What Moved
The Bank of Canada held its overnight rate at 1.75% on January 22, signaling that the current policy setting remained appropriate. For those tracking private equity in Canada, the 2020 outlook appeared strong heading into the new decade. The Bank acknowledged global risks but pointed to a resilient domestic economy with solid employment and recovering housing markets (BoC, Jan 22, 2020).
Canadian housing started 2020 with momentum. The recovery that began in mid-2019 continued, with both sales and prices trending upward in most major markets. Toronto was particularly active, with January sales well above year-ago levels (CREA, Jan 2020).
In private markets, the new year brought fresh capital allocations. MIC managers reported strong January inflows as investors deployed RRSP contributions and new-year capital. PE fund managers were optimistic about their 2020 pipelines, citing active deal flow in Canadian mid-market technology, healthcare, and financial services.
Reports from China about a novel coronavirus were emerging, but in January 2020 the situation appeared contained and drew minimal attention from North American investors.
What It Means
The setup for Canadian private markets at the start of 2020 was highly constructive. Rates were stable, housing was recovering, private credit was performing well, and PE deal activity was picking up. The institutional case for Canadian alternative investments — diversification, yield, and real economy exposure — was well-supported by current conditions.
For private credit investors, the environment was favourable. Healthy origination volumes, conservative default rates, and a steady rate backdrop meant MIC portfolios were delivering on their yield promise. The key consideration was the same as it had been throughout 2019: manager selection and underwriting quality mattered more than sector-level tailwinds.
For PE investors, the start of a new decade brought a long enough track record to assess the Canadian mid-market PE thesis. Over the previous five years, Canadian PE had delivered returns that competed with public equity while offering different risk exposures and lower correlation to public market drawdowns.
What We're Watching
The BoC's March decision would be the next rate checkpoint. With the economy stable, a hold was expected — but global uncertainty could shift the calculus quickly.
Canadian housing spring data would be the key domestic indicator. The recovery was now a trend rather than a blip, and the spring market would show whether it had further to run.
International developments — trade, geopolitics, and the emerging coronavirus situation — were the primary risk factors. At this point, few expected these to materially impact Canadian private markets.
Closing
January 2020 began with optimism and momentum. The Canadian private markets engine was running well, and most indicators pointed to a productive year ahead. The decade was young and the outlook appeared bright.
For the full quarterly analysis, see Q1 2020: When Everything Correlated.
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