Opening
The final quarter of 2022 delivered the year's most concentrated sequence of shocks, crystallizing what became the private credit crisis of 2022 in Canada. On November 8th, Romspen Investment Corporation — one of Canada's largest and most established mortgage investment corporations — froze redemptions for the second time, trapping investor capital in a portfolio under acute stress (Globe and Mail, November 8, 2022). The very next day, on November 9th, FTX — the world's second-largest cryptocurrency exchange — filed for bankruptcy, and within weeks the Ontario Teachers' Pension Plan wrote off its entire US$95 million investment (OTPP, November 2022). The Bank of Canada closed the year with two more 50-basis-point increases, bringing the overnight rate to 4.25% — a full 400 basis points above where it had started the year (BoC, October 26 and December 7, 2022). Four hundred basis points in ten months. By year's end, 2022 had established itself as the year Canadian private credit cracked, the year institutional due diligence failed publicly and repeatedly, and the year that forever changed how accredited investors thought about liquidity, transparency, and the real meaning of "alternative."
The Macro Picture
The Bank of Canada maintained its aggressive posture through Q4, though the pace of individual hikes moderated from the extraordinary levels of Q3. The October 26th decision delivered 50 basis points, bringing the rate to 3.75%, and the December 7th decision added another 50, closing the year at 4.25% (BoC, October 26 and December 7, 2022). The cumulative 400 basis points of tightening in a single calendar year was without precedent in the Bank's modern inflation-targeting era.
Inflation showed signs of moderating but remained far above target. The December CPI reading came in at 6.3% — down meaningfully from the June peak of 8.1%, but still more than three times the Bank's 2% target (StatsCan, December 2022). The year's average CPI of 6.8% — with food at 8.9% and shelter at 6.9% — represented the most sustained inflationary episode Canadians had experienced since the early 1980s. The Bank signalled that while the pace of hikes might slow, the terminal rate had not yet been reached.
Housing markets continued their correction, though the pace of decline moderated as a floor of sorts established itself in some segments. The national correction was broad-based, but the most severe adjustments remained concentrated in the markets that had experienced the most extreme appreciation: the Greater Toronto Area, the Greater Vancouver Area, and suburban Ontario markets (CREA, Q4 2022). By December, the composite national benchmark was down approximately 15% from peak, with some local markets down 25% or more. Sales volumes remained depressed, and the market had shifted decisively from a seller's environment to a buyer's environment for the first time in years.
The Canadian economy proved more resilient than many had feared. Labour markets remained tight, with unemployment at historically low levels. GDP growth slowed but avoided outright contraction through Q4. This resilience gave the Bank of Canada room to maintain its hawkish stance without immediate concern about triggering a severe recession — though the lagged effects of 400 basis points of tightening were still working their way through the economy, and the full impact on variable-rate mortgage holders and leveraged borrowers would not be felt until 2023 renewals arrived.
Private Markets Impact
Romspen's November 8th redemption freeze was the defining private markets event of Q4 — and arguably of the entire year. Romspen was not a small or obscure manager; it was one of Canada's largest and longest-operating MICs, with a track record stretching back decades and assets under management that had attracted both retail accredited investors and institutional allocators. The freeze — its second, following an earlier suspension — signalled that the private lending stress had spread from smaller, more aggressive operators to the established core of the Canadian MIC sector (Globe and Mail, November 8, 2022).
The mechanics of Romspen's situation reflected the structural vulnerability that had plagued the MIC model throughout 2022: illiquid assets financed by capital that investors expected to be redeemable. As rate hikes depressed collateral values and borrowers struggled to refinance or repay, the gap between the liquidity of the underlying loan book and the liquidity expectations of investors became untenable. The freeze was a rational response — preferable to forced asset sales at distressed prices — but it nonetheless represented a breach of the implicit contract that many investors believed they held.
The FTX collapse, on November 9th, added an entirely different dimension of shock. The Ontario Teachers' Pension Plan's US$95 million write-off was the second high-profile institutional loss of the year connected to crypto-adjacent investments, following the CDPQ's Celsius write-off in Q2 (OTPP, November 2022). Together, the two losses totalled approximately $250 million in Canadian institutional capital destroyed by exposure to the crypto ecosystem. The episodes prompted searching questions about institutional due diligence processes, board-level oversight of emerging-technology investments, and the governance frameworks that permitted these allocations.
Yet the narrative of failure and fragility, while accurate for specific sectors and strategies, did not capture the full picture of Q4's private markets landscape. Several dynamics worked in investors' favour during the quarter.
Private credit repricing was complete. By Q4, new private loan originations were commanding yields that would have been unimaginable twelve months earlier. First-lien private mortgage rates had moved from the 6-8% range to 10-14% or higher, with conservative loan-to-value ratios reflecting the new reality of collateral values. For managers with available capital and disciplined underwriting, Q4 represented the beginning of a vintage that would likely prove highly attractive in retrospect.
Infrastructure fundraising closed strong. Several Canadian infrastructure fund managers completed successful closes during Q4, as institutional allocators continued to view infrastructure as a core allocation with natural inflation protection and long-duration cash flow visibility. The asset class emerged from 2022 as the consensus "what worked" story within Canadian alternatives.
Distressed and special situations capital mobilized. The accumulation of stressed assets across private credit — frozen funds, impaired loan books, borrowers seeking rescue capital — created an opportunity set for managers focused on distressed investing. Q4 saw early-stage capital formation in this space, with several Canadian-domiciled vehicles raising capital specifically to acquire stressed private credit assets at discounts.
Private equity continued to deploy. While headline deal volumes declined, Canadian PE sponsors continued to execute transactions, particularly in essential services, healthcare, and technology. The bid-ask spread between buyers and sellers narrowed as the year progressed, enabling more transactions to close. Importantly, the quality of opportunities available to disciplined buyers improved as competitive pressure from less-committed bidders subsided.
What We're Watching
The full weight of 2022's lessons came into focus in Q4, and Canadian accredited investors emerged with a fundamentally revised understanding of private market risk.
Liquidity is the master risk in private markets. The twin Romspen freezes, the Ninepoint restructuring, and the various smaller MIC difficulties of 2022 all shared a common thread: the mismatch between illiquid assets and liquid expectations. Investors might consider adopting the assumption that capital committed to private vehicles should be viewed as genuinely illiquid, regardless of what the redemption provisions nominally permit. The question is not "can I redeem?" but "can I redeem when I most need to?"
Institutional participation failed as a signal twice in 2022. The CDPQ/Celsius and OTPP/FTX losses demonstrated conclusively that institutional co-investment is not a substitute for independent due diligence. If anything, the presence of major institutional names may have created a false sense of security that attracted additional capital into strategies that warranted more skepticism.
Vintage diversification is as important as strategy diversification. Capital deployed in 2021 — at peak valuations, compressed yields, and aggressive LTVs — had a fundamentally different risk profile than capital deployed in Q4 2022. Investors who committed capital across multiple vintages experienced the downturn's impact in diluted form compared to those concentrated in a single deployment year.
Manager quality reveals itself in adversity. The dispersion in manager performance and behaviour during 2022 was extraordinary. Some managers communicated transparently, adjusted strategies proactively, and protected investor capital through disciplined decision-making. Others went quiet, deferred recognition of problems, and prioritized self-preservation over investor alignment. Q4's events offered a definitive sorting mechanism that investors can apply to future allocation decisions.
Private markets continued to function. Despite the year's headlines, Canadian alternative investments did not collapse. Capital was raised. Deals were executed. Rescue lending occurred. Infrastructure built. Distressed opportunities were identified and capitalized. The narrative of 2022 was not that private markets failed — it was that specific strategies, specific structures, and specific managers failed, while the broader ecosystem adapted, repriced, and continued to operate.
Closing
The year 2022 will be remembered in Canadian private markets as a watershed. Four hundred basis points of rate hikes in ten months. Fund freezes at two of the country's most prominent MICs. A quarter-billion dollars in institutional capital destroyed by crypto-adjacent investments. A housing correction that erased years of appreciation in months. These were not minor disruptions — they were structural reckonings that permanently reshaped investor expectations, manager behaviour, and regulatory attention. But 2022 was also the year that repriced risk to levels that had not existed in a generation, creating the conditions for a new vintage of investment that would reward patience and discipline. The year private credit cracked was also the year the foundation for its recovery was laid. The investors who understood that distinction entered 2023 better positioned than those who saw only the wreckage.
SOURCES
- Bank of Canada Interest Rate Decisions (BoC, October 26 and December 7, 2022)
- Statistics Canada Consumer Price Index (StatsCan, December 2022)
- Canadian Real Estate Association National Housing Statistics (CREA, Q4 2022)
- Romspen Investment Corporation Redemption Freeze (Globe and Mail, November 8, 2022)
- FTX Bankruptcy and OTPP Write-off (Ontario Teachers' Pension Plan, November 2022)
- CDPQ Celsius Network Loss (CDPQ Annual Report, 2022)
- Canadian Private Equity Activity (CVCA, Q4 2022)
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