Why investors need to understand redemption freezes before getting into alternatives

Globe & Mail
December 15, 2022.

A series of redemption freezes across the private real estate sector has raised concerns about the alternative asset class amid soaring borrowing costs and a cooling economy. It also underscores the need for advisors to educate clients on the limits of what they own.

New York-based asset manager Blackstone Inc. announced earlier this month it would limit withdrawals from its US$69-billion unlisted Blackstone Real Estate Income Trust after a surge in redemption requests from investors worried about valuations. Starwood Real Estate Income Trust of Miami also reportedly curbed redemptions on its non-traded real estate investment trust recently after investor withdrawal requests exceeded its monthly limit in November. And Toronto-based Romspen, one of Canada’s biggest private mortgage lenders, announced in November that it would freeze investor redemptions, citing some trouble with loan repayments.

When a fund freezes redemptions, known as “gating,” it prevents investors from pulling their money out of the investment product. Advisors say the potential of it happening should be explained to investors before they sign up for these types of investment vehicles.

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