With the choppiness in the equity and fixed income markets over the last few weeks, it seems investors are recognizing that alternative asset classes are an important part of a proper asset mix. To the best of my knowledge, there’s currently only one pool in Canada which provides diversification amongst private debt, mortgage investment corporations and real estate, along with provider diversification for additional protection. I was told this week that $52 million in capital was raised for this investment in just two months.
Bonds are loans, but trade on open markets and can therefore act like stocks, particularly in rising interest rate environments. Private debt is also a loan, but because such loans don’t trade publicly, they don’t experience public security type volatility. Investors also seem to favour shorter term loans, with some as short as 60 days, whereas bonds with higher yields usually have longer terms to maturity resulting in frequent buy/sell activity, creating the volatility many prefer to stay away from.
While pension and endowment funds have been investing in private debt for decades, until recently, the barrier to entry for retail investors has been difficult. According to research from NinePoint Partners in Toronto, retail portfolios in the US only hold about 5-7% in private debt securities and private debt in Canadian retail portfolios is not even measurable.
That said, it is projected that investment in Canadian private debt will hit $1 trillion by 2020, representing 20% annualized growth over the next two years.
Have a great weekend!
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Daniel Popescu CFP, CIM, FMA, FCSI
President & CEO
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