What Moved
The Bank of Canada held at 5.00% on December 6 for the fourth consecutive decision. As a 2023 year in review for Canadian private markets, the narrative was one of resilience and recalibration. The Bank acknowledged that monetary policy was working — inflation was declining, economic growth was slowing, and the labour market was softening. While the Bank avoided committing to a timeline, the message was clear: the next move would be down, not up (BoC, Dec 6, 2023).
Canadian CPI for November came in at 3.1%, stable and within striking distance of the target range. Core inflation measures were also declining, providing the Bank with increasing confidence that the disinflation process was on track (StatsCan, Dec 2023).
Canadian housing ended 2023 with the national benchmark price approximately 22% below the March 2022 peak, but stable for the past several months. The correction was over; the recovery awaited rate cuts (CREA, Dec 2023).
Canadian VC investment for 2023 totalled $6.9 billion across 660 deals — down year-over-year but demonstrating resilience in a challenging environment (CVCA, 2023 Annual).
PE activity for the year showed a recovery from 2022's subdued levels, with increased deal flow in H2 signaling improving confidence.
What It Means
2023 was the year that tested patience — and rewarded it. The tightening cycle peaked, inflation began its descent, housing stabilized, and private credit survived its stress test.
For private credit investors, the year-end assessment was cautiously positive. Funds with strong portfolios had maintained distributions through the peak-rate environment. The worst-case scenarios of 2022 — mass defaults, fund collapses, systemic stress — had not materialized. The MIC sector had been tested, and while some funds had struggled (Ninepoint restructured, Romspen gated), the majority had navigated through.
The 2023 origination vintage was shaping up to be exceptionally strong. Loans made at peak rates, conservative valuations, and to borrowers who had survived the stress test represented the highest-quality private credit opportunity in years. Investors who deployed capital into private credit during 2023 were well-positioned for the coming easing cycle.
For PE, the year's recovery in deal activity — particularly in H2 — suggested the market was transitioning from pause to renewed activity. Across the spectrum of alternative investments in Canada, the 2023-2024 vintages, underwritten at lower valuations and with conservative structures, were positioning to deliver superior risk-adjusted returns compared to the 2021 peak vintage.
What We're Watching
The timing of the first rate cut dominated the outlook for 2024. Markets were pricing in cuts beginning between April and June 2024. The sooner cuts arrived, the faster conditions would improve for borrowers, housing, and private market activity.
Housing spring 2024 was the domestic event to watch. Rate cuts combined with pent-up demand could generate a meaningful recovery — supportive of private credit and real estate values.
The Bridging Finance receivership continued, with the legal proceedings expected to intensify in 2024. The case remained a sobering reminder of the fraud risks in the exempt market space and would likely inform regulatory discussions about investor protection in private credit vehicles.
The composition of the 2024 opportunity set was also taking shape. With rate cuts expected, the window for deploying capital at peak yields was narrowing. Investors who had been building private credit positions through 2023 were well-positioned to benefit from improving borrower conditions while maintaining their elevated coupon rates. For those still on the sidelines, the early months of 2024 might represent the final opportunity to access peak-cycle pricing before the easing cycle compressed yields.
Closing
2023 began with a banking crisis, navigated surprise rate hikes, and ended with the clearest signal yet that the easing cycle was approaching. For Canadian alternative investors, it was a year that validated the core thesis: private markets function through cycles, discipline is rewarded, and the best opportunities often emerge from the most challenging environments. The turn was coming.
For the full quarterly analysis, see Q4 2023: Waiting for the Turn.
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