What Moved
The Bank of Canada raised its overnight rate by 50 basis points to 4.25% on December 7 — the year's seventh and final hike. Total tightening for 2022: 400 basis points. As a 2022 year in review for alternatives would later confirm, it was the most aggressive tightening cycle in modern Canadian monetary history (BoC, Dec 7, 2022).
Canadian CPI for November came in at 6.8% — moderating slowly from the June peak but still far above target. The Bank signaled that further increases might be needed in early 2023, though the pace would likely slow (StatsCan, Dec 2022).
Housing ended the year having corrected significantly from the February peak. National benchmark prices were down roughly 15% from the high, with sharper declines in markets that had seen the largest pandemic-era gains. Toronto's average had fallen from $1.33 million to below $1.1 million (CREA, Dec 2022).
Year-end food inflation hit 11% — the highest since 1981, adding to household budget pressure.
PE deal activity for 2022 was below 2021's peak but remained respectable given the challenging environment. Infrastructure and energy sector deals provided ballast as technology and growth-oriented transactions slowed.
What It Means
2022 was the year the assumptions broke — and the year that would define the next phase of Canadian alternative investing.
The tightening cycle tested every private credit portfolio in the country. Funds that had been built on the premise of low rates, rising prices, and easy refinancing faced the exact opposite environment. Some — Ninepoint, Romspen — were visibly stressed. Others absorbed the pressure without crisis. The difference came down to the same fundamentals that always separate strong from weak managers: conservative underwriting, appropriate leverage, borrower diversification, and honest communication.
For the Canadian accredited investor community, 2022 provided a generation-defining education in private market risk. The lesson was not that alternative investments in Canada had failed — Canadian pension funds continued to allocate heavily to alternatives through the entire cycle. The lesson was that structure matters, liquidity terms matter, manager selection matters, and the assumptions embedded in any investment thesis need to be stress-tested against adverse scenarios.
Looking ahead, the silver lining was real: the loans and investments being made in 2023 at higher rates, lower prices, and with more conservative assumptions would likely deliver better risk-adjusted returns than those made at the cycle's peak. Distressed and rescue lending opportunities were abundant. Patient capital had significant advantages.
What We're Watching
The BoC's January decision would signal whether the tightening cycle was truly ending. Markets expected one more 25bp hike followed by a pause.
Private credit performance data for full-year 2022 would provide the comprehensive assessment the market needed. Distribution records, extension rates, default rates, and NAV adjustments would tell the real story.
Whether the housing correction had found its floor or had further to fall was the key variable for 2023 private market outlook. The national benchmark had corrected roughly 15% from peak, but some analysts argued that the full impact of 400 basis points of tightening had not yet been absorbed — particularly given the lag effects on variable-rate mortgage holders and the wave of fixed-rate renewals approaching in 2023-2024.
The infrastructure sector's strong 2022 performance also raised the question of whether institutional and accredited investors would increase their allocations to real assets as a structural hedge, potentially redirecting capital away from more volatile private credit strategies.
Closing
2022 was a year of reckoning — painful, clarifying, and ultimately necessary. The excesses of the boom were corrected, the assumptions were tested, and the foundations for a healthier market were laid. For Canadian alternative investors, the task now was to apply 2022's lessons to 2023's opportunities.
For the full quarterly analysis, see Q4 2022: The Year Private Credit Cracked.
Alts Insider provides educational content for Canadian accredited investors. This is not investment advice. Always consult qualified professionals before making investment decisions.