Canadian Fintech Wealthsimple Introduces Private Credit Fund for Retail Investors

Wealthsimple has introduced a private credit fund meant for retail investors.

Digital financial services provider Wealthsimple Technologies Inc. is reportedly expanding its services into the private credit sector via a collaboration with alternative fund manager Sagard, enabling retail investors to gain exposure to a market that’s usually limited to major financial institutions and Canada’s high-net-worth-individuals (HNWIs).

Wealthsimple is officially launching Wealthsimple Private Credit, which is described as an investment fund that’s being managed by Sagard’s private credit unit. It’s being spearheaded by Adam Vigna, the ex- Global Head of principal credit investments at the Canada Pension Plan.

As first reported by The Globe and Mail, this is notably the second private fund that Wealthsimple has incorporated into its offerings during the last year, following the introduction of a VC and growth equity fund this past April.

As explained in the update, private credit is typically used by businesses to secure funding and is used to describe loans that are made by investors to firms.

Toronto-headquartered Wealthsimple’s entry into the industry has come after about a year of uncertainty in markets and surging interest rates.

Various private credit funds have reportedly experienced a sharp rise in activity in the last 10 years or so, and substantial capital has been channeled into firms like Bridging Finance Inc., Ninepoint Partners LP (among others), whose funds have been providing significant returns at a time-period when interest rates on government bonds have been extremely low.

And as interest rates start to surge, certain fund managers got into a sort of pressure-type situation due to redemptions from investors.

But Vigna, the managing partner and CIO at Sagard, who has reportedly managed private credit for two decades, stated that Sagard wasn’t among the managers that had to face challenges and is getting solid institutional interest in private credit.

Sagard primarily stays focused on its lending for publicly traded North America-based middle-market firms with below $50-million in total revenue.

According to the announcement, part of the differentiating factor when dealing with risk, explained Wealthsimple’s CIO Ben Reeves, is that Sagard’s private credit portfolio works with firms that they think may be able to handle the challenging economic conditions.

That essentially means that Sagard ensures it’s lending to businesses that don’t carry excessive debt and that loans get secured against assets that may be used to pay back the fund, in case there’s a default.

Reeves told the Globe and Mail that they think the fund can “perform well at different times than Treasury bonds and equities, which is what constitutes most of Weathsimple’s portfolios,”

As noted in the update, the fund has a target yield of 9%, with Vigna stating that the potential is greater now than it has been in the past for private credit investors.

Vigna added:

“What the government will likely do is to continue to increase regulation and that means the banks will naturally have to be more conservative with their lending. [This could mean] …they’re going to continue to pull back from the market from a lending perspective. So that will result with even more opportunities for private investors like ourselves.”

To access the fund, customers would be required to have at least $100,000 in total deposits at Wealthsimple and need to commit to an investment of at least $10,000 in the actual fund.

Due to the potential risk this offer comes with, Wealthsimple will be limiting the private credit investment to 20% of a client’s portfolio.

Michael Katchen, CEO at Wealthsimple, said:

“When you look at how sophisticated investors build their portfolios, like the CPP, alternative investments are a huge share of the asset allocation of those portfolios, and yet the average retail investor doesn’t really know about these assets, let alone have access to them.”

Katchen also noted:

“We continue to have strong client and net deposit growth, enthusiastic uptake of new products, and continue to win share of the industry in Canada.”

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