Opening
The first quarter of 2024 was defined by a single, unspoken consensus: Bank of Canada rate cuts in 2024 were coming. The Bank held its overnight rate at 5.00% through January, March, and April, but beneath that static number, a repositioning was already underway. Institutional allocators, private credit managers, and PE sponsors were reading the same signals — inflation moderating, economic growth softening, and a central bank that had clearly reached the end of its tightening cycle. The anticipation trade had begun. For Canadian private markets, Q1 was the quarter where conviction quietly rebuilt, even as official policy stayed frozen in place.
The Macro Picture
The Bank of Canada entered 2024 with the overnight rate at 5.00%, the highest level since 2001. After ten rate increases between March 2022 and July 2023, the tightening cycle was over in all but official declaration. The January and March rate decisions brought no change, but the accompanying language shifted noticeably (BoC, Jan 24; BoC, Mar 6). Governor Macklem acknowledged progress on inflation, with Canadian CPI trending down toward 3% and core measures showing sustained deceleration.
Markets responded to the gap between policy and trajectory. Bond yields, which had peaked in late 2023, began a gradual descent through Q1. The Government of Canada five-year yield dropped roughly 40 basis points between January and March, repricing expectations for rate relief in the second half of the year. Swap markets by late March were pricing a first cut as early as June with high probability.
The Canadian economy, meanwhile, was showing the strain of two years at restrictive rates. GDP growth was essentially flat, with per-capita GDP declining as immigration-driven population growth outpaced economic output. Business investment was muted, particularly in rate-sensitive sectors like commercial real estate and housing. Residential resale activity, as tracked by CREA, remained well below historical norms through Q1, though listing inventory was beginning to climb as sellers tested the market ahead of anticipated rate relief (CREA, Q1 2024).
South of the border, the US Federal Reserve was engaged in its own anticipation game. The fed funds rate sat at 5.25-5.50%, and while the American economy showed more resilience than Canada's, the direction of travel was the same — inflation cooling, policy rates at peak, and cuts on the horizon. The convergence of expectations across both central banks set the stage for synchronized easing later in the year.
Private Markets Impact
The anticipation of rate cuts created a distinct set of dynamics across Canadian private asset classes. Nothing had officially changed, but the shift in expectations was enough to move capital and reshape deal flow.
Private Credit: Peak Yields, Stabilized Risk
For private credit managers, Q1 2024 represented something unusual — peak base rates combined with stabilizing credit conditions. Floating-rate private loans were still pricing off a 5.00% policy rate, delivering yields that looked increasingly attractive as public fixed income markets priced in future cuts. Institutional allocators who had pulled back from private credit during the distress of 2022-2023 began re-entering the space, recognizing that the window for peak yields was narrowing.
Default rates, which had ticked up through 2023, showed signs of stabilization. The worst of the rate shock had been absorbed. Borrowers who survived the tightening cycle were refinancing at more manageable debt service levels, and new originations were underwritten against a more realistic rate environment. Private credit fund managers reported strong fundraising in Q1, with Canadian pension funds and family offices increasing allocations (CVCA, Q1 2024).
Private Equity: The Thaw Begins
The Canadian PE market had endured a difficult 2023 — deal activity had slowed materially as valuation gaps between buyers and sellers persisted and financing costs remained elevated. Q1 2024 brought the first signs of a thaw. Deal pipelines were rebuilding, though closed transactions were still below trend. Sponsors who had spent 2023 focused on portfolio company operations — driving margin improvement and organic growth — were beginning to test exit markets again.
The CVCA reported a notable increase in deal exploration and letter-of-intent activity through Q1, even if final closings remained subdued. The anticipation of lower rates was beginning to close the valuation gap that had frozen dealmaking. Sellers who had refused to accept 2023 valuations were finding that the rate outlook supported modestly higher multiples (CVCA, Q1 2024).
Real Estate: Waiting for the Signal
Commercial real estate remained under pressure, with cap rate expansion still working through the market. Transaction volumes were low, but distressed sales — widely predicted in 2023 — had largely failed to materialize in Canada. The institutional ownership structure of Canadian commercial real estate, with pension funds and REITs dominating the landscape, meant that forced selling was limited. The market was in a holding pattern, waiting for rate cuts to recalibrate pricing.
What We're Watching
Q1 2024 offered a reminder that private markets often move on expectations before they move on events. The Bank of Canada had not yet cut rates, but the anticipation of cuts was already reshaping capital allocation, deal activity, and risk appetite across Canadian alternatives.
For accredited investors evaluating their private market allocations, several themes from Q1 were worth considering:
The yield window was narrowing. Private credit funds deploying capital in Q1 were locking in base rates at or near 5.00% — a level unlikely to persist. Investors who had been waiting for "clarity" on rates risked missing the peak-yield vintage. The best time to deploy into private credit was arguably when rates were highest and credit conditions were stabilizing, not after cuts had already compressed yields.
PE positioning mattered. The anticipation trade in private equity was about being positioned before the easing cycle repriced assets. Funds that deployed capital in Q1 at lower multiples stood to benefit from the valuation expansion that rate cuts would eventually support. The pattern was familiar from previous cycles: the best vintage years for PE tend to be those when capital is deployed during uncertainty, not during euphoria.
Patience was being rewarded. The absence of distressed selling in Canadian commercial real estate spoke to the structural resilience of the market. Investors who had positioned for a wave of distressed opportunities were largely still waiting. The more productive posture was selectivity — identifying specific situations where capital was needed, rather than expecting a broad-based repricing.
The anticipation trade was, by definition, a trade built on what had not yet happened. But the signals were consistent: the direction of rates was down, private markets were stabilizing, and the recovery trade was beginning to take shape.
Closing
Q1 2024 was a quarter of preparation rather than action. The Bank of Canada held firm, but the market was already looking past the static policy rate to the easing cycle ahead. Private credit managers locked in peak yields. PE sponsors rebuilt pipelines. Real estate waited for the signal. The anticipation trade was not dramatic — it rarely is. But for participants in Canadian alternative investments, the positioning that happened in Q1 would prove to be the foundation for the recovery that unfolded through the rest of the year. The pivot had not yet arrived, but the market was ready for it.
SOURCES
- Bank of Canada, Interest Rate Decisions, January 24 and March 6, 2024
- Statistics Canada, Consumer Price Index, Q1 2024
- Canadian Real Estate Association (CREA), National Resale Housing Activity, Q1 2024
- Canadian Venture Capital & Private Equity Association (CVCA), Market Overview, Q1 2024
- Government of Canada Bond Yields, Bank of Canada Financial Statistics
Alts Insider provides educational content for Canadian accredited investors. This is not investment advice. Always consult qualified professionals before making investment decisions.