What Moved
The Bank of Canada cut its overnight rate by 25 basis points to 4.50% on July 24, delivering the second consecutive reduction and confirming the easing cycle was underway. The relationship between the easing cycle and alternatives was becoming clearer as the Bank noted that inflation had made further progress and that economic conditions supported continued gradual easing (BoC, Jul 24, 2024).
Canadian CPI continued its descent, with data supporting the Bank's increasingly confident view that inflation was on a sustainable path to target.
Housing markets showed strengthening activity. July sales were up year-over-year for the first time in several months, and buyer interest was clearly increasing. The combination of two rate cuts and improving sentiment was translating into transaction volume (CREA, Jul 2024).
Private credit markets were benefiting from the easing. MIC managers reported improving borrower conditions — loan repayments were accelerating, extension requests were declining, and new origination was healthy. The sector was emerging from the stress period.
PE deal activity accelerated further, with mid-year deal values tracking well above 2023 levels.
What It Means
Two consecutive cuts confirmed the pattern — this was not a one-off adjustment but a sustained easing cycle. For private markets, the implications were increasingly positive.
Private credit portfolios originated during the peak-rate period were performing well: borrowers who survived 5.00% rates found 4.50% more manageable. Distribution rates were stable or improving for well-managed funds. And the improving macro environment was reducing the tail risks that had concerned investors.
The housing recovery was gaining conviction. More transactions meant more lending opportunities for MIC managers. Rising activity supported property values, improving LTV ratios on existing portfolios. The virtuous cycle that easing creates for private real estate credit was beginning to operate.
For PE, the second cut reinforced the positive trajectory for deal economics. Sponsors were deploying capital with increasing confidence, and portfolio company performance was benefiting from lower debt service costs. The exit environment was also improving as buyer sentiment recovered. Cross-border deal interest was also picking up, as US-based sponsors looked at Canadian targets that had been repriced during the tightening cycle and now offered compelling value relative to US multiples.
What We're Watching
The September BoC decision was the next checkpoint. A third consecutive cut to 4.25% was expected, which would bring cumulative easing to 75bp.
The US Federal Reserve's September decision was equally significant. A Fed cut would complete the global synchronization and amplify the easing benefits.
Summer housing data would quantify the recovery's strength and set expectations for the fall market.
Closing
July brought the easing cycle to full speed — two cuts delivered, more expected, and the private markets responding positively across the board. For Canadian alternative investments broadly, the recovery was no longer anticipated — it was underway.
For the full quarterly analysis, see Q3 2024: Synchronized Easing.
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