140 non-traded REITs had raised $173.6 billion in equity capital by December 31, 2019, while offering virtually no secondary-market liquidity in their non-traded form. Common examples of illiquid investments include non-traded REITs, private placements, private equity and venture investments, BDCs, oil and gas partnerships, conservation easements, complex annuities, structured products, and certain precious-metals or collectible arrangements.

An investment designed for long-term ownership isn't automatically unsuitable. The problem begins when an investor needs cash, but the product can't be sold promptly, redeemed freely, or valued reliably without accepting a steep discount. Illiquidity can restrict access through private-company ownership, contractual lockups, redemption caps, surrender charges, thin markets, or a combination of those features.

The SEC uses a practical mutual-fund test. An asset is illiquid when the fund reasonably expects it can't be sold or disposed of in current market conditions within seven calendar days without significantly changing its market value, and funds can't buy additional illiquid investments when more than 15% of net assets are already illiquid under the applicable framework. SEC liquidity-risk guidance also makes clear that classification isn't a one-time exercise.

The eight examples below address four questions: where liquidity is restricted, which fees and risks matter, who may be unsuited, and what records or recovery options may be relevant. Investors researching due diligence in alternative investing should review the actual offering documents, not rely on product labels or projected distributions.

If you would like a free consultation to discuss the investment loss recovery process in more detail, call Kons Law Firm at (860) 920-5181 for a FREE, NO OBLIGATION consultation. Readers should seek advice about their individual circumstances, because the facts, deadlines, account agreements, and available remedies can differ substantially.

1. Non-Traded Real Estate Investment Trusts

Non-traded real estate investment trusts can provide real-estate exposure without a public exchange, but that structure makes exit timing uncertain. Investors may face limited redemptions while the underlying properties remain difficult to value and sell. Research found approximately 8% annual underperformance versus traded REITs, or 5% to 6% annually before accounting for a 24.6% discount to NAV. The research on non-traded REIT returns links illiquidity with ongoing performance drag, not just delayed access to cash.

Review upfront commissions, dealer compensation, acquisition costs, asset-management fees, financing expenses, and the stated source of distributions. A high distribution rate does not establish sustainable property income. Distributions may include a return of capital, reducing the investor's economic stake rather than representing profit.

Liquidity terms deserve more attention than the distribution rate

Redemption programs may be discretionary, capped, suspended, or limited by available capacity. One private REIT prospectus capped total redemptions across several share classes at 2% of aggregate NAV per month and 5% per calendar quarter, subject to carry-over capacity. The private REIT prospectus shows why a redemption procedure does not equal dependable liquidity.

Before investing, obtain the prospectus, valuation policies, redemption history, distribution-coverage information, and complete fee schedule. Preserve sales presentations, emails discussing projected returns, account statements, and records showing retirement needs or expected access to funds. Confirm whether valuation dates, notice periods, gates, and suspension rights match the liquidity described by the adviser.

Practical rule: Treat a non-traded REIT as unavailable capital unless the governing documents prove otherwise.

If an investor was told the product was liquid, income-focused, or suitable for near-term retirement needs, a legal review may identify disclosure, suitability, or documentation issues. Learn more about non-traded real estate investment trusts and preserve the records before asking the broker or sponsor to explain missing value. Potential recovery may depend on account agreements, communications, transaction records, and applicable deadlines.

2. Business Development Companies

Business Development Companies invest in debt and equity issued by small or midsized private companies. Publicly traded BDCs can generally be sold through an exchange, but privately distributed BDCs may restrict transfers and redemptions even though their underlying portfolios produce periodic interest or dividend income.

The central mistake is to confuse regular distributions with liquidity. A private BDC may distribute income while the investor remains committed to a portfolio that can't be independently priced or sold. Borrowing can magnify gains and losses, and the outcome depends heavily on underwriting, portfolio-company performance, valuation judgments, and the manager's ability to handle defaults.

Read the portfolio, not just the yield

Review the prospectus, investment-adviser compensation, incentive fees, financing arrangements, valuation policy, concentration, nonaccrual loans, and redemption provisions. Ask how the manager values private debt and equity, how often those marks are reviewed, and what happens when portfolio companies miss payments.

A BDC may be unsuitable for an investor who needs dependable principal access, can't tolerate valuation volatility, or doesn't understand its use of borrowed funds. It may also be unsuitable when an advisor recommends it as a conservative substitute for cash or high-quality bonds without explaining the underlying credit and exit risks.

For due diligence, request quarterly portfolio reports and compare distributions with actual interest collections, realized gains, nonaccrual positions, and changes in NAV. Keep the subscription agreement, financial statements, investor reports, fee disclosures, risk questionnaires, and advisor notes.

A distribution is a cash-flow feature. It isn't a promise that the investment can be liquidated at NAV.

Claims involving unsuitable recommendations, misrepresentation, inadequate disclosure, or redemption disputes depend on the documents and communications surrounding the sale. The business development company investment overview provides context for investors evaluating whether a BDC recommendation matched their objectives and financial condition.

3. Private Placement Securities and Unregistered Securities

Private placements are issued outside the public market and can include private-company stock, bonds, convertible instruments, or interests in an operating venture. The absence of a public exchange means an investor may have no ready buyer, no continuously quoted price, and no practical way to test the sponsor's valuation.

Private doesn't mean fraudulent, and accredited-investor status doesn't eliminate risk. It does mean the investor must study a narrower disclosure set and understand that the issuer, promoter, and selling professional may control much of the available information. Exit rights, transfer restrictions, liquidation preferences, capital-call obligations, and dilution provisions can matter more than the headline business opportunity.

The documents define the real investment

Request audited or otherwise detailed financial statements, capitalization tables, debt schedules, use-of-proceeds information, material contracts, litigation disclosures, and a realistic path to an exit. Verify who issued the security, which exemption was used, whether transfers require consent, and what happens if the company raises new capital or fails.

Concentration is a practical suitability issue. An investor who puts too much retirement or emergency capital into one private issuer may be unable to respond when the company needs additional funding or when personal expenses arise.

Preserve the private placement memorandum, subscription agreement, investor questionnaire, wire confirmations, financial statements, pitch decks, emails, text messages, and periodic updates. Those records can reveal whether the seller described an investment as safe, liquid, guaranteed, or near-term when the governing documents said otherwise.

Examples of illiquid investments in this category include venture interests, private-company preferred shares, blockchain offerings, and direct co-investments. The practical risks of investing in private placements often turn on the difference between what the investor received in writing and what the salesperson communicated orally.

4. Oil and Gas Partnership Interests

Oil and gas partnerships give investors an indirect interest in exploration, drilling, production, or energy-related assets. The partnership interest usually isn't listed on an exchange, and a buyer must understand the operator, project history, geological assumptions, financing, tax structure, and remaining development obligations.

Liquidity can disappear for several reasons. A project may take years to develop, the partnership agreement may restrict transfers, and the specialized nature of the assets limits the pool of possible buyers. Even if production begins, distributions depend on output, operating costs, commodity prices, debt, and the payment waterfall.

Tax benefits don't replace economic diligence

A promoter may emphasize deductions, depletion, or expected production while giving less attention to dry-hole risk, reserve uncertainty, additional capital calls, and operator solvency. Investors should obtain an independent geological assessment, study the reserve methodology, and compare price assumptions with a range of market conditions rather than accepting a single optimistic projection.

Review the partnership agreement for distribution priority, management authority, related-party charges, expense allocation, transfer restrictions, and dissolution terms. Confirm whether the operator has enough capital to finish the project and whether investors can be required to contribute more money.

Keep the private placement memorandum, geological reports, engineering opinions, partnership agreement, tax disclosures, K-1s, capital-call notices, distribution statements, and communications about projected wells or reserves. A recommendation may warrant review if the advisor ignored the investor's need for liquidity, relied on tax benefits to justify speculative risk, or failed to explain the possibility of a total loss.

The same land-access issue that affects underlying real property can complicate value and development. Investors examining related land arrangements may also benefit from understanding buyer risks for landlocked land, although an oil and gas partnership requires its own securities and tax analysis.

5. Conservation Easement Investments

Conservation easement investments combine a partnership interest in land with restrictions on development and a claimed tax benefit. The investor may receive little or no operating cash flow, while the economic value depends heavily on the appraisal, the partnership documents, the land's restricted use, and the sustainability of the deduction.

The suitability question is unusually important. An investor may be attracted by a large projected deduction without asking whether the underlying property has genuine conservation value, whether the appraisal methodology is defensible, or whether the investment produces any economic return apart from tax treatment. If the deduction is challenged, the investor can face tax exposure, penalties, professional fees, and an illiquid partnership interest at the same time.

Appraisals and tax records need independent review

Obtain the conservation documents, baseline report, deed of easement, partnership agreement, appraisal, financial projections, and promoter disclosures. Ask who selected the appraiser, what comparable properties were used, how development potential was valued, and whether the restrictions materially affect the land's marketability. A specialized tax attorney should assess the deduction rather than relying solely on the promoter's tax materials.

Preserve every appraisal version, tax opinion, marketing presentation, subscription document, questionnaire, email, and communication describing the deduction as guaranteed or audit-proof. Also retain notices from the IRS, state authorities, partnership administrators, and tax preparers.

A tax deduction is not the same thing as investment liquidity, investment income, or a guaranteed tax result.

An investor who was sold a conservation easement as a low-risk tax strategy, without a meaningful explanation of audit and valuation risk, may have questions involving suitability or misrepresentation. Review conservation easement IRS concerns and consult counsel about the particular offering, tax filings, and timing.

6. Precious Metals and Collectibles Investments

Physical metals can be sold in established markets, but the wrapper determines the actual liquidity. A coin held through a reputable dealer may have a recognizable market. A rare-coin program, metals IRA arrangement, partnership vehicle, or collectible marketplace can involve dealer spreads, opaque valuations, storage restrictions, authentication issues, and a limited buyer pool.

Gold, silver, platinum, and palladium are often presented as protection against inflation, currency concerns, or market stress. Collectibles such as rare cards, watches, art, coins, and classic vehicles depend on condition, provenance, specialist demand, and the timing of sale. A quoted appraisal doesn't guarantee that a buyer will pay that amount, especially when the investor must sell quickly.

Verify custody before considering performance

Ask whether the metal is physically owned, allocated, and segregated, or whether the investor owns only a contractual claim. Confirm the depository, insurance, audit process, withdrawal rights, dealer markup, storage charges, and liquidation price. For collectibles, preserve certificates of authenticity, chain-of-title records, condition reports, purchase invoices, insurance schedules, and independent appraisals.

A recommendation may be unsuitable when a retiree is urged to move a large share of retirement savings into metals or collectibles, particularly when the seller doesn't explain costs and resale limits. Compare prices across independent dealers and ask for written buyback terms before purchasing.

Records can help establish the true transaction economics. Keep all call recordings or written communications, including statements about guaranteed appreciation, urgency, inflation protection, storage, and ease of resale. Collectors should also maintain provenance and condition records, much as someone researching PSA comps for Charizard cards would need reliable market evidence rather than a single advertised price.

7. Structured Products and Complex Derivatives

Structured products combine a debt instrument with one or more derivatives tied to stocks, indexes, commodities, currencies, or other reference assets. Principal protection, barriers, autocall features, borrowing power, contingent coupons, and issuer-credit risk can operate together, producing an outcome that isn't obvious from the product name.

Many structured notes are intended to be held until maturity. A dealer may show an indicative secondary price, but that doesn't mean the investor can exit at a fair value whenever needed. The issuer or affiliated dealer may be the only practical market maker, and the price can reflect the derivative's current value, credit spread, fees, and limited demand.

Model the payoff before accepting the recommendation

Request the term sheet, final pricing supplement, risk factors, issuer financial information, payoff examples, fee disclosures, and secondary-market policy. Test the product under rising, falling, flat, volatile, and barrier-breach scenarios. Then compare it with a simpler combination of traditional investments that might pursue a similar objective.

These products can be unsuitable for investors who can't explain the maturity date, maximum loss, barrier mechanics, issuer exposure, or exit process in their own words. The advisor's written suitability analysis should identify the investor's experience, liquidity needs, risk tolerance, and reason for using the structure.

Preserve every version of the term sheet, account statement, order ticket, risk acknowledgment, email, and recorded explanation. If the sales process described a complex note as principal-protected without explaining issuer default risk or conditional protection, those communications may be important in a later review.

The key question isn't whether a structured product has a complex design. It's whether the investor understood the conditions controlling repayment and could afford to hold the product until those conditions were resolved.

8. Annuity Products

Annuities can provide valuable income guarantees, but their insurance structure may make access costly. Surrender charges, withdrawal limits, rider conditions, layered expenses, and exchanges that restart restrictions can turn a retirement asset into an illiquid commitment.

Fixed, variable, indexed, and structured annuities require different reviews. A variable annuity may impose mortality and expense charges, administrative fees, investment expenses, and rider charges. Indexed or structured annuities may use participation formulas, caps, spreads, floors, or buffers that make results difficult to compare with a conventional portfolio. The suitability question is whether those features justify the reduced access and added cost for this investor.

Suitability depends on the investor's cash needs

Before accepting a recommendation, obtain the contract, applicable prospectus, fee disclosure, surrender schedule, withdrawal terms, rider details, insurer financial information, and illustration assumptions. Calculate the total cost across each component, then identify the amount available without penalty and the conditions that could change that amount.

An annuity may not suit someone who needs emergency liquidity, already has sufficient guaranteed income, or cannot explain the trade-off between guarantees and access. A 1035 exchange requires particular scrutiny. It can create a new surrender schedule and different fees even when presented as a routine improvement.

Preserve the replacement analysis, suitability form, financial profile, insurance illustration, recorded presentation, policy delivery documents, annual statements, and communications about fees or historical returns. If the advisor did not explain surrender restrictions, failed to discuss the consequences of replacing an existing contract, or used misleading performance comparisons, an attorney can assess whether the sales process supports a claim or other recovery review. The available pathway may depend on the contract, disclosure record, applicable insurance rules, and limitations periods.

The SEC's liquidity framework requires funds to review illiquid classifications at least monthly, as explained in its liquidity-risk rule release. That mutual-fund rule does not govern insurance contracts. Its broader lesson still applies: reassess liquidity against changing cash needs rather than treating suitability as settled on the purchase date.

8-Point Comparison: Illiquid Investment Types

From Illiquidity Warning to Recovery Review

Illiquidity is both a product characteristic and a suitability warning. A long holding period may be reasonable for an investor with stable income, adequate reserves, and a documented understanding of the risks. The same investment can be inappropriate for a retiree who needs portfolio access, an investor facing known expenses, or anyone who was told that a restricted product was equivalent to cash or a publicly traded security.

The exit market itself can also become stressed. Preqin reported 77 continuation funds raising $39 billion in 2024, record private-equity secondaries AUM of $526 billion as of December 2024, and 726 evergreen funds in market by June 2025. Preqin's private-markets liquidity primer shows that secondaries, continuation vehicles, and evergreen structures are expanding without eliminating the underlying investor's liquidity risk.

Private equity illustrates the pricing problem. In a large NBER sample, secondary transactions cleared at an average 13.8% discount to NAV, while funds aged 4 to 9 years traded closer to a 9% discount. The NBER private-equity secondary-market study demonstrates why a secondary-market option isn't the same as a guaranteed exit at reported NAV.

The records that matter most

Start with a precise inventory, not a product nickname.

• Identify the security: Record the legal issuer, registration or exemption, account number, share class, partnership entity, and ownership form.
• Compare promised and actual liquidity: Match sales statements with redemption provisions, lockups, gates, transfer restrictions, surrender charges, and market-maker terms.
• Calculate the economics: Identify commissions, upfront charges, management fees, incentive compensation, financing costs, storage expenses, insurance, and ongoing deductions.
• Review suitability: Compare the recommendation with age, income, net worth, investment experience, liquidity needs, concentration, tax position, and stated objectives.
• Preserve the file: Save statements, prospectuses, subscription agreements, emails, account records, tax documents, recorded calls, risk questionnaires, and sales materials.

Lockups can remain restrictive even after an investment becomes publicly listed. One IPO lockup study reported an average lockup period of 416 days, with a minimum of 180 days and a maximum of 508 days in its sample. The IPO lockup research also describes how contractual restrictions can delay an exit beyond the investor's expectations.

Investors who suspect unsuitable recommendations, misrepresentation, negligence, fraud, breach of fiduciary duty, or unauthorized conduct can discuss the facts with a securities attorney and explore potential FINRA arbitration or court actions. Kons Law represents investors in disputes involving private placements, non-traded REITs, BDCs, annuities, structured products, oil and gas partnerships, conservation easements, precious metals, and other alternative assets. Visit Kons Law to review the firm's investment-loss recovery practice. No attorney can guarantee an outcome, and a timely review matters because contractual and legal deadlines may apply.

If you would like a free consultation to discuss the investment loss recovery process in more detail, call Kons Law Firm at (860) 920-5181 for a FREE, NO OBLIGATION consultation.

Kons Law evaluates whether illiquid-investment losses may involve unsuitable advice, inadequate disclosure, misrepresentation, negligence, fraud, or unauthorized conduct. Bring your statements, offering documents, tax records, and communications to a free consultation by visiting Kons Law.