In the world of Canadian private credit, 2025 was like a year in three acts. In the early months of the year, private lending was very active, driven by optimism about the interest rate environment and an expectation of solid growth related to a new, and perhaps more business-friendly, administration in the U.S. Then, Liberation Day struck on April 2, and uncertainty—over rates, over tariffs, over foreign exchange, over geopolitics—gripped the markets. As the U.S. shocked its trading partners with a new and aggressive tariff regime, mergers and acquisitions (M&A) and new corporate projects—key drivers of private credit—were widely put on hold.
Since then, private credit has been playing catch-up as confidence has slowly returned to the market.
Will the momentum continue into 2026? What kind of returns can private credit managers like us expect to provide investors and where might the opportunities arise? Those are complex questions, and to address them we need to look more closely at a few key factors impacting credit markets, both in Canada and elsewhere.
The 2026 Policy Landscape
One of those key factors is fiscal policy. In the U.S., the Trump administration, through the One Big Beautiful Bill Act, is poised to inject massive stimulus into the economy; in Canada, Prime Minister Mark Carney has announced ambitious plans for infrastructure and other capital-intensive initiatives. While it’s unclear whether or how this will impact private credit, we believe that more government spending could stimulate liquidity in the financial markets generally, but perhaps with risks to interest rates and credit availability.
Speaking of rates, monetary policy in 2026 looks pretty benevolent to investors in our view—at least on the surface. Market expectations for U.S. policy rates are that the Federal Reserve will make several more cuts, while the Bank of Canada seems likely to be done with cutting for now. We have some concerns, however, about the inflationary impact of higher tariffs—or, rather, about the potential that the inflationary impact of tariffs has only been delayed so far. Our impression, based on business surveys and on anecdotal evidence, is that many Canadian and U.S. companies have been absorbing tariff-related costs rather than passing them along to customers, but that practice is probably not viable in the long term1. Should companies stop eating the tariffs, inflation—and the prospect of rising rates in response—may return.
Finally on policy, we believe that in the U.S., the regulatory landscape is shifting towards facilitating greater retail investor access to alternative assets like private equity and private credit. If that happens, the law of supply and demand dictates that more capital chasing the same opportunities will likely lead to spread compression; that is, the difference between asset returns and the risk-free rate will fall. An influx of retail investment might be good for the brokerage industry, but it will likely also make it more difficult for fund managers to generate alpha, particularly among the largest lenders whose risk/return ratio is more susceptible to market crowding. In fact, while we expect private credit returns to be more muted next year than in 2025, we also believe that mid-market players like us may have an advantage given our ability to find more niche opportunities, while still maintaining strong covenants and greater control over deal structures.
The AI Behemoth
If private credit markets are becoming more like public markets in their “democratization,” they also share something else: enthusiasm for artificial intelligence (“AI”). In 2025, the total announced capital spend by so-called hyper-scalers on AI, data centres and the electrification capacity those demand exceeded US$400 billion—roughly equivalent to the GDP of Denmark2; meanwhile, OpenAI has announced plans to spend US$1.4 trillion over the next few years. Much of this spending is being financed by hyper-scalers through highly complex securitizations, sometimes in the order of tens of billions of dollars. On a smaller scale, loan activity in power generation and power generation equipment is rising dramatically.
Our concern is twofold. First, we wonder to what extent these assets are being priced—and financed—for perfection. For at least some of them (for instance, data centres that have yet to be built and indeed might never be built), the path to success is narrow.
The other part of our concern is about the sheer size and complexity of securitized financings in the AI space. If one of those mega-projects fails or even just hits a speed bump, it could have ripple effects throughout the securitization market.
Areas of Opportunity
Against what might be called “irrational exuberance” over AI financing, we see potential opportunities in more pedestrian areas. Canadian real estate is among them. The sector entered 2025 grappling with several challenges, including rising cap rates and valuation headwinds, and those only worsened after the Liberation Day shock. Meanwhile, consumer bankruptcies have risen to levels not seen since 2010, in the wake of the Great Financial Crisis. Much of that rise has to do with real estate values, which have remained basically flat for several years.
Now, consider that in 2026 about 40% of Canadian mortgages will come to maturity. Canada’s macroprudential capital rules for bank mortgages are very strict, which will prove a challenge for those borrowers who do not have a sufficient liquidity cushion to secure a traditional bank loan. They will have to turn to the non-bank loan market, which currently charges interest rates that are four or five percentage points above the banks’. Whether the existing non-bank loan market has the capacity to meet the potential demand is an open question. We would not be surprised to see government take action to help consumers, which could create both opportunity and risk mitigation for private lenders who step in to support Canadian homeowners.
Another area we are interested in for 2026 is asset-backed commercial loans. A very clear market gap exists in our view that investors may be able to exploit. Canada has a mature and very healthy market in asset-backed commercial paper (ABCP), which is dominated by the banks. However, for borrowers whose assets are not a fit for the ABCP framework, there are very few (if any) alternatives. We see significant space here for diligent private lenders like us to fill the void and meet the demand for asset-backed financing beyond the ABCP market.
As we look ahead to 2026, we see a private credit landscape that is evolving rapidly. The trend towards democratization of alternative assets and the mega-trend of the AI boom are certainly grabbing the headlines, but they are also momentum plays that might well prove to be double-edged swords for lenders hoping to create alpha. For Canadian investors, there remain other opportunities that adhere to private credit’s traditional role of filling gaps in the financing marketplace—opportunities that not only have the potential to generate better return, but can also be found closer to home.
1The Detroit News, August 2025
2Financial Express, December 2025
About AGF Capital Partners
AGF Capital Partners is AGF’s multi-boutique alternatives business with diverse capabilities across both private assets and alternative strategies. Clients can benefit from the specialized investment expertise of Affiliate Managers combined with the organizational support and breadth of resources of AGF Management Limited (AGF). With over 18 years average experience, AGF Capital Partners Affiliate Managers’ Kensington Capital Partners Limited, New Holland Capital, LLC and AGF SAF Private Credit manage approximately C$14 billion in alternative AUM and fee-earning assets on behalf of institutional and retail clients. Affiliate Manager AUM may not be consolidated into AGF Management Limited’s reported AUM. The term ‘Affiliate Manager’ refers to any partner regardless of relationship structures or revenue sharing agreements. The form of AGF’s structured partnership interests in Affiliate Managers differs from Affiliate Manager to Affiliate Manager. The structure of the relationship with a particular Affiliate Manager, or the revenue that AGF agrees to share in, may change. Affiliate Managers only provide investment advisory services or offer products in the jurisdiction where such firm, individuals and/or product is registered or authorized to provide such services. Products in Canada are distributed through registered dealers on a private placement basis, including by AGF Capital Partners’ affiliate, AGF Investments Inc.
About Kensington Capital Partners Limited
Founded in 1996, Kensington Capital Partners Limited is a Canadian alternative asset manager with offices in Toronto and Vancouver. Kensington’s mission is to back good management teams to build great businesses, and in doing so, create top-performing investment solutions for investors. Kensington has assets under management of $2.2 billion, managed across several active funds covering venture capital, growth equity and mid-market buyouts. AGF completed a strategic investment to acquire a 51% ownership interest in Kensington in March 2024.
About New Holland Capital, LLC
New Holland Capital, LLC (NHC) is a New-York based multi-strategy investment manager with more than US$6.7 billion in assets under management and more than 17 years of experience providing institutional investors with absolute return investment strategies across the liquidity spectrum with a focus on multi-strategy hedge funds and private credit. The firm seeks to generate alpha across a wide set of diversifying strategies, with a preference for niche, capacity constrained opportunities. In February 2024, AGF made a strategic investment in the form of a note convertible into an economic interest in NHC. The arrangement also provides AGF with the option to subsequently increase its ownership stake.
About AGF SAF Private Credit Management LP
AGF SAF Private Credit Management LP is a partnership between AGF Management Limited (AGF) and an entity within the SAF Group (collectively, SAF) that manages a limited partnership that invests in private credit products in the Canadian middle market and lower middle market segment. The strategy focuses on direct lending via senior secured, unitranche and subordinated debt investments. AGF has been investing with SAF since 2014, bringing together AGF’s experience and resources with SAF’s specialized focus in private credit investing.
The views expressed are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds, or investment strategies.
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