LIQUIDITY & PORTFOLIO DESIGN
By Nick LaxtonPrivate assets have become part of the furniture in Canadian investing. To put some scale around it, British Columbia Investment Management Corporation reported a $33.6 billion private-equity portfolio in fiscal 2025. That is one institution, investing globally, and just one category of private assets. But it gives a sense of the money involved and the people whose savings sit behind it. [BCI, fiscal 2025]
Private credit, property and other private investments can offer useful income and diversification. Investors may also earn a premium for accepting less liquidity. The catch is that being willing to leave your money invested and being unable to withdraw it are rather different things.
How cash withdrawals change the portfolio
When a fund gates (restricting or suspending withdrawals), the distinction between liquid and illiquid holdings becomes very real.
For a client holding the investment directly in a managed account, the immediate problem is straightforward: they need cash, but that holding cannot provide it. We can draw on cash balances or sell other investments, but doing so changes the portfolio left behind.
Same investment. Smaller portfolio. Greater concentration.
Gated share: 20%
Gated share: 22.2% · $10,000 withdrawn from liquid holdings
Nothing has been added to the gated investment. Its weight has increased nonetheless.
We have seen this in practice. Restrictions on underlying holdings have contributed to model drift in some managed accounts, while meeting cash needs has required us to draw on the liquid part of those portfolios. Some drift may be tolerable within agreed limits. Staying within the mandate remains non-negotiable.
What pooling can (and cannot) do
That is why, where liquidity needs matter, we generally favour clients accessing potentially illiquid investments through our diversified funds rather than holding them directly.
The reason is practical: not every client needs cash at the same time. A pooled fund allows us to manage those different needs collectively, using cash, investment income and liquid holdings to meet withdrawals, subject to the fund’s redemption terms and available liquidity.
The asset stays illiquid. Where is liquidity managed?
Held directly
CLIENT ACCOUNT
Withdrawals restricted
Liquidity managed within this client’s account.
Cash needs fall on its remaining liquid holdings.
Held through a pooled fund
CLIENT ACCOUNT
POOLED FUND
Same underlying restriction
Cash flows across investors
Subscriptions · Income · Redemptions
Liquidity managed at fund level.
The client requests redemption of fund units; Fieldhouse manages the underlying resources collectively.
What changes is where liquidity is managed.
The difference for the client is practical. Instead of drawing cash from whichever individual holdings remain liquid, they request a redemption of fund units. We manage the underlying liquidity within the pooled portfolio, bringing together different investors’ cash flows and the fund’s available resources.
Clients accessing these exposures through the fund have experienced less of this account-level model drift. They can redeem fund units rather than having to sell whichever individual holdings remain liquid in their own accounts.
Pooling does not make the underlying asset liquid. It spreads the demands on liquidity across investors and places responsibility for managing them with us at the fund level. If withdrawals become sufficiently large or concentrated, the fund itself can face constraints. Managing that possibility is part of the job.
Reassurance needs evidence
Maintaining a strong dialogue with underlying managers means we can get a better sense of what is happening. We ask what is holding up withdrawals, where cash will come from and what evidence supports the expected timetable. We try to read between the lines and then check our interpretation.
Liquidity constraints test investor preferences. Strong governance and a consistent process help us stay disciplined, particularly when reassurance would be convenient.
Our approach at Fieldhouse is to be pragmatic about implementation and firm about governance. An attractive yield deserves attention. So does the question of how the investment fits when a client needs their money back.
How we put this into practice
Our Strategic Income Fund and Enhanced Pension Plus Fund put this approach into practice. Clients retain exposure to the underlying assets through their fund units, while we manage liquidity across the pooled portfolio rather than leaving each client account to absorb the cash-flow pressure on its own.
By maintaining a liquid sleeve alongside less liquid investments, we can draw on cash and readily tradable holdings, investment income and subscriptions to manage collective redemption requirements. This gives us more flexibility to meet cash needs and helps reduce liquidity pressure on individual client accounts.
The underlying investments still carry liquidity risk, and the liquid sleeve is finite. Redemptions remain subject to each fund’s terms and available liquidity. Our job is to manage that balance actively, so clients can access a diversified portfolio with liquidity managed at fund level.
Disclosures
This investment memorandum expresses the views of the author as of the date indicated and such views are subject to change without notice. Fieldhouse Capital Management Inc. (herein “Fieldhouse”) has no duty or obligation to update the information contained herein. Further, Fieldhouse makes no representation, and it should not be assumed, that past investment performance is an indication of future results.
Fieldhouse Capital Management Inc. is the Investment Fund Manager, Portfolio Manager and trustee of Fieldhouse Pro Funds Trust Advisor Series funds. Fieldhouse Pro Funds Trust funds are subject to management fees, trailing commissions, incentive fees and administration fees. For detailed information on fees see the the Fieldhouse Pro Funds Trust offering memorandum and the Series O offering memorandum supplement or the term sheets.
This memorandum is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as an offering of advisory services or an offer to sell or solicitation to buy any securities or related financial instruments in any jurisdiction. There are many important factors to consider when investing and you should seek professional advice that can assess your personal circumstances and risk appetite. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. Fieldhouse believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based.
This memorandum, including the information contained herein, may not be copied, reproduced, republished, or posted in whole or in part, in any form without the prior written consent of Fieldhouse.