Canadian private equity firms pulled back on deal making in the first half of 2022, according to recent data from industry tracker PitchBook, with experts attributing the slowdown to economic factors such as rising interest rates and inflation.The downturn in the private markets is likely to weigh on Canada's economy and investors as capital is harder to obtain or being temporarily withheld, industry experts warned.
Private capital invested also hit a record low in the first quarter of 2022 at $1.4 billion, compared to $2.6 billion invested during the same time last year, according to the Canadian Venture Capital & Private Equity Association. The implications of this slowdown could be far-reaching for Canada's economy as a lack of capital could impede business growth, Wiseman cautioned.Private capital usually comes from institutional investors, including pension funds, insurance companies, and high-net-worth individuals. At the moment, these players want to have more liquidity and de-risk their portfolios, he added."What happens now is that institutional investors will be much more choosy when making deals," he said.
There's more due diligence than usual going into valuations for deals given the economic backdrop, she said. Despite the pullback, private equity firms still have an obligation to deploy their capital — and, ultimately, they will, Michael Akkawi, a partner and leading advisor for private equity transactions at law firm Torys, said in a phone interview. "The smart private equity players will use this time of uncertainty to buy companies at a depressed value,” he noted.
For one equity portfolio manager though, all investors in this space should be cautious about private assets in the current environment. "A market like today demands a liquidity premium, and private credit investors are not being compensated enough for the risks they are taking," said Bryden Teich, a partner and portfolio manager at Avenue Investment Management, in a phone interview.