Monday Market Minute | Dec 23, 2019

Private credit outperforms in 2019 — the case for alternatives strengthens

What Moved

Full-year 2019 performance data confirmed Canadian private credit as the standout alternative asset class. Leading private credit funds and MICs delivered net returns in the 7-10% range, with volatility below 3%. By comparison, the FTSE Canada Universe Bond Index returned approximately 6.9% — an unusually strong year driven by falling yields — but with higher volatility and uncertain forward returns as yields compressed. Public equities delivered strong absolute returns but with a whipsaw profile that many investors found uncomfortable.

Why It Matters

The 2019 data strengthened the structural case for private credit within Canadian portfolios. The asset class delivered on every dimension: yield exceeded public fixed income alternatives, volatility was lower than equities and comparable to bonds, credit losses were minimal, and liquidity management was orderly. For HNW investors building alternative allocations, private credit proved its value not as a speculative bet but as a reliable portfolio anchor.

Signal to Watch

Forward yield expectations would determine whether 2019's private credit returns were repeatable. With the BoC at 1.75% and no cuts expected, the base rate environment remained supportive. The critical variable was credit quality — maintaining underwriting discipline as competition for deals intensified would be the defining challenge for 2020.

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