Monday Market Minute | Dec 4, 2023

Private credit posts its best year in a decade as the asset class proves its thesis

What Moved

As the year drew to a close, Canadian private credit managers reported what many described as the best vintage in their histories. Senior secured portfolios delivered net returns in the 9–11% range, with mezzanine and subordinated strategies reaching 13–16%. The combination of peak base rates, elevated spreads from bank retrenchment, and manageable default rates produced a trifecta that the asset class had been positioning for since rates began rising in early 2022. Capital inflows accelerated throughout the year as institutional and HNW investors recognized the opportunity.

Why It Matters

The 2023 performance validated private credit's core proposition: delivering equity-like returns through credit instruments secured by real assets. The asset class had weathered SVB, two surprise rate hikes, construction stress, and geopolitical uncertainty without a systemic hiccup. For Canadian investors who had allocated to quality private credit managers at the start of the year, 2023 delivered on every promise. The challenge now was forward-looking — with rate cuts expected in 2024, the window for peak yields was closing.

Signal to Watch

Whether managers would lock in current yields through longer-duration originations, or maintain short-duration flexibility to redeploy capital as the rate environment evolved in 2024.

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