What Moved
The Bank of Canada raised its overnight rate by 50 basis points to 3.75% on October 26. The Bank signaled that further increases were needed but that the pace of tightening was likely to moderate — a hint that the most aggressive phase of the hiking cycle was approaching its end (BoC, Oct 26, 2022).
Canadian CPI for September came in at 6.9%, still far above target but moderating from the June peak. Core inflation measures remained sticky, suggesting that the disinflation process would be gradual (StatsCan, Oct 2022).
Housing prices continued their decline, though the pace of deterioration was slowing in some markets. Toronto's average had stabilized somewhat from the spring-summer free fall, but remained far below the February peak.
In private credit, stress indicators were building across the MIC sector. The prospect of another MIC redemption freeze was growing. Romspen Investment Corporation was showing signs of strain — loan repayment rates were declining, and the fund's ability to meet redemption requests was under question. Industry observers were watching closely for a repeat of the April 2020 gate.
Infrastructure PE remained a relative bright spot, with Canadian pension funds continuing to increase allocations to infrastructure as a defensive hedge.
What It Means
At 3.75%, the overnight rate had risen 350 basis points in seven months — a pace that was testing every borrower and every lender in the Canadian private credit ecosystem.
The stress on MIC portfolios was now clearly visible in the data. Loan extension rates had increased. Borrower delinquencies were rising, though formal defaults remained manageable. The funds that were most exposed were those with concentrated loan books, high LTV originations, and limited liquidity reserves.
Romspen's situation was particularly watched because of its scale ($3.2 billion AUM) and its history — the 2020 pandemic gate was still fresh in investor memory. A second freeze would raise fundamental questions about the MIC structure's ability to handle multiple stress events.
However, it was important to maintain perspective. The broader Canadian financial system was functioning. Banks were well-capitalized. The housing correction was orderly. And within the MIC sector, many managers were performing well — those with conservative books were still making distributions and meeting obligations. The stress across Canadian alternative investments was real but concentrated, not systemic.
Infrastructure continued to demonstrate its counter-cyclical appeal. Regulated utilities, transportation assets, and contracted renewable energy projects generated steady cash flows regardless of rate cycles. For investors seeking stability amid private credit volatility, infrastructure allocations were performing as designed.
What We're Watching
The November and December BoC decisions would likely determine the terminal rate for this cycle. Markets were pricing in 4.00-4.50% as the likely peak.
Whether Romspen would gate redemptions was the sector's most immediate concern. The outcome would signal the depth of MIC sector stress.
Year-end private credit data would provide the most comprehensive picture of how the tightening cycle had affected the sector. Distribution sustainability, NAV adjustments, and loan extension rates would together tell the real story of how well — or how poorly — private credit portfolios had absorbed the rate shock.
Canadian pension fund allocation data for 2022 was also worth monitoring. Despite the retail-facing stress in MICs, institutional allocators had broadly maintained or increased their exposure to private credit and infrastructure through the year — a signal of continued confidence in the asset class at the institutional level, even as the retail experience was more turbulent.
Closing
October brought the tightening cycle closer to its peak while stress in the MIC sector intensified. For Canadian alternative investors, the environment demanded both vigilance and perspective — acknowledging the real pressures while recognizing that the market was adjusting, not collapsing.
For the full quarterly analysis, see Q4 2022: The Year Private Credit Cracked.
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