Opening
In November 2022, Romspen Investment Corporation, a prominent Canadian mortgage investment company, suspended redemptions for the second time in less than three years. The first suspension came in April 2020 during the pandemic, presented as temporary and lifted within months as emergency policy supported credit markets. The second suspension, announced on November 8, 2022, carried different implications. It signaled that Romspen's underlying portfolio—constructed loans, land development financing, and bridge loans—was under genuine stress from rising interest rates and commercial real estate weakness. For accredited investors who had remained invested and trusted management's commitments, the second gate closure was a harder message: redemption gates descend precisely when investors need liquidity most.
What Happened
Romspen Investment Corporation manages approximately $3 billion in commercial mortgage assets for retail and institutional investors across Canada. For years, the company had generated consistent distributions in the 7–8% range, positioning itself as an attractive yield alternative to traditional fixed income.
The platform's assets centered on commercial real estate lending: construction financing for multi-unit residential projects, bridge loans for land acquisition, and financing for small and mid-market commercial operators. These are bespoke arrangements requiring careful underwriting and often negotiated workouts when borrower stress emerges.
Romspen's first redemption suspension came in April 2020 as Canadian credit markets seized during the COVID-19 shock. Credit spreads widened dramatically. Mortgage financing dried up. Romspen faced a liquidity event: investors sought redemptions, but assets backing those redemptions could not be instantly monetized. The freeze was presented as emergency. By late 2020, many investors remained invested with confidence the worst had passed.
The second suspension came in November 2022 under very different conditions. Interest rates had surged. By November, the policy rate stood at 3.75%, up from 0.25% at the beginning of 2022—a 350-basis-point increase that remade the economics of every construction loan and development project in Romspen's portfolio.
Rising rates triggered multiple stresses. First, borrowers refinancing maturing debt faced materially higher interest costs. A development loan at 3% due for refinance now faced renewal at 5% or higher, eroding project economics. Second, commercial real estate valuations compressed as office properties faced structural headwinds from remote work adoption and retail faced e-commerce competition. Third, construction timelines slowed as financing became more expensive.
By November 2022, Romspen's management determined that redemption requests could not be met without forced asset sales at distressed prices. The fund suspended redemptions, indicating gradual asset sales at measured pace.
Why It Matters
The second Romspen freeze reveals three critical structural issues with open-ended private credit funds and illiquid alternative investment vehicles.
First, liquidity gates are asymmetric. The fund promises redemptions on demand but reserves the right to suspend. This structure allows professional investors to deploy capital across longer-dated assets while maintaining some investor liquidity. But the asymmetry is real. Investors cannot demand redemptions when they most need liquidity (during market stress). The fund can suspend exactly when investor demand is greatest and prices are lowest. "Weekly liquidity" or "monthly redemptions" are conditional on no stress arising.
Second, commercial real estate—even when originated by professional underwriters—concentrates risk in ways equity investors sometimes don't fully internalize. Romspen's portfolio is concentrated in hundreds of construction loans, often in Canadian markets. When a single risk factor—interest rates—affects all loans simultaneously, stress emerges together. If 40–50% of the portfolio faced stress, the fund faced a systemic portfolio problem.
Third, the second suspension undermined confidence more severely than the first. A single gate closure can be explained as an emergency. A second closure signals the issue may be structural or recurring. For remaining Romspen investors, the second suspension raised a harder question: Is this temporary stress or is Romspen's portfolio cycling into a longer period of distressed workouts?
What to Do
For accredited investors holding or considering exposure to open-ended private credit funds and mortgage investment companies, the Romspen experience suggests three practical considerations.
Understand redemption terms as conditional, not absolute. Read the fund's offering documents and concentrate on redemption suspension language. Under what conditions can the fund suspend? How long can suspension continue? Weekly or monthly redemption terms come with implicit fine print: "provided that we are not in a stress event."
Assess portfolio concentration and stress correlation. If a fund is primarily invested in a single asset class in a single market (e.g., construction loans in Canada), model what happens to portfolio stress under various scenarios. Do 30% of loans become problematic if rates rise 200 basis points? Do 50%? The fund's liquidity profile depends on whether stresses are idiosyncratic or systematic.
Size the allocation appropriately for your liquidity needs. Ensure that the amount represents a size you can afford to have illiquid for an extended period if a redemption gate closes. An investor who allocates 20% of her portfolio to a mortgage fund and then faces a gate closure may be forced to rebalance at the worst time. An investor who allocates 3–5% can absorb the illiquidity.
Closing
Romspen's second redemption suspension was not surprising to investors who had studied the portfolio and understood the impact of rising rates on commercial real estate. But it was disappointing to investors who had absorbed the 2020 freeze as a one-time emergency. Open-ended structures serving less liquid assets will face redemption gates in stress. An investor's strategy should accommodate that reality rather than expect it away.
Alts Insider provides educational content for Canadian accredited investors. This is not investment advice. Always consult qualified professionals before making investment decisions.