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Five reasons the investment industry may work against some investors – Financial Post

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Being aware of these issues might save you some money and prevent panic

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A bear market invariably causes investors to say things such as “the whole market is a scam,” or “the only people who get rich are the brokers.”

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It is, of course, human psychology to blame others when things don’t go as expected. We are not going to change that. But the market is not a scam, and such statements dismay us. People who believe the scam line are doing themselves a disservice, and will likely never get wealthy. But that is the topic for a future column.

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Today, we will certainly agree that the market and the investment industry itself are far from perfect — sometimes very far. Let’s look at five reasons the investment industry may work against some investors. Being aware of these issues might save you some money, prevent panic or at least educate you on what you should do rather than what you have been doing.

Too much focus on the short term

All investment eyes were on exactly one data point this week: the consumer price index (inflation) number in the United States. Next, everyone will shift to corporate earnings reports. Sure, these are important when looking at the market, but one economic number — or one quarter of earnings — should not form the basis of your entire investment portfolio.

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We know many investors who will sell a company after one bad quarter. But the best companies play the long game: focusing on long-term gains, even spending more money in the short term to get there.

If you own a stock, you should strive for at least a five-year holding period: you want that compounding to work for you. Looking so closely and reacting to a 90-day period out of 1,825 days (not counting leap years) is likely doing your portfolio a huge disservice.

Fees are too high

We could easily talk about adviser fees here, or the favourite whipping boy, mutual fund expense ratios. But we are going to talk about investment bankers, initial public offerings and structured products.

How much do you think investment companies get paid to sell a hot IPO? Generally, investment bankers get three per cent to five per cent on a deal. Think about this: on a $2-billion IPO, bankers can make $100 million. On popular deals, clients are clamouring for stock allocation, so it’s not like it’s hard work to sell the shares. Yes, plenty of work is needed before a company goes public. But $100 million? For the life of me, I can’t figure out why competition hasn’t lowered these fees.

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The same comments would apply to closed-end fund financings, structured products and regular (non-IPO) stock sales, though the fees are not quite as high in the latter cases. Guess who pays for these high fees? You do through your investments when the companies have less capital after providing investment bankers with their cushy lifestyle. Seeing investment bankers driving around in Lamborghinis as we head into a recession does not help the image of the investment industry at all.

Too much focus on macro issues

This year has been a challenge for stock pickers because companies do not matter now. It is all about inflation, interest rates and geopolitical events. There are debt-free companies with high margins and growth rates in the 70-per-cent range, yet their stocks are half, or less, of what they were seven months ago.

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Everyone worries about the macro picture, and no one cares about the companies. But guess what? You own part of a company when you buy its stock. You don’t own gross domestic product. You don’t own inflation. You don’t own interest rates. You own a company. Many companies will continue to grow and thrive despite the bad economic headlines. Don’t forget what you actually own.

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Lower commissions are bad for you

After launching in the United States, free stock trading has now started to expand in Canada. But are trading fees of $0 good for investors? Well, contradictory to our comment above about fees in general, we think free commissions are bad for investors.

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Zero commissions encourage trading, and trading can seriously hurt your long-term returns. Low-cost trading causes you to react rather than invest. You are more likely to sell on one piece of bad news, and more likely to take a 10-per-cent short-term profit rather than a 1,000-per-cent profit though longer-term compounding.

Too much emphasis on stories

In the past two years, there’s been tons of media exposure on a few companies and sectors, such as GameStop Corp., AMC Entertainment Holdings Inc., the electric-vehicle industry, the cryptocurrency sector and special purpose acquisition companies (SPACs). The media loves these sectors, they generate investor interest and trading, and result in a lot of FOMO amongst investors. But, really, are they that important?

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GameStop is a US$10-billion company in a declining industry. AMC is US$8 billion. They hardly matter at all in the big picture of the investment world. But together they account for more news stories than most large companies can ever hope to achieve. We ran GameStop through Google and got 143 million hits. We also ran AbbVie Inc., a US$270-billion company (27 times as large as GameStop) and got only 32 million hits. Investors need to put far more emphasis on the larger, important companies rather than the tiny companies that generate exciting headlines.

Peter Hodson, CFA, is founder and head of Research at 5i Research Inc., an independent investment research network helping do-it-yourself investors reach their investment goals. He is also portfolio manager for the i2i Long/Short U.S. Equity Fund. (5i Research staff do not own Canadian stocks. i2i Long/Short Fund may own non-Canadian stocks mentioned.)

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GTA Commercial Real Estate Investment Remains Strong in Q2 – Storeys

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Written By
Laura Hanrahan

Commercial real estate investment in the Greater Toronto Area (GTA) saw another strong quarter, continuing the high-performing streak that began in the second half of last year.

According to Avison Young’s most recent Commercial Real Estate Investment Review, buyers’ willingness to invest in capital during the second quarter of the year “is a testament to their confidence in the market’s stability and prospects for the future amid the constantly shifting post-pandemic landscape.”

Industrial trades led the pack with $2.6B in investment activity — a full $1B more than was seen during the first quarter of the year and $1.2B more than the same time one year prior. This accounted for 36% of overall GTA commercial real estate investment volume. The GTA is well on track to obliterate pre-pandemic industrial investment volumes, with more than $4.1B in trades taking place in the first half of the year. In 2019, the full-year total was $4.3B.

Office and retail sales, on the other hand, were both down quarter over quarter. The report notes that during the previous quarter, office sales were boosted by the sale of Toronto’s Royal Bank Plaza, which was picked up by Zara founder Amancio Ortega for $1.2B. On an annual basis, however, the $1.1B in office investment seen during the second quarter of the year is up substantially from the $349M seen during the same time in 2021.

“With almost $3B in assets changing hands through the first half of 2022, the sector has already eclipsed the annual results recorded in 2020 and 2021 — and the all-time high of $4.3B set in 2019 may be within reach by year-end,” the report says.

Retail was the only sector to fall short of $1B in trades during Q2, and was not only down quarter over quarter, but year over year as well with $696M worth of assets sold. This marks a 30% decline from Q1 investment.

“At this pace as of mid-year, the retail sector’s full- year investment total may fall short of the $3.6-B result achieved in 2021,” the report reads. “Despite being the second-most active asset type by number of trades (trailing only the industrial sector), large deals were mostly absent this quarter, and the average transaction volume of $3.7M was the smallest among all asset types by a wide margin.”

Industrial commercial investment land and multi-residential properties were both up slightly on a quarterly and annual basis. ICI land hopped up 5% from the previous quarter to $1.7B, bringing the yearly total to $3.3B which exceeds every full-year total prior to 2021’s record-breaking $5.8B. Of note, the second quarter numbers were propped up by the $480M sale of 194 acres of agricultural land in Caledon to logistics operator Prologis.

Multi-residential sales grew 10% quarter over quarter to $1B, bringing the 2022 total to $1.9B. With that in mind, the report notes that the GTA is on track to meet or exceed the $3.8B investment high set in 2019. Portfolio sales accounted for 65% of the sector’s total dollar volume during Q2, with four of the five largest transactions being portfolios.

Written By
Laura Hanrahan

Laura has covered real estate in Toronto, New York City, Miami, and Los Angeles. Before coming to STOREYS as a staff writer, she worked as the Toronto Urbanized Editor for Daily Hive.

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OMERS investments steady in a difficult market environment – Financial Post

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TORONTO, Aug. 18, 2022 (GLOBE NEWSWIRE) — OMERS generated a net investment return of -0.4%, or a loss of $0.5 billion, during the six-month period from January 1 to June 30, 2022. Over the twelve months ended June 30, 2022, the Plan earned a net investment return of 6.0%, or a gain of $6.7 billion, after reporting a net investment return of 15.7% or $16.4 billion for the 2021 calendar year. Net assets as at June 30, 2022 were $119.5 billion.

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“As everyone has witnessed, the first half of the year was extraordinarily difficult for investors in an environment characterized by ongoing geopolitical challenges, supply chain issues, recessionary threats, and soaring increases to both inflation and interest rates – more rapid than we have seen in decades. These influences combined to create acute stress in the global economic environment, pushing the returns for leading global investment market indices to decline well into the double digits,” said Blake Hutcheson, OMERS President and CEO. “Against this backdrop, our investment teams and strategy have been extremely effective in protecting the value of our members’ portfolio, by any objective measure.”

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“Our significant allocations to private investments, the strategic decisions to favour quality over growth stocks, and short-term credit over long-term bonds, protected OMERS from the worst six month period of market losses incurred by investors in more than 50 years,” said Jonathan Simmons, OMERS Chief Financial and Strategy Officer. “Infrastructure, real estate, and private equity all generated positive investment returns that largely offset the negative performance of public equities and credit investments.”

“OMERS is a long-term investor and over the last 10 years our active investment and asset management strategies have produced $62 billion in value for our members and a 7.5% annualized return.  As we look to the future, we remain well-positioned with a portfolio of high-quality investments and ample liquidity to pursue the right growth opportunities for our Plan,” said Mr. Hutcheson. “Across OMERS, our entire team is proud to work in service of over half a million hard-working OMERS members. We remain relentlessly focused on delivering to them a sustainable, affordable and meaningful plan for the generations to come.”

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OMERS remains highly rated by four credit rating agencies, including two ‘AAA’ ratings.

OMERS is a jointly sponsored, defined benefit pension plan, with 1,000 participating employers ranging from large cities to local agencies, and over half a million active, deferred and retired members. Our members include union and non-union employees of municipalities, school boards, local boards, transit systems, electrical utilities, emergency services and children’s aid societies across Ontario. OMERS teams work in Toronto, London, New York, Amsterdam, Luxembourg, Singapore, Sydney and other major cities across North America and Europe – serving members and employers, and originating and managing a diversified portfolio of high-quality investments in public markets, private equity, infrastructure and real estate.

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-30-

CONTACT
Neil Hrab
nhrab@omers.com
+1 416 369 2418

Net Assets $ Billions

Net Assets $ Billions

Diversified by Asset Class and Geography

OMERS invests in high-quality assets that are well-diversified by geography and asset type.

OMERS 2022 Mid-year Press Release Image 2

On March 1, 2022, OMERS updated asset class definitions in connection with our updated Statement of Investment Policies & Procedures; the asset mix above reflects these updated definitions.

OMERS 2022 Mid-year Press Release Image 3

Asset Class Investment Performance

  Net Returns
  Six months ended June 30, 2022
Bonds -2.5%
Credit -1.8%
Public Equity -13.2%
Private Equity 7.7%
Infrastructure 4.8%
Real Estate 9.9%
Total Plan -0.4%

Investment Performance highlights

Over the first six months, ended June 30, 2022:

  • Our bond and credit portfolios generated narrow losses despite a sharp rise in bond yields and credit spreads. The short-term duration of our portfolio sheltered it from more significant declines following the rise in rates.
  • Our public equities portfolio was heavily impacted by the widespread and significant drawdowns in global stock markets. Our strategic focus on high-quality investments; exposure to Canadian equities; and lower exposure to growth stocks, including consumer discretionary and information technology; all helped to dampen the impact of market losses.
  • Our private equity return was driven by strong operational performance as businesses in our portfolio grew their earnings organically and through acquisitions.
  • Our infrastructure investments continued their long track record of steady performance with stable operating income, and higher valuations from accretive refinancing and transaction activity.
  • Our real estate assets outperformed expectations, as a result of higher valuations and development profits from our North American industrial portfolio, and operating income.
  • Our portfolio’s investment returns have also broadly benefited from locking in fixed-rate, fixed-term financing in prior years, when borrowing rates were lower than in the current environment.

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Recourse Debt

We continue to use debt prudently to enhance our investment returns. At June 30, 2022, we had $11.7 billion of recourse debt outstanding, equating to a recourse debt ratio of 8.7% of net assets, up from 7.8% at December 31, 2021. This change was driven by the issuance of our first sustainable bonds, for 10- and 30-year terms, totaling US$1.1 billion.

In addition to this low leverage, we continue to maintain ample liquidity. At June 30, 2022, OMERS had $25.4 billion of liquid assets to pay pension benefits, to fund investment opportunities, to satisfy potential collateral demands related to our use of derivatives, and to fund expenses.

Leverage

Long-Term Issuer Credit Ratings

AAA
DBRS
AAA
Fitch
Aa1
Moody’s
AA+
S&P

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This Investment Update presents certain non-GAAP measures. These measures are calculated on the same basis as those calculated and presented in our 2021 Annual Report. This Investment Update and the Condensed Interim Consolidated Financial Statements (the “Interim Financial Statements”) are unaudited. OMERS Administration Corporation’s financial performance set out in this Investment Update is only for the period ended June 30, 2022. Past performance may not indicate future performance because a broad range of uncertainties (including without limitation the future course of the global pandemic) could have an impact on the performance of various asset classes. The financial information included in this Investment Update should be read in conjunction with the Interim Financial Statements.

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Transaction Overview

INVESTING FOR TOMORROW
To create value for our members over the long term, OMERS remains focused on strengthening our portfolio and deploying capital towards our target asset mix. We remain disciplined as we invest in diverse, high-quality assets that meet the Plan’s risk and return requirements.

HEALTHCARE AND LIFE SCIENCES
We believe that investments centred around life sciences and health care make a meaningful difference today, as they support and advance innovative solutions for tomorrow’s medical needs. In this space, we:

  • Announced a series of life sciences opportunities, including: a partnership with Novaxia to invest in and develop life sciences properties in France; our selection as the preferred development partner of Snowsfields Quarter in central London, UK, a life sciences hub with world-class lab facilities in a prime health innovation cluster; a strategic partnership for the Navy Yard in Philadelphia (US) which will, over time, own and develop up to 3 million square feet of life science properties; and the acquisition of a nine-asset, 13-building life sciences portfolio in San Diego’s Sorrento Mesa and Sorrento Valley (US).
  • Took a minority stake in US-based Medical Knowledge Group, a leading commercialization services platform serving pharmaceutical and biotechnology companies.
  • Announced a funding round to help Aledade continue scaling its practice management solutions, serving more than 11,000 physicians in 36 US states and the District of Columbia.
  • Invested in Birdie, a UK-based home healthcare technology that aims to reinvent care at home and radically improve the lives of millions of older adults.

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In the weeks since June 30, 2022, we:

  • Announced an investment in Ultragenyx Pharmaceutical Inc., which will earn royalties from the future sales of Crysvita®, a drug that is improving the lives of pediatric and adult patients with two rare diseases.
  • Completed the conversion of the Boren Labs office building to a fully dedicated life sciences facility in downtown Seattle, Washington (US).
  • Announced our investment in Caraway, a hybrid 24-hour healthcare platform focused on women’s health.

LOGISTICS AND TRANSPORTATION

We expect the global growth of e-commerce and demand for expedited supply chains to result in strong long-term demand for logistics and transportation assets. In the first half of 2022, we:

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  • Partnered to acquire Direct ChassisLink, Inc., one of the largest chassis lessors in the US, with over 151,000 marine and 100,000 domestic chassis in its fleet.
  • Announced that existing portfolio investment IndInfravit, which owns a series of toll highways in India, would add additional roads across four states in the country.
  • Grew our investment in global logistics, including the purchase of a portfolio of seven high quality UK logistics assets.

SUSTAINABLE INVESTING AND RENEWABLES
We have made several investments in assets that address key sustainability issues and which reflect the growing investor confidence in renewables, while supporting our commitment to achieve our goal of net-zero greenhouse gas emissions by 2050. In the first six months of 2022, these include:

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  • A partnership to purchase Groendus, a Dutch energy transition firm active in rooftop solar, metering and energy services.
  • Joining other institutional investors in funding Group14 Technologies, an innovative electric battery materials manufacturer.
  • Leading a funding round for 99 Counties, a US-based platform that supports regenerative farming that brings sustainable products to market and offers healthy, nutrient-dense foods to consumers.

In the weeks since June 30, 2022, we:

  • Announced a minority investment in NovaSource Power Services, the world’s largest independent solar operations and maintenance provider for utility-scale, commercial, industrial, and residential solar assets.

TECH-FORWARD INNOVATION

We are investing in businesses doing interesting work to innovate, harnessing the power of technology to do so. From January to June of this year, we:

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  • Partnered to provide a term loan to AGP, a highly specialized glass manufacturer with advanced technology for autonomous vehicles and producer of specialty automotive glazing components, to support its global expansion plans.
  • Made a convertible preferred investment in Precisely, a data management firm, providing accuracy, consistency, and context in data for customers in more than 100 countries.
  • Made a minority investment in US-based real-time analytics company Imply.
  • Led the funding rounds in exciting businesses including Moves, an all-in-one banking app for gig workers; and Next Matter, an automation platform that centralizes and automates operational processes.

In the weeks since June 30, 2022, we:

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  • Acquired Bionic a UK-based tech-enabled platform that matches SME business owners with energy, insurance, connectivity, telecoms and commercial finance solutions.

COMMUNICATIONS INFRASTRUCTURE AND BUSINESS SERVICES
We invest in companies that deliver services and support to communities, individuals and businesses, providing communications infrastructure that keeps people connected, and helping to ensure that utilities and related services are available when needed.

  • In the first months of 2022, we announced agreements to purchase TPG Telecom’s mobile towers and rooftop portfolio, located across Australia; and Stilmark, an independent developer, owner and operator of Australian mobile tower assets.

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In the weeks since June 30, 2022, we:

  • Acquired Network Plus, a leading utility and infrastructure repair and maintenance service provider in the UK, that maintains and delivers essential services – including water, electricity, gas and telecoms – to homes, businesses, and industry; and announced the acquisition of Pueblo Mechanical & Controls, a leading mechanical services company providing HVAC and plumbing installation, retrofit and repair services to commercial clients, based in Arizona (US).

DEPLOYING INTO PRIVATE CREDIT
For a number of years, we have been steadily building out our private credit investing expertise, platform and relationships. During the first six months of 2022, we deployed strategically into these private credit assets, pleased to see that the risk-adjusted returns on high-quality, short-term loans have made this space even more compelling.

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REALIZATIONS
We rotate capital out of assets with the same level of discipline with which we invest. At the half year mark, our total realizations exceed our acquisitions so far in the year. This activity generated capital, which we plan to deploy into future investment opportunities.

During the first six months of 2022 we agreed to sell interests in several investments, including:

  • Straight Crossing Development Inc., which operates the Confederation Bridge, a Canadian landmark connecting the provinces of New Brunswick and Prince Edward Island;
  • GNL Quintero S.A., a liquid natural gas terminal in Chile;
  • Forefront Dermatology, a consolidated dermatology clinic business;
  • A 50% interest in the Sony Centre, an office-led mixed-use landmark property in Berlin; and
  • Royal Bank Plaza in Toronto’s financial district and St. John’s Terminal in Manhattan; each representing one of the largest office transactions of the year in their respective markets.

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In the weeks since June 30, 2022:

  • We announced an agreement to sell the Plan’s interest in the holding company that controls the Michigan-based Midland Cogeneration Venture (MCV), a gas-fired cogeneration facility.

Charts accompanying this announcement are available at:

https://www.globenewswire.com/NewsRoom/AttachmentNg/ca14a8ed-d79b-4c94-9f52-3d6aec249d74

https://www.globenewswire.com/NewsRoom/AttachmentNg/b96d4c60-8d1f-4bff-9f81-98d19ea555d5

https://www.globenewswire.com/NewsRoom/AttachmentNg/e833b11a-5f7f-41d5-a292-21430e5f0f53

https://www.globenewswire.com/NewsRoom/AttachmentNg/7fb1af0a-1c28-4862-9b83-7a4864b7b9e0

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Venture capital investment slides to prepandemic levels in second quarter amid tech slowdown – The Globe and Mail

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Canada’s tech sector has struggled since last fall as a mixture of macroeconomic events, including the pandemic and Russia’s invasion of Ukraine began triggering supply chain slowdowns and broad uncertainty.Nathan Denette/The Canadian Press

Venture-capital funding in Canada fell to prepandemic levels in the second quarter this year as the tech downturn hit privately held companies, the Canadian Venture Capital and Private Equity Association says, and financiers warn that the sector’s sudden caution may continue.

The CVCA said in a new report Thursday that there was $1.65-billion in venture capital (VC) deployed across 182 deals in the second quarter of 2022. It was the lowest quarter since the pandemic prompted a flood of cash into digital-services companies, down 67 per cent from $5.1-billion in the same quarter in 2021. But it was roughly on par with 2019′s $1.66-billion second-quarter investment.

The investment figures the association released for the first half of 2022, however, suggest that the downturn’s true impact will be more starkly revealed in the coming quarters as data catches up with the gap between when deals are first negotiated, closed and then announced.

What crisis? Venture capitalists bet big on crypto

Where are venture capitalists investing in Canada?

In its report, the CVCA said that the $4.5-billion in investments announced in the first quarter – the country’s second-highest quarter on record – was largely comprised of 25 “mega-deals” worth more than $50-million that were “largely residual transactions” from 2021.

Particularly among later-stage companies, “we’re going to see a slowdown that might persist,” Christiane Wherry, the CVCA’s vice-president of research and product, said in an interview. While some of the institutional investors her association works with are “able to stay the course” with financings, she said she’s seen much more caution among smaller VC firms, funds and family offices.

There may now be a “more realistic air” to the venture ecosystem as venture investors spend time “digesting the end of the pandemic and where we go from here,” said Matt Golden of Golden Ventures. Michael Hyatt, entrepreneur, investor and Northleaf Capital Partners adviser, said that financiers “are being highly discriminate about what they are going into.”

Sean O’Connor, managing director of Conexus Venture Capital in Regina and chair of the CVCA’s data committee, said that “founders and VCs are not seeing eye to eye as we figure out what the new world looks like,” which could lead to tension in calculating company valuations.

“We’ve seen the VC space move back into something a bit more normalized from before the pandemic, but it’s a struggle to figure out how much of that regression will show up in valuations.”

The swelling of valuations in both public and private markets during the first two calendar years of the pandemic has been broadly recognized, in hindsight, as a unique moment in which a global shift to digital services coincided with historically low interest rates.

The moment was also precarious. Ms. Wherry acknowledged that 2021′s record-breaking Canadian venture investment levels, which the CVCA calculated as reaching $14.2-billion, was an “outlier year – with record high levels that we probably won’t return to any time soon.”

The tech sector has struggled since last fall as a mixture of macroeconomic events including the pandemic and Russia’s invasion of Ukraine began triggering supply chain slowdowns and broad uncertainty. Subsequent high inflation put pressure on central banks to boost interest rates, making capital more expensive and drying up the pools of investor money that flooded the market for tech companies since the Great Recession.

Not all segments of the tech sector are facing the same headwinds in Canada, according to the CVCA’s numbers. Young, seed-stage companies aren’t exposed to the same investor pressures and economic factors as bigger, cash-consuming firms. They saw $263-million in financing across 104 deals, making the second quarter the highest on record both in terms of total investment and deal number.

Environmentally friendly or sustainability-focused companies, classified as “clean tech,” saw investment levels surpass 2020 levels in the first half of 2022, and the CVCA said the sector could reach 2021 investment levels by the end of the year. “As investors shift their focus from the pandemic, which was an emergency situation, now they’re shifting their focus to something equally as urgent,” Ms. Wherry said.

But in general, the public-market pullback was a shock for later-stage companies that might hope to tap into public markets: the CVCA didn’t record a single initial public offering last quarter, it said.

After numerous massive deals in the first quarter, such as a $775-million round for password-protection company 1Password (AgileBits Inc.), the biggest deals last quarter were much smaller. They included $185-million for Calgary challenger bank Neo Financial Technologies Inc., $101-million for “unbreakable” pantyhose maker Sheertex Holdings Corp., US$100-million for biotechnology startup Ventus Therapeutics Inc. and $100-million for Toronto virtual-private-network company Tailscale Inc.

The CVCA also reported Thursday that Canada saw $3.3-billion worth of private-equity deals in the second quarter – a 32-per-cent drop – across 202 transactions.

With a report from Sean Silcoff

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