Monday Market Minute | Jun 8, 2020

Private credit portfolios performing better than worst-case models predicted

What Moved

As Q1 reporting season concluded, Canadian private credit managers disclosed portfolio performance that generally exceeded the dire scenarios modelled in March. Deferral rates had stabilized and, in some cases, begun declining as borrowers resumed partial payments. Realized loss rates remained near pre-pandemic levels for most major funds. Romspen reported its mortgage fund continued generating positive monthly returns, albeit at reduced levels. Ninepoint's alternative credit strategies maintained stable NAVs. The combination of government income support, low rates, and holding property values prevented the feared cascade of defaults.

Why It Matters

The outperformance relative to stress models validated a core thesis of private credit investing: in a crisis, the combination of collateral backing, covenant protections, and the inability to panic-sell creates structural resilience. Investors who held through March and April were not crystallizing losses. The cash flow interruption from deferrals was real, but the capital base was intact. This stood in sharp contrast to public market investors who sold at the bottom and locked in permanent losses.

Signal to Watch

Track second-quarter distribution rates across major MIC and private credit funds. A return to pre-pandemic distribution levels by Q3 would signal full portfolio normalization.

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