What Moved
The Bank of Canada had no scheduled decision in August, holding at 4.50%. The easing cycle remained on track, with the September decision expected to bring a third consecutive cut. Market expectations were firmly anchored on continued gradual easing through year-end (BoC data, Aug 2024).
The private equity rebound was the story of the month. Canadian PE deal activity was surging. Mid-year data showed deal value up approximately 258% compared to the first half of 2023 — a remarkable rebound that reflected both accumulated dry powder being deployed and improving confidence in the economic outlook (CVCA, H1 2024).
Housing markets continued to strengthen through the summer. Sales volumes were recovering across major markets, and prices showed modest gains in several regions after nearly two years of correction or stagnation (CREA, Aug 2024).
Private credit volumes were also recovering. MIC origination was healthy, with managers reporting strong deal flow at yields that remained attractive despite the 50bp of cuts. The new origination mix was higher quality — better borrowers, more conservative structures — than the peak-boom lending of 2020-2021.
What It Means
The breadth of the recovery was the most encouraging signal. It wasn't just one asset class or one market — PE, private credit, real estate, and venture capital were all showing improvement simultaneously. This synchronized recovery suggested that the healing from the tightening cycle was genuine and sustainable.
The PE surge was particularly notable. The 258% increase in deal value reflected both catch-up from the subdued 2023 period and genuine new activity. The deals being executed were structured conservatively, with realistic assumptions about the rate environment — a far cry from the leverage-dependent deals of 2021.
For private credit investors, the improving origination environment meant managers had their pick of borrowers and deals. Competition among lenders had not yet returned to boom-era levels, meaning pricing remained favourable and underwriting standards could be maintained. This was the sweet spot: high enough rates to generate attractive yields, improving enough conditions to reduce risk.
The housing recovery was supporting the fundamental thesis for mortgage-backed private credit. Stable-to-rising prices, recovering transaction volumes, and improving borrower conditions created a favourable backdrop for both existing portfolios and new lending. Importantly, the recovery was unfolding without the speculative excesses that had characterized 2021 — lending standards were tighter, leverage was lower, and both borrowers and lenders were operating with a discipline forged by the stress of the preceding two years.
What We're Watching
The September BoC decision — expected to bring rates to 4.25% — was the next milestone. But the bigger event was the US Federal Reserve, which was widely expected to begin cutting rates in September for the first time since 2020.
A synchronized BoC-Fed easing cycle would be powerfully positive for Canadian private markets: lower domestic borrowing costs, improved global risk appetite, and potential Canadian dollar support.
Fall PE exit data would show whether the improved conditions were translating into realized returns for investors.
Closing
August confirmed that the recovery was real, broad-based, and gaining momentum. For the Canadian alternative investments landscape, the combination of attractive yields, improving fundamentals, and a clear easing trajectory created the most constructive environment since before the tightening cycle began.
For the full quarterly analysis, see Q3 2024: Synchronized Easing.
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