Researching managers is paramount. ‘To attract capital as a mortgage fund, you have to be damn good’
Mortgage funds have played a growing role in high-net-worth and family office portfolios, providing steady income that’s predictable and diversified through secured loans backed by real property. Softness in the housing market tied to changing interest rates—which could also affect turnovers in residential mortgages—pose challenges today, but experts say it’s a good time to evaluate the performance of managers critical to the strength of mortgage funds and to look for solid loan-to-value investments.
“A well-run, well-managed mortgage fund can be a phenomenal constituent in a portfolio,” says Robert Janson, co-CEO and chief investment officer of Westcourt Capital in Toronto.
Mortgage investment corporations (MICs) were among the first investments made by Westcourt when it was founded in 2009 as an advisory firm specializing in alternative investments, he notes. “The characteristics that were attractive to high-net-worth and family offices were stable, free cash flow; relatively high yield; a buffer in a portfolio; and you had tangible assets backing them, by way of real estate.”
There were not as many players in the space as there are now, he says, given the intervening boom in real estate. “There are so many flavours and colours of them today,” he explains, from real-estate lawyers pooling “lending books” of $10 to $20 million to publicly traded companies with $1 billion or more in assets.
“If you are going in to invest in one of them, what are you getting?” Janson says, noting that “manager selection is pinnacle. Who are you partnering with? Do they have a good process? Have they performed well in the past? What are their underwriting standards? What do they lend on?”
“In tough times the major banks tend to overreact, leaving opportunities on the table for secondary lenders from which investors can benefit.”
-David Morrison, founder and CEO of Morrison Financial
Mortgage funds can range from residential mortgages to land loans, refinancings, secondary mortgages and construction loans, all of which have “completely different risk profiles,” he points out. Fund liquidity should match the underlying asset liquidity, because even in a sound investment, “if you have a large portion of people that want out, it can stress the fund.”
Westcourt isn’t currently invested in mortgage funds, Janson says, although the company has substantial real-estate exposure in multi-family apartments through private REITs, and he’s evaluating whether to add them back into its platform. “We’re taking a pause, but that doesn’t mean they’re bad, it just means they aren’t appropriate for our clients at this time.”
Curtis Land, a senior associate responsible for mortgage investments at Nicola Wealth, a Vancouver-based wealth-management firm, says the purpose of mortgage funds in family-office client portfolios has evolved. During the historically low-interest-rate period of 2020-2021, they played a less prominent role as a fixed-income option, he notes. Then, as interest rates rose in 2022-2023, they became a more attractive short-duration, yield-focused alternative.
“Today, with interest rates stabilizing, mortgage investments continue to remain a core component of private-credit allocations, with investors benefiting from stability amid public-market volatility and economic uncertainty,” he says. The Nicola Canadian Mortgage Fund’s strategy focuses on senior position, cash-flowing real estate debt in core Canadian markets, Land says, serving as a disciplined, capital-preserving investment alternative.
He feels there’s “cautious optimism surrounding the Canadian real estate market in 2026,” with forecasts suggesting modest growth as investors remain well capitalized and focused on high-quality, desirable assets.
Competition has increased among investors seeking strategically located, income-producing properties, while relatively steady interest rates “should provide some clarity for both investors and borrowers,” Land comments. “Improved stability will support increased market activity and create additional lending opportunities for mortgage investors.”
“The strong ones will survive, while those with weak underwriting and that are poorly run probably won’t.”
–Robert Janson, co-CEO and chief investment officer, Westcourt Capital
David Morrison, founder and CEO of Morrison Financial, a Toronto company that provides builders and developers with mortgage financing for real estate projects through mutual fund trusts, says mortgage fund investments belong in the “silo” next to a GIC or T-bill in an investor’s portfolio.
“Since the dawn of modern finance, mortgage lending has been considered the most secure way of lending, if done properly,” he says. “Repayment of your money is secured against a piece of God’s green earth; the borrower can’t run off with it. You can drive by it on a Sunday afternoon.”
Morrison says evaluating the manager is critical when investing in a mortgage fund. “Bet the jockey, not the horse,” he says. “Satisfy yourself about who the manager is, their integrity, their honesty, their policies. Meet their people, look at their organization. It will not be practical to evaluate each horse that the jockey chooses to ride—by that I mean the individual mortgages, which in any fund will change constantly.”
He says good managers “will not necessarily be able to demonstrate a perfect history with every single mortgage, but they’ll be able to demonstrate a good overall performance and that, where something went sideways, they were able to work things out to a satisfactory conclusion.”
Morrison says the real estate market is currently “the worst it has been in 40 years.” Some mortgage funds have had to “gate,” or suspend redemptions, primarily due to rising costs and plummeting demand in the mid-rise condominium market.
“That market is currently seized up, so for funds in that space there isn’t the liquidity to give people back their money right now, although this has not been a problem for us,” he adds.
A solution to illiquidity in most cases is to spread redemptions over a period of time, Morrison says.
“If they’re good managers, I don’t think there’s going to be major blowouts, but investors may get stuck for periods of time. Perhaps they will not able to get their money when they want it. Watching how managers work through such situations can be indicative.”
Strategies for fund managers include not putting too much in any one mortgage and ensuring that loans come due periodically throughout the year, Morrison adds. “If your fund gets the reputation of being illiquid, it’s hard to get new investors, so you focus on maintaining reasonable intermediate liquidity.”
On the residential mortgage side, one concern today is that many five-year mortgages are coming up for renewal, given that many Canadians locked in low-interest financing in 2020-2021 or bought more expensive homes than they could afford.
“Improved stability will support increased market activity and create additional lending opportunities for mortgage investors.”
-Curtis Land, senior associate, Nicola Wealth
They could have trouble this time around, but Janson doesn’t expect to see structural risk to lending in Canada, noting that big financial institutions—which account for the vast majority of mortgages—are likely to continue to renew with customers, typically by extending amortization periods.
Mortgage funds, which account for only about 2 per cent of the market, may fill any gap that opens with a “small tranche” of borrowers, he says, noting that it behooves lenders to ensure that such clients are solid. “The calamity happens if we get real softness in house pricing with unemployment,” he says, although mortgage defaults in Canada run at about 0.2 per cent and “that hasn’t really ticked up materially at all.”
Land expects the scale of residential mortgage renewals in 2026 will be “moderate rather than disruptive,” noting there could be opportunities for mortgage investors.
“As many borrowers prefer to avoid lump-sum paydowns, this could lead to increased demand for alternative mortgages, which can provide flexible, short-term or additional-leverage solutions that range from just above conventional rates to higher-yield structures,” he explains. “For private mortgage investment funds, this allows many well-qualified borrowers with strong income or properties to enter the private-lending market.”
He feels that if borrowers are pushed away from traditional lenders such as banks, alternative lenders and private mortgage funds may have opportunities to provide financing to higher-quality borrowers.
“More borrowers in the alternative mortgage market may have stronger income or more desirable properties to lend against,” he points out. “With this possible increase, we could also see more competitive pricing from private lenders as they look to lend against higher quality properties.”
The risk profile should remain relatively stable for mortgage investment funds overall, Land says, as managers continue to focus on concentration limits, conservative leverage based on updated property values and disciplined underwriting, should economic conditions worsen.
“For us, disciplined underwriting and a focus on lending against income-producing properties will continue to mitigate risk while providing steady, long-term returns,” he says.
Morrison says that “in tough times the major banks tend to overreact, leaving opportunities on the table for secondary lenders from which investors can benefit.” He says mortgage investing “should be something that every family office is looking at as one silo in their portfolio.”
He expects the real estate market “will come back with a vengeance” when wages rise and immigration reopens. “Meanwhile, the trick in this market is to keep a very low loan-to-value. Don’t lend too high against the value of the property,” he says. “And stick to high-quality borrowers.”
Janson warns that mortgage funds “should be seen as a long-term investment” rather than something to invest in for a year or two. While they offer stability, ballast and a “set-it-and-forget-it” quality that appeals to family offices, there are more opportunities in that category than there were a decade ago, he adds.
“To attract capital as a mortgage fund, you have to be damn good. The strong ones will survive, while those with weak underwriting and that are poorly run probably won’t.”
Mary Gooderham is a writer, editor and communication advisor based in Ottawa. She leads Cohen Gooderham Communications and has worked as a journalist for more than 40 years at The Globe and Mail, as a recording officer at the International Monetary Fund and as a custom content creator for online and print media. She’s been a contributing writer at Canadian Family Offices for four years, focusing on investment strategy, trusts, philanthropy, women in finance and estate planning.
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