Investing in Private Credit with Wealthsimple offers a way for more Canadians to participate in private credit investments.
Private Credit is a core asset class in institutional, pension, and high-net-worth portfolios that has not been widely accessible to individual investors until now. We have crossed many barriers to bring this to our clients because of the positive impact it can have on nearly everyone's portfolio.
Wealthsimple offers private credit through a partnership with Sagard, led by private credit investment professionals formerly with Canada Pension Plan. This product targets a 9% return (net of fees).
About private credit investing
Borrowers use private credit for a couple reasons. They may not have easy access to funds through traditional financing channels, or might prefer to work with a lender who can offer more flexible terms and faster loan processing.
As an asset class, private credit has offered 2-5% higher returns (net of fees) than public debt. However, funds are less liquid than they would be if you are working with a traditional debt product. This means that you are typically only able to withdraw money at specific times of the year. In general, this illiquidity pays off in the form of better overall returns for investors with longer time horizons.
It is suitable for investors with a 3+ year investment horizon because it comes with risk of loss.
To start the process of creating a private credit account, follow these steps:
- Log in to your Wealthsimple mobile app
- From the Home tab, scroll down and tap Add an account
- Select Open a new account
- Select the account type you'd like to designate as a private credit account (i.e. Non-registered, TFSA or RRSP)
- On the next screen, choose Alternative investments as what you'd like to invest in
- On the next screen, choose Private credit to continue
- Review the information about private credit accounts and tap Invest in private credit
- Follow the prompts to open your account
An advisor will review and set up your account within 1-2 days. Once approved, you’ll be able to sign your agreements and fund your investment.
Frequently asked questions
How do I know if private credit investing is right for me?
Private credit has historically offered clients the potential for equity-like returns with lower risk. Returns can exceed public markets credit due to manager skill and illiquidity premiums. Private credit may be suitable for a wide range of investors, including retirees seeking income from their portfolios or savers who desire a diversifying high-yield component to their portfolio. This should be thought of as one component of a diversified portfolio with a history of attractive risk-adjusted returns.
Still not sure? The Private Credit account opening process will ask you questions to allow our team of fiduciary Portfolio Managers to determine if Private Credit is right for you and if so, what dollar value allocation is optimal. We’ll give you a recommendation based on the information you provide us.
Is there a minimum investment requirement?
Yes, there is a minimum investment of $10,000 required to invest in Wealthsimple’s Private Credit fund. You must also have at least $50,000 in liquid assets with or outside of Wealthsimple to qualify.
What accounts can I hold this fund in?
You can hold this fund in a managed RRSP, TFSA or Personal account. This fund cannot be held in a self-directed investing account. This is because Wealthsimple will be acting as a fiduciary and determining whether this investment is suitable for you based on your personal situation and other assets. An investment comes with access to advice from a Wealthsimple Portfolio Manager.
What exactly does this fund invest in?
Private credit – also called “private lending” or “direct lending” – refers to loans made directly by investors to companies. It is private credit because the debt is not issued or traded on the public markets.
This fund has two types of loans: (1) Loans made directly by our fund management team to medium-sized companies, and (2) loans made by banks to medium-sized companies.
The fund manages risk by only investing in areas that the management team knows well, and by investing in types of companies that have characteristics we expect to be resilient to the current economic environment.
Much of the private credit landscape consists of loans made as part of private equity deals, known as “sponsored” private credit. This fund avoids these kinds of deals because we believe that the risk-reward is lower than loans originated by our fund managers or through banks. The loans that this fund makes are to companies that aren’t as risky as many private equity-backed companies, and to companies that aren’t taking on as much debt relative to the earnings of the company. This increases the odds that the debt will be repaid.
How does Wealthsimple’s Private Credit fund differ from other private credit options in Canada?
This fund differs from most private credit options available to Canadians in two ways:
- The focus on directly originated loans where our team has deep expertise as opposed to loans made alongside private equity deals.
- The quality and experience of the management team. The credit team is led by Adam Vigna, who led Canada Pension Plan’s Principal Credits Investing group. This group invested $20B in bank-led and direct credit investments. He has recruited an investment team with high quality investment experience managing significant credit portfolios across the private and syndicated markets for Canada Pension Plan, KKR, Garrison Investment Group.
What kinds of returns can I expect?
Like all investments, nothing is guaranteed. However, as an asset class, private credit has offered 2-5% higher returns than public credit. For example, over the past ten years, private credit as an asset class has offered a 10.4% internal rate of return. This has provided a similar return profile to real estate and infrastructure, which have returned 11.2% and 9.9%. Credit available in public markets have returned 4.9% for investment grade and 6.8% for high yield (riskier) bonds.
The Wealthsimple Private Credit Fund aims to provide monthly income, currently targeted to earn a 9% yield (net of fees). However returns can vary significantly from year to year as market prices fluctuate.
How risky is this investment?
The fund makes loans that come with the risk of loss in the event that a creditor cannot repay. This can and does happen to borrowers who use private credit. We expect the value of the loans to fluctuate as the price of credit fluctuates in the broader market. The fund uses leverage, which can amplify returns and risk but comes with borrowing costs and a wider range of outcomes. There is also liquidity risk, where loans may decline in value due to a lack of willing buyers, irrespective of the underlying credit quality.
Given those risks, the fund uses a variety of strategies to minimize the risks to investors’ incomes.
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Focusing on managing downside risk and providing resilience in turbulent markets
First and foremost, our private credit managers focus on managing downside and providing resilience in turbulent markets in the underwriting process and in how they structure loans.
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Targeting senior secured credit
The fund primarily targets senior secured credit, meaning that the fund will have a first claim on a firm in the event when borrowers run into trouble. This makes it less risky than high yield bonds, which typically would come after senior debt in distress, and equity, which pays to shareholders after debtholders have been paid.
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Doing deep diligence on each investment
The management team conducts deep diligence on each investment and only invests in industries where they have deep expertise. In addition, the loans made have investor protections in place with strong credit documentation and covenants that require lenders to meet certain financial health metrics or incur penalties (known as financial maintenance covenants).
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Targeting floating rate loans
The fund will target floating rate loans, meaning that as interest rates change, the rates paid by lenders will increase or decrease. This differs from most bonds which have fixed interest rate payments. This is a source of resiliency for the portfolio, but also increases credit risk. As a result, the fund will target a portfolio of companies that the management team believes will be resilient to the current economic environment, including the prospect of stagflation that could be extremely difficult for many, but not all, businesses.
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Managing leverage risk
The fund manages leverage risk by matching the term of leverage with the term of the underlying loan, and by limiting leverage to a prudent level in the view of the credit managers.
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Managing liquidity risk
The fund manages liquidity risk by imposing limits on the amount of capital that can be withdrawn by investors in any single period, which will reduce the possibility of forced sales to generate cash.
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Managing foreign exchange currency risk
Finally, the fund manages foreign exchange currency risk, which we believe will allow it to target a more consistent return in Canadian dollars. We believe this is an attractive feature for Canadian investors.
Are my investments safe?
Managed accounts (including private credit accounts) are offered by Wealthsimple Inc., a registered portfolio manager in each province and territory of Canada. Assets in your managed account are held in an account with Wealthsimple’s affiliated custodial broker, Wealthsimple Investments Inc. (“WSII”). WSII is a member of the Canadian Investment Regulatory Organization. Customer accounts held at WSII are protected by CIPF within specified limits in the event WSII becomes insolvent. A brochure describing the nature and limits of coverage is available upon request or at CIPF. Wealthsimple Inc. is not a member of CIRO nor a member of CIPF.
(note that this does not protect against market fluctuations).
Who will manage the fund?
Sagard will manage the private credit portfolio and choose the underlying businesses to extend loans to. The Sagard credit team is led by investment professionals formerly with CPP (Canada Pension Plan) that collectively have decades of experience in private credit. Sagard will manage a Canadian feeder fund that hedges all investments into CAD and provides Canadian tax slips. As the fund matures, Sagard and Wealthsimple may add other private credit managers.
What are the fees?
You will be charged an asset management fee of 1.25%, on top of Wealthsimple’s standard managed account fees, to invest in the Wealthsimple Private Credit Fund. If the fund returns more than 5%, a 15% carry fee applies to those returns.
Those fees seem pretty steep. Is this a good opportunity for investors?
Private investment fees are generally higher because you need a manager in order to access these opportunities. Management fees are designed to cover the costs of diligence and sourcing to find attractive credit opportunities, and to structure the terms of those loans to aggressively manage risk. The asset class has historically provided attractive net returns, despite these fees.
Private Investments have very different fee structures than public investments (where you should certainly keep costs well under 1%). The reason being these types of investments take a large amount of skill and there is a big difference between the results of the best performing managers and those of the worst. Again, unlike public markets, a performance fee kicks in if the manager achieves a certain threshold of returns for investors and is designed to incentivize performance. In this case, if the manager makes investors 5% or more, a 15% performance fee is charged on the entire return. The equity like 9% return that we are targeting is net of all fees.
Private Investments have historically only been available to individual investors through high-minimum, high-fee advisors. We’re thrilled to be able to provide access to Private Credit at our standard, low management fees, which are about half of the fees a typical advisor would charge.
What will my money be invested in until the fund launches?
Your money will be invested in a high-interest savings portfolio until the fund launches.
Can I expect to see a contribution statement for the 2024 tax year if I contribute to an RRSP Private account before the tax deadline?
Yes, if the funds are deposited into an RRSP Private Credit account prior to March 1, 2025, you will receive a tax slip for these deposits. You will receive this tax slip even if the funds haven't yet been officially invested in the private credit fund.
What is the Net Asset Value approval timeline?
Private investments have a delayed return on their monthly valuation updates and distributions.
Wealthsimple purchases private credit funds on behalf of clients once a month around the 15th of every month (the monthly deadline). However, cash settles into the fund on the 1st of the following month and your performance starts on that following month.
There is a delay in re-evaluation the price of the fund (this is expected with private investments) and the performance of any given month is reflected in your account near the end of the following month (to give time for the fund to be marked to market).
Example: If you add money to your private credit account on June 10th, we’ll purchase the private credit fund around June 15th. The cash would settle into the fund on July 1st. Your first month of performance would be July and the July performance would be reflected in your account around the end of August.
Example in the event you miss the monthly deadline: If you add the money to your private credit account on June 16th, we’ll invest your funds temporarily in a High interest savings portfolio to generate some interest until around July 10th. We’ll sell the fund to raise cash and purchase the private credit fund around July 15th. The cash would settle into the fund on August 1st. Your first month of performance would be August and the August performance would be reflected in your account around the end of September.
What are the deposit cut off and trade settlement dates?
Subscription month | Deposit cut-off | Trade settlement |
---|---|---|
January 2024 | December 15, 2023 | January 1, 2024 |
February 2024 | January 15, 2024 | February 1, 2024 |
March 2024 | February 15, 2024 | March 15, 2024 |
April 2024 | March 15, 2024 | April 1, 2024 |
May 2024 | April 15, 2024 | May 1, 2024 |
June 2024 | May 15, 2024 | June 1, 2024 |
July 2024 | June 15, 2024 | July 1, 2024 |
August 2024 | July 15, 2024 | August 1, 2024 |
September 2024 | August 15, 2024 | September 1, 2024 |
October 2024 | September 15, 2024 | October 1, 2024 |
November 2024 | October 15, 2024 | November 1, 2024 |
December 2024 | November 15, 2024 | December 1, 2024 |
When can I expect to see distributions in my account?
Distributions are paid out every month and will automatically be reinvested into the Private Credit fund unless you elect to receive your distributions in cash. You can learn more about how to change your distribution preferences here.
When can I withdraw my funds
With the Wealthsimple Private Credit Fund, you will need to keep your funds invested for the first 6 months. After this time, you will be able to withdraw your funds on a quarterly basis (check the redemption schedule).
That being said, the monthly distributions received in the Private Credit account can be withdrawn at any time, even within the first 6 months.
Request a redemption
To request a redemption, please fill out the redemption request form.
2024-2025 redemption schedule
Beginning of Redemption Request Period |
End of Redemption Request Period |
Redemption Date |
Redemption Payout |
January 1, 2024 |
January 31, 2024 |
March 29, 2024 |
April 30, 2024 |
April 1, 2024 |
April 30, 2024 |
June 28, 2024 |
July 30, 2024 |
July 1, 2024 |
July 31, 2024 |
September 30, 2024 |
October 30, 2024 |
October 1, 2024 |
October 31, 2024 |
December 31, 2024 |
January 30, 2025 |
January 1, 2025 |
January 31, 2025 |
March 31, 2025 |
April 30, 2025 |
April 1, 2025 |
April 30, 2025 |
June 30, 2025 |
July 30, 2025 |
July 1, 2025 |
July 31, 2025 |
September 30, 2025 |
October 30, 2025 |
October 1, 2025 |
October 31, 2025 |
December 31, 2025 |
January 30, 2026 |
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