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. 

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.

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.

You have a few options to add or transfer funds into your private credit account. You can:

• transfer funds from another Wealtshimple account
• make a deposit from a linked bank account
• deposit funds with a linked debit card
• fund your account with INTERAC e-Transfer®
• wire funds to your account
• transfer an account to Wealthsimple

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.

This fund differs from most private credit options available to Canadians in two ways: 

1. The focus on directly originated loans where our team has deep expertise as opposed to loans made alongside private equity deals.
2. 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.

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.

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. 

• 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.

• 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. 

• 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). 

• 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.

• 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.

• 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.
  
  
• 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.

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).

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.

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.

Your money will be invested in a high-interest savings portfolio until the fund launches.

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.

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.

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.