As economies worldwide attempt to recover from the COVID-19 crisis, many investors may feel unsure of what to do. At the time of writing, a 10-year Government of Canada bond yields only 0.3% and interest rates are near 0%.
Given this, where can investors turn and what are some strategies to consider? One opportunity is private debt (PD), can potentially yield 5-8%.
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What is private debt?
Regulatory changes have forced banks to scale back their lending, creating a void and an opportunity for other lenders to attain attractive returns. Private debts are privately negotiated loans to companies or individuals with a comprehensive set of covenants (terms and conditions) that typically have penalties and remedies should non-compliance occur.
Benefits of private debt
1. Lenders tend to rely on a variety of risk controls through covenants, collateral and a direct relationship with the borrower. Often, frequent detailed and timely reporting is required to monitor performance. Lower default rates historically due to strong covenants and other safeguards.
2. A higher yield than offered by similarly rated public debt to compensate for illiquidity.
3. Most private debts are not priced daily, which can result in lower correlation and volatility compared to stocks and bonds as it does not zigzag at the same time.
4. Most loans are between one and three years and do not carry as much interest rate risk when compared to a traditional bond fund ,which is closer to seven years’ duration.
5. Many investors believe private debt is represented by distressed debt and high yield bonds which are relatively risky when compared to public investment grade bonds. However, in 2016, the American Society of Actuaries concluded that PD exhibits lower losses than public bonds.
Risks of private debt
1. Loans tend to be illiquid as they do not trade daily. Redeeming investors often have to wait between three and 12 months to get their capital back. In times where liquidity is reduced, investments may trade at a significant discount as fewer buyers may exist.
2. Despite the fact most PD loans have security or collateral, these investments are not 100% guaranteed and there can be a wide variance in risk between strategies. Some of the key variables to consider are the 5Cs of credit: character (credit history/bureau), capacity (ability to repay), capital (down payment), collateral (property, inventory, equipment, etc.) and conditions (rates, terms, etc.).
3. There can be a lack of transparency because these companies may not list on exchanges and they are not regulated in the same way and not required to publicly disclose all their business dealings.
4. Because there is wide dispersion between the risk and returns of each strategy, it is best to work with an experienced firm that has been through various economic cycles and has boots on the ground.

Who invests in private debt?
Although mostly an institutional investor base (pension funds, foundations, insurance companies and endowments), new structures are providing greater access to retail investors. These types of investments are typically available to accredited investors that need to meet a certain level of income, net worth or investable assets. We consider private debt an alternative to income or bond strategies.
We believe private debt with yields between 5% and 8% have many benefits, as well as considerable risks, but overall is under-utilized. Carefully selected PD can enhance diversification and smooth returns. Because many investors prefer liquidity, we encourage other parts of their portfolio remain accessible.
We encourage investors to consult an experienced team that specializes in the alternative and private debt space.
Until next time, Invest Well. Live Well.
Written by Eric Davis. This document was prepared by Eric Davis, vice-president, portfolio manager and investment advisor, and Keith Davis, investment advisor, for informational purposes only and is subject to change. The contents of this document are not endorsed by TD Wealth Private Investment Advice, a division of TD Waterhouse Canada Inc.-Member of the Canadian Investor Protection Fund. All insurance products and services are offered by life licensed advisors of TD Waterhouse Insurance Services Inc., a member of TD Bank Group. For more information, call 250-314-5124 or email Keith.davis@td.com.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
