Monday Market Minute | Aug 09, 2021

Labour shortages become the binding constraint on private market portfolio performance

What Moved

StatsCan's July labour force survey revealed a paradox: unemployment remained elevated at 7.5%, yet businesses across sectors reported acute difficulty filling positions. The construction, hospitality, and logistics sectors — all critical to private market portfolio performance — faced particularly severe shortages. Wage pressures intensified as employers competed for scarce labour, with average hourly earnings rising at their fastest pace in years. Construction project timelines extended as skilled trades became the bottleneck in otherwise well-funded developments.

Why It Matters

Labour shortages hit private market investors through multiple channels. PE portfolio companies in labour-intensive sectors faced margin compression from rising wages and lost revenue from unfilled positions. For private credit investors, construction delays on development loans meant extended hold periods and increased carrying costs — eroding the yield that investors were earning on the capital deployed. The shortage also complicated exit timelines for PE sponsors, as buyers discounted businesses with visible labour dependency risks.

Signal to Watch

Immigration policy was the structural release valve. The federal government's commitment to 400,000 new permanent residents annually would take years to fully alleviate the shortages, but any acceleration of work permit processing would provide near-term relief for the most affected sectors.

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