This is a good piece. However, as a pension beneficiary and not an investor, I find that the trend of our pension funds significantly expanding their allocations in private credit could intensify existing problems of inadequate transparency and a lack of regulatory attention. Our Ontario funds don't seem to even feel obligated to properly disclose their private assets, and conflicts are typically disclosed only inadvertently. While the potential losses may not reach the systemic risk scale that you reference, these issues, although ultimately containable and manageable, regulators and beneficiaries may never get the full story.
Understood, but the pension plans you refer to are already regulated. If you're unhappy with either transparency or what you believe are passive regulators, that's got nothing to do with either MICs or Private Credit.
Indeed, pension plans are regulated. My interest, however, is centred on MICs, Private Credit, and how they interact with our pension funds. Take for example the loan from HOOPP to Home Capital, an issue I hadn't mentioned earlier but one that was in my mind as I read your piece. Despite the high-interest rate potentially mitigating some risks, beneficiaries could have experienced substantial losses had Warren Buffet not intervened as a lender. This incident laid bare, at least to me, serious governance and disclosure issues that, in my view, the board might have otherwise overlooked had the affair not been reported on. It's situations like these, where beneficiaries are at potential risk and yet, without at least a set of guiding principles, our regulators will not acknowledge let alone try to referee.
Home Capital is a successful regulated FI that had a liquidity crisis, not a credit quality crisis. HOOPP and Berkshire Hathaway were willing to invest funds it in it based on the quality of its assets and its financial performance. Berkshire wished to increase its ownership interest in Home Capital; however, Home’s shareholders rejected Berkshire’s offer. The value of Home was affirmed late last year when Smith Financial agreed to acquire the company for $1.7 billion, a 72% premium to the average share price in the 20 days prior to the agreement being signed. The transaction is expected to close shortly.
MIC’s and Private Credit complement Canada’s regulated FI’s. They are willing to provide capital our regulated FI’s cannot or will not provide. They are also much nimbler and more responsive to customer needs. This allows businesses to grow and homeowners to find solutions for their home financing requirements. Overall, they provide capital to grow the Canadian economy. As Mark indicates, some non-regulated FI’s may fail (e.g. Bridging Finance); however, regulated FI’s can and do fail as well (e.g. Silicon Valley Bank). In the case of Silicon Valley Bank, it presented significant systemic risk, which led the regulators to take emergency action.
This is a good piece. However, as a pension beneficiary and not an investor, I find that the trend of our pension funds significantly expanding their allocations in private credit could intensify existing problems of inadequate transparency and a lack of regulatory attention. Our Ontario funds don't seem to even feel obligated to properly disclose their private assets, and conflicts are typically disclosed only inadvertently. While the potential losses may not reach the systemic risk scale that you reference, these issues, although ultimately containable and manageable, regulators and beneficiaries may never get the full story.
Understood, but the pension plans you refer to are already regulated. If you're unhappy with either transparency or what you believe are passive regulators, that's got nothing to do with either MICs or Private Credit.
Indeed, pension plans are regulated. My interest, however, is centred on MICs, Private Credit, and how they interact with our pension funds. Take for example the loan from HOOPP to Home Capital, an issue I hadn't mentioned earlier but one that was in my mind as I read your piece. Despite the high-interest rate potentially mitigating some risks, beneficiaries could have experienced substantial losses had Warren Buffet not intervened as a lender. This incident laid bare, at least to me, serious governance and disclosure issues that, in my view, the board might have otherwise overlooked had the affair not been reported on. It's situations like these, where beneficiaries are at potential risk and yet, without at least a set of guiding principles, our regulators will not acknowledge let alone try to referee.
Home Capital is a successful regulated FI that had a liquidity crisis, not a credit quality crisis. HOOPP and Berkshire Hathaway were willing to invest funds it in it based on the quality of its assets and its financial performance. Berkshire wished to increase its ownership interest in Home Capital; however, Home’s shareholders rejected Berkshire’s offer. The value of Home was affirmed late last year when Smith Financial agreed to acquire the company for $1.7 billion, a 72% premium to the average share price in the 20 days prior to the agreement being signed. The transaction is expected to close shortly.
MIC’s and Private Credit complement Canada’s regulated FI’s. They are willing to provide capital our regulated FI’s cannot or will not provide. They are also much nimbler and more responsive to customer needs. This allows businesses to grow and homeowners to find solutions for their home financing requirements. Overall, they provide capital to grow the Canadian economy. As Mark indicates, some non-regulated FI’s may fail (e.g. Bridging Finance); however, regulated FI’s can and do fail as well (e.g. Silicon Valley Bank). In the case of Silicon Valley Bank, it presented significant systemic risk, which led the regulators to take emergency action.