On December 15, 2008, Great-West Life announced a temporary suspension on withdrawals and transfers out of its Canadian Real Estate Investment Fund.

This fund is unique in Canada, as it directly owns physical properties across the country, as opposed to the much more volatile Real Estate Investment Trusts (or REITs) which trade on the open market like an equity stock (REITs are to properties as Mutual Funds are to individual stocks).  The benefit of the GWL fund’s structure is long term stability and dependable growth; so much so that we have long made it a significant part of our recommended portfolios.

Unfortunately, that same stabilizing structure also makes much less “liquid”, or able to respond rapidly to major changes like those that have come about in the last few months.  Because the fund directly owns property, requests for money to be moved out of the fund require a buffer of cash be kept available.  With the recent market volatility, the fund was at risk of exceeding the cash available and being forced to sell assets at very unfavourable conditions.  This potential downward spiral would have put all unitholders at significant risk, so the decision was made to temporarily freeze redemptions until a time at which the fund has sufficient cash available.

While this is certainly a frustrating and unprecedented event for most of us, this decision was made to best attempt to protect the assets of investors in the Real Estate Fund.  We have begun contacting all of our clients that hold this fund, but if you have any questions at all please contact us.

FYI, here is the letter being sent out from Great-West Life to all unitholders:

We want to bring to your attention some changes regarding the Great-West Life Real Estate Fund in your segregated fund policy that may affect you.  Please read the information below carefully and contact your financial security advisor if you have any questions.

We announced a temporary suspension on withdrawals and transfers out of the Real Estate Fund effective 4 p.m. EST, Monday, Dec. 15, 2008.  This temporary suspension was not an easy decision.

Given the current economic environment and the unprecedented events in the capital markets, withdrawal requests have increased.  Real estate assets are generally less liquid than other major asset classes – such as common stocks and bonds – and cannot be rapidly sold.  Therefore, rather than sell quality assets at unfavourable market values, it was determined that the best way to balance the long-term interests of unitholders was to institute a temporary suspension on cash withdrawals or transfers out.

The Real Estate Fund is a segregated fund that holds a diversified portfolio of high-quality, income-producing properties.  As part of a well-diversified portfolio, the Real Estate Fund continues to be appropriate for unitholders with a long-term investment horizon.  It has performed well over time and substantially outperformed common stock investments during 2008, with a marginally negative return, compared with larger drops for many common stock indicies.

At present we don’t know how long the temporary suspension will continue.  Our goal is to re-establish an appropriate level of cash in the Real Estate Fund to meet client withdrawal requests.  We will update you and your financial security advisor on progress.

The Real Estate Fund is still open for new contributions, subject to the suspension on withdrawals.  If you are currently contributing to the Real Estate Fund, those contributions will continue unless you instruct us otherwise, and will be subject to the current suspension on withdrawals and transfers out.  You can change your allocation of future contributions at any time by contacting your financial security advisor or calling our Client Service Centre at 1-800-665-5758 from 8:30 a.m. to 6 p.m. EST.

We thank you for your patience and reiterate this temporary suspension has been made to treat all unitholders equitably.

A question I’ve been getting a lot lately is: “What should we do now?”  I think intuitively many people understand how this economic environment presents some phenomenal buying opportunities, but when it seems like there is no ‘safe haven’, no market in the world that hasn’t been dramatically affected, where do you put your money going forward?  How can you position your portfolio for the best potential recovery, without gambling it on the next Bear Sterns or Lehman Brothers?

I read an article in the Globe and Mail last week about Dr. Nandu Narayanan, a global investment fund manager who not only predicted the current crisis, but has managed to earn his investors an incredible return in a market where most fund managers would be happy to just be flat.  He has some strong ideas about where he sees the best opportunities in the future, and guess who’s at the top of the list?

From the Globe and Mail:

His CI Global Opportunities Fund has returned 57 per cent in the past year, 19 per cent (compounded) over the past five. Nice numbers, but once you’ve made your money calling the credit crisis and short selling Washington Mutual, what do you do then?

You buy Canada, says Mr. Narayanan, who can’t believe the way the loonie has been savaged. “The currency is ridiculously undervalued. I can’t think of any country in the world that has no fiscal deficit, no trade deficit and no inflation – except Canada. I think the Canadian dollar should go through parity.

“I like the whole Canadian market. I don’t particularly dig the banks because I just don’t know what’s in there [on the balance sheet]. But I’d say virtually everything else is fine.”

Read the rest here.