Ninepoint Partners, one of Canada’s leading alternative investment management firms, released a new white paper that analyzes the factors they believe are setting the stage for the continued growth of the private debt asset class across the globe. The report titled “Private Debt in 2023: Assessing the Current State of the Private Debt Market in Canada and Across the Globe” examines the unique dynamics influencing private debt investing and allocation trends both within the Canadian market and across the globe.

“Through this recent period of banking turmoil, Canadian markets have experienced overall tightening. However, the degree of tightening has not been as severe as in the U.S., owing largely to the absence of regional banks in Canada. On the private debt front, the opportunity to diversify a portfolio with strong risk-adjusted returns continues to drive growth from sophisticated investors focused on portfolio construction and a longer-term view,” said Ramesh Kashyap, Managing Director & Head of the Alternative Investment Group at Ninepoint.

Key takeaways the white paper highlights on the state of the Canadian private debt market include:

1. Private Debt Filling the Funding Gap: The current inflation-induced, high-interest-rate environment has created a liquidity crunch in the highly regulated Canadian credit market. Even though data around Canadian private debt activity is scarce, we have observed that Canadian private debt funds are enjoying healthy pipelines of loan deals, including borrowers traditionally financed by banks.
   
   
2. Smart Money Endorsement: The most sophisticated investors in the country have been steadily increasing their allocations to private debt on behalf Canadians. CPP Investments, the country’s largest pension fund, for example, had $44.4 billion invested in private debt as of Dec. 31, 2022, a 25% increase since the end of its fiscal year 2021 and a more than 770% increase since 2011.
   
   
3. Canadians Are Significantly Underinvested in Alternatives: Globally, it is estimated that over 30% of investors hold alternative assets in their portfolios.2 In Canada, that number is significantly lower. The Alternative Investment Management Association estimates that the average Canadian wealth advisor has an allocation to alternatives of just 4%, of which private debt is only a subset.
   
   
4. Banking Sector Less Fragmented and Less Vulnerable: The Canadian credit market differs from the U.S. market both in size and the overall structure. As a smaller market, Canada has not been materially affected by recent headwinds in the U.S. banking sector. This is largely due to the difference in the depth of the banking sector between the two markets.

While private debt funds are intended for high-net-worth investors because they offer more limited transparency and liquidity than public funds, the white paper also discusses some of the historic barriers to private debt adoption in the market that have arguably affected the quality of diversification of many sophisticated Canadian investors’ portfolios.

Download the complete white paper: Private Debt in 2023: Assessing the Current State of the Private Debt Market in Canada and Across the Globe.