What Moved
The TSX was up roughly 10% since September 2020, reflecting broad optimism about the economic recovery. Alternative investments in 2021 were already off to a strong start, with capital flowing into private strategies at an accelerating pace. Canadian equity markets were outperforming many global peers, supported by strength in financials, energy, and materials — sectors with significant representation in the Canadian index (TSX data, Feb 2021).
The Bank of Canada had no scheduled decision in February, maintaining the overnight rate at 0.25%. Canadian bond yields were rising modestly, reflecting improving economic expectations, but remained historically low.
Housing was now in a full-fledged frenzy. February national sales were up over 39% year-over-year. In the Greater Toronto Area, the average home price had surged past $1 million for the first time. Bidding wars were routine, with properties selling for hundreds of thousands above asking price. The stress test that had cooled the market in 2018-2019 was now irrelevant to the demand-side dynamic (CREA, Feb 2021; TRREB, Feb 2021).
MIC origination volumes were at record levels, driven by both conventional private lending and development financing. Capital inflows continued to outpace the sector's historical norms.
What It Means
The housing frenzy was the defining feature of early 2021, and its implications for private markets were significant.
For MIC investors, the immediate picture was positive: rising collateral values reduced loan-to-value ratios on existing portfolios, borrower demand for private financing was strong, and origination pipelines were full. However, the pace of price appreciation was raising legitimate questions about sustainability.
A prudent perspective recognized that housing booms don't last forever. The MIC loans originated at peak valuations — with borrowers paying $1.3 million for Toronto homes — would be the ones most exposed if prices corrected. Managers maintaining conservative LTV caps (60-70%) on new originations were building in protection. Those lending at 80%+ LTV on peak-priced properties were accepting more risk than their yields reflected.
Early inflation signals were also worth noting. Supply chain disruptions from the pandemic were pushing up prices for lumber, semiconductors, and other inputs. Central banks were dismissing this as transitory, but the data was beginning to challenge that narrative. Any sustained inflation would eventually force rate increases — with significant implications for every rate-sensitive alternative investment.
What We're Watching
Spring housing data would determine whether the frenzy accelerated or stabilized. The seasonal boost could push prices even higher, potentially triggering regulatory attention.
Canadian inflation data for the coming months would test the "transitory" narrative. If CPI rose above 3%, the conversation about future rate hikes would intensify.
PE deal announcements were expected to pick up in Q2 as sponsors deployed dry powder. The quality and pricing of these deals would signal how disciplined the market remained.
Closing
February's message was one of abundance — abundant capital, abundant deal flow, abundant housing demand. History suggests that periods of abundance require the most vigilance. The environment was highly favorable for Canadian alternative investments, and the opportunity was real — but the time for careful manager selection was now, not later.
For the full quarterly analysis, see Q1 2021: The Everything Rally.
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