Public Market Highlights
The third quarter was a quieter one for central bankers, as only one rate hiked was announced in each Canada and the US. Inflation numbers did not see much movement, and public investors responded by selling assets for fear of more hikes to come. Bond prices and equity prices in North America fell in Q3, meanwhile those investors with a private investment allocation in their portfolios faired better with less volatility.

Overall, the S&P 500 (in CAD) posted a sharp change of course, exhibiting a 1.25% decline primarily driven by headwinds from mega-cap technology companies, while the S&P/TSX Composite Index was down 2.20%. Persistent inflationary pressures, notably the price at the pump and high employment numbers, led to an unexpected rate hike by the Bank of Canada, impacting the Canadian bond market as higher rates put downward price pressure on bonds.

Economic Indicators
Early-quarter interest rate hikes initially led to lower bond prices; however, those losses were mitigated following a favorable US job openings report. On the economic front, America’s national debt reached a staggering $33 trillion, underscoring significant fiscal challenges. Meanwhile, Canada’s Consumer Price Index (CPI) rose 4% year-over-year, signaling persistent inflationary pressures. Higher interest rates, increasing government debt and the ongoing geopolitical landscape resulted in a cautious investing environment.

Private Markets
Private market activity also slowed in Q3. On the fundraising side many firms struggled to add capital to their already high levels dry powder. On the supply side of the equation, private credit continues to see an increase in deal flow from borrowers seeking an alternative to traditional lending. The trend of lighter capital raising with an increase in deal flow continues to shape a markedly different environment than we saw in 2021 when there has strong competition and increasing valuations. The market is undergoing rebalancing that should lay the groundwork for good a vintage year in 2024. Private Equity exits were down considerably from Q2, however the IPO market began to show signs of life with 39 companies coming to market raising $3.1 billion USD, the highest level since Q1 2021. Private Real Estate vacancies are increasing in both the office and industrial sub-sectors while residential and multi-family vacancies continue to decrease. Returns for the quarter in our three private pools were as follows: Rockridge Private Debt 1.77%; Forsyth Private Real Estate 1.27%; Laurier Private Equity 2.56%.

Portfolio Positioning
In response to the volatile market conditions, we continue to believe a defensive stance in the portfolios remains paramount. Emphasis remains on capital preservation and risk-adjusted returns, resulting in an underweight to equities and placing those proceeds short term high-interest cash investments earning 5%+. This positioning proved beneficial during the quarter, reducing drawdowns on the portfolios amidst a volatile
global equity market.

As we proceed into Q4 2023, the investment landscape demands a measured approach amidst rising interest rates and seasonal volatility. We are currently observing equity market levels to identify possible entry points and late-year participation in a bull market rally. The evolving landscape of higher interest rates and market dynamics requires a vigilant assessment, ensuring portfolios are positioned to navigate the uncertainties ahead, while being prepared to allocate back to equities when the coast is clear and volatility levels off. Meanwhile our commitment to our private investment thesis remains strong.

-The Gilman Deters Team

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