advice. Always consult qualified professionals before making investment decisions.