Article content continued

While there is plenty of disclosure on the depth of the situation in U.S. private-debt markets, surprisingly we’ve heard little of this in Canada despite our shadow banking market being valued at over $1.5 trillion and representing 10 per cent of total financial assets, according to the Bank of Canada. The closest thing we have is Canada’s public REITs, which have sold off by nearly 30 per cent this year while higher-risk publicly listed lenders like Home Capital Group and Equitable Group are down 50 to 60 per cent — something to keep in mind when looking at your private fund’s net asset value on your quarter-end statement.

On the contrary, if this were a public market with full transparency there would be differentiation between the good private debt managers and the bad. Investors could finally have the ability to research the quality of investments and managers of these funds and make the appropriate reallocations into those with assets able to withstand this meltdown, and selling those that will likely not survive. If the good funds were oversold perhaps this would even be a good buying opportunity for those underweight real estate in their portfolios, which we think is a great diversifier.

That said, none of this really matters as those markets are essentially closed, liquidations are likely gated and it’s a toss of the dice on what those valuations will ultimately look like in the months to come. If this is what happens if equity markets were ever closed, then it really is a terrible idea after all.

Martin Pelletier, CFA, is a Portfolio Manager at Wellington-Altus Private Wealth Counsel Inc. (formerly TriVest Wealth Counsel Ltd.) a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit/oversight and advanced tax and estate planning.