Opening
The third quarter of 2024 brought the moment global markets had been waiting for: the Federal Reserve joined the easing cycle. The US Fed rate cuts and their impact on Canada became the defining theme of Q3. When the US central bank cut its federal funds rate by 50 basis points in September — its first reduction since the emergency cuts of 2020 — the world's two largest central banks were moving in the same direction for the first time since the tightening began. The Bank of Canada, already two cuts into its easing cycle, delivered a third 25 basis point reduction in September, bringing the overnight rate to 4.25%. The synchronized easing across North America unleashed a wave of confidence through private markets. PE deal activity surged, private credit volumes climbed, and the recovery that had been building quietly through the first half of the year announced itself with conviction.
The Macro Picture
The Bank of Canada's July 24 decision to cut by another 25 basis points to 4.50% was widely expected and delivered without surprise (BoC, Jul 24, 2024). The accompanying statement reflected growing confidence that inflation was on a sustained path toward the 2% target. Canadian CPI had continued its decline through the summer, with the headline rate approaching 2.5% by August (StatsCan, Q3 2024).
The September 4 cut to 4.25% maintained the Bank's measured pace — three consecutive 25 basis point reductions since June, totalling 75 basis points of easing from the 5.00% peak (BoC, Sep 4, 2024). The economy was responding to the relief, though unevenly. Consumer spending showed modest improvement, business investment remained cautious, and the housing market continued its slow recovery.
The defining macro event of Q3, however, came from Washington. On September 18, the US Federal Reserve cut its federal funds rate by 50 basis points, from 5.25-5.50% to 4.75-5.00% (Fed, Sep 18, 2024). The larger-than-expected initial cut signalled that the Fed, having waited longer than many global peers, was moving decisively to recalibrate policy. Chair Powell's press conference emphasized that the cut was about normalizing rates from restrictive levels, not responding to economic weakness.
The synchronized easing had several immediate effects on Canadian markets. The Canada-US rate differential, which had widened when the BoC cut first in June, began to narrow. The Canadian dollar stabilized. More importantly, global risk appetite improved markedly — lower US rates reduced the global cost of capital, supporting asset valuations and risk-taking across jurisdictions.
Government of Canada bond yields continued their descent, with the five-year benchmark falling below 3.25% by late September. The yield curve continued its normalization, with the spread between two-year and ten-year yields moving from deeply inverted toward flat. For private market participants, the cost of leverage was declining on multiple fronts: base rates, credit spreads, and term premiums were all compressing.
Private Markets Impact
The combination of continued BoC easing and the Fed's entry into the cutting cycle created the most constructive environment for Canadian private markets since before the tightening began in early 2022.
Private Equity: The Rebound Materializes
The PE recovery that had been signalled by pipeline activity in Q1 and early deal closings in Q2 became a full rebound in Q3. Canadian PE deal value through the first three quarters of 2024 was up dramatically from the same period in 2023, with the CVCA tracking a surge in completed transactions across mid-market and large-cap segments (CVCA, Q3 2024).
Several factors converged to drive the acceleration. Lower financing costs made leveraged acquisitions more economical. The valuation gap between buyers and sellers had largely closed, with sellers accepting that 2021-2022 peak valuations were no longer the reference point, and buyers recognizing that improving conditions justified modestly higher multiples than the trough. Sponsors who had accumulated dry powder through the slow period of 2023 were deploying capital with urgency, recognizing that the window of attractive entry valuations was narrowing as conditions improved.
Exit activity also showed meaningful improvement. Strategic buyers, buoyed by lower financing costs and improved confidence, returned to the market. Secondary transactions — fund-to-fund and GP-led — provided additional liquidity for sponsors seeking to return capital to limited partners.
Private Credit: Volume Recovery, Yield Compression
The private credit market in Q3 experienced the tension inherent in an easing cycle: origination volumes rose sharply, but yields on new issuance began to compress. Base rates had fallen 75 basis points from their peak, and credit spreads — which had widened during the tightening cycle — were beginning to tighten as well.
For managers with portfolios of floating-rate loans originated at peak rates, the gradual reset was manageable. The all-in yields on Q1 and early Q2 vintages remained highly attractive even with lower base rates. For new deployment, the yield compression was offset by improved credit quality — lower rates reduced borrower stress, supporting stronger debt service coverage and lower default risk.
The market saw a notable increase in refinancing activity, as borrowers took advantage of falling rates to replace expensive short-term facilities with more permanent capital structures. Private credit managers reported robust demand across direct lending, mezzanine, and structured credit strategies. Institutional investors continued to view private credit as a core allocation, with the asset class having demonstrated stable performance through the full rate cycle.
Real Estate: Recovery Gains Momentum
The real estate sector benefited from synchronized easing more than any other alternative asset class. Lower rates directly reduced financing costs for both new acquisitions and existing debt, supporting valuations and improving cash flow metrics. Transaction volumes increased meaningfully in Q3, with multi-residential, industrial, and logistics assets seeing the strongest buyer interest.
The housing market also responded. Existing home sales, as tracked by CREA, showed improvement through the summer months as lower mortgage rates brought sidelined buyers back into the market. While prices in most markets remained below 2022 peaks, the trajectory had turned positive (CREA, Q3 2024).
What We're Watching
The synchronized easing of Q3 2024 had several implications for Canadian accredited investors considering their private market positioning.
The global easing backdrop was unambiguously supportive. When both the Bank of Canada and the Federal Reserve were cutting rates simultaneously, the effect on private markets was multiplicative. Lower Canadian rates supported domestic asset values and reduced borrowing costs. Lower US rates improved global risk appetite, expanded the pool of available capital, and reduced the cost of cross-border transactions. This was the most favourable macro backdrop for private markets since before the tightening cycle began.
Deployment timing within the cycle mattered. The PE rebound of Q3 demonstrated that the best returns in private markets typically come from deploying capital during the recovery phase — after conditions have troughed but before confidence has fully returned and competition has bid up prices. Investors evaluating commitments to PE funds could consider that Q3 2024 vintages were deploying into an environment of improving fundamentals and still-reasonable valuations.
Private credit was transitioning, not declining. The yield compression in private credit was a natural consequence of the easing cycle, but the asset class remained attractive relative to public fixed income. Spreads on private credit continued to offer a meaningful premium over investment-grade corporate bonds, and the illiquidity premium — the additional return for locking up capital — remained intact. The question for investors was about allocation sizing and vintage management, not whether private credit belonged in the portfolio.
Diversification across alternatives had proven its value. The different responses of PE, private credit, and real estate to the rate cycle underscored the case for diversified alternatives exposure. Private credit performed best during the hold and early cut phases, PE rebounded most strongly as the easing cycle matured, and real estate was a later-cycle beneficiary. A portfolio that combined all three captured the full spectrum of the recovery — a compelling case for diversified exposure to alternative investments in Canada.
Closing
Q3 2024 will be remembered as the quarter when the recovery in Canadian private markets went from emerging to established. The Federal Reserve's entry into the easing cycle, combined with the Bank of Canada's continued reductions, created a synchronized monetary environment that supported risk-taking, deal-making, and capital deployment across alternatives. PE deal activity surged. Private credit volumes climbed. Real estate recovery gained momentum. The easing cycle was no longer just a Canadian story — it was a global one, and Canadian private markets were positioned to benefit from both the domestic and international tailwinds. The question heading into Q4 was whether the Bank of Canada would maintain its measured pace or accelerate.
SOURCES
- Bank of Canada, Interest Rate Decisions, July 24 and September 4, 2024
- US Federal Reserve, Federal Open Market Committee Decision, September 18, 2024
- Statistics Canada, Consumer Price Index, Q3 2024
- Canadian Real Estate Association (CREA), National Resale Housing Activity, Q3 2024
- Canadian Venture Capital & Private Equity Association (CVCA), Market Overview, Q3 2024
- Government of Canada Bond Yields, Bank of Canada Financial Statistics
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