The one victory Mr. Trump can theoretically be trying to deliver the workers of Ohio, Michigan and Kentucky is plenty of extra shifts — plus the visuals — by ensuring that Ford, GM and Stellantis start to repatriate production to the very States that helped Republicans retake the White House last Fall.

—

The 30-day tariff pause is plenty of time for auto Execs to think that through, and I can’t imagine Ford proceeding with plans that would divert additional F-350 pickup truck volume away from existing assembly lines in Kentucky and Ohio. Even if those plants were at capacity.

None of which means that Canadian negotiators had to agree last week to maintain uneconomically high tariffs on these types of vehicles; I just find it hard to believe that this vignette was the PM’s representative example of the various unpalatable “details” of the U.S. position — details that “only” became apparent at the 11th hour.

Even if that were true, Canada spent months assiduously avoiding getting into the details, knowing full well that we wouldn’t like them once we did. As any Oncologist will tell you, you’re not immune to colon cancer just because you avoid the unpleasantness of a colonoscopy. That drove Canada’s slow-play strategy (see prior post “The only winning move is not to play” July 29-26), as well as President Trump’s countermove: the 30 day negotiating window announced in July — he knew full well what we were up to.

Having run an election campaign on his ability to handle President Trump, Mr. Carney is now being graded for his deft execution of negotiating to a “no.” A landing spot that would have been just as easy for Conservative Leader Pierre Poilievre to pull off, and I’m not sure the splenetics out of Washington would have been any different had Maude Barlow been in charge.

On the bright side, Canada still has its best — if painful — cards to play.

If you want to see how this week’s Star column ends, buy a print copy, use your Apple News, or subscribe to The Star online via my special discount code: www.thestar.com/informed.

If it was up to Ontario voters, Canada would never have signed the initial 1989 Free Trade Agreement (FTA) in the first place.

During the 1988 federal election — which ultimately decided the FTA’s fate (and CUSMA, by extension) — the Liberals and NDP combined for 53 seats in Ontario, while then-Prime Minister Brian Mulroney’s Progressive Conservatives won just 46.

Concerns about job losses weighed heavily on P.C. support in ridings like London East and Northumberland, while editorial boards such as the Toronto Star’s strongly opposed the proposed agreement — fearing that Canada would become “a cultural and economic satellite” of the U.S.

John Turner’s Liberal party won the popular vote in Ontario and if it wasn’t for Mulroney’s domination in Quebec during that pivotal election, it’s hard to imagine a scenario where the stars would align again such that we’d have ever done a deal with a subsequent American administration.

The domestic politics around free trade have always been that tough on the north side of the 49th parallel and they have nothing to do with MAGA influencers or a fiery speech in Davos.

Angry as some Canadians are about President Donald Trump’s “America First” attitude, his desire to move the assembly of Ford pickup trucks from Oakville to Avon Lake, Ohio is nothing new. When they were competing for the U.S. presidential nomination in 2008, both Barack Obama and Hillary Clinton said they wanted to renegotiate NAFTA. Then-Senator Hillary Clinton promised U.S. voters that “we will opt out of NAFTA unless we renegotiate it … and on terms that are favourable to all of America.”

She lost and NAFTA survived, albeit temporarily.

Years later, as Canada was signing the 12-nation Trans-Pacific Partnership in 2015, Clinton came out against the agreement, joining labour unions in their opposition. That’s why, in the event Democrats win control of the U.S. House of Representatives this fall, Prime Minister Mark Carney’s government shouldn’t expect a groundswell of actionable sympathy from a Congress led by Rep. Hakeem Jeffries.

As for Carney’s handling of U.S. trade negotiations, I marvel at his ability to construct an impenetrable political fortress around himself. He can do no wrong and he knows it, as the timing of his Tuscan summer vacation demonstrates. Trust in Carney is so high right now it seems likely that many voters would have taken his word had he advised that last week’s deal was worth signing, just as 75 per cent of voters support his decision to exit negotiations, according to the Angus Reid Institute.

Our U.S. Ambassador, Mark Wiseman, has said that “as the details became more and more apparent, every one of those details seemed to work against our understanding of what a fair and economic agreement should be.”

It’s possible that the U.S. side withheld the fine print until the eleventh hour, but at least some of the last-minute U.S. positions that Carney claims took Canadian negotiators by surprise shouldn’t have. And surely we could have done more to get to the crux of these issues earlier in the year.

Hit the link to read the rest of the piece.

MRM

(this post is an Opinion Piece)

If you want to see how this week’s Star column ends, buy a print copy, use your Apple News, or subscribe to The Star online via my special discount code: www.thestar.com/informed.

You can’t teach a politician gut instinct.

More than two years ago, Premier Doug Ford astutely observed that “people [were] fed up” with the disruptive anti-Israel protests. The veteran’s memorial in Regina had been defaced and “pro-Palestinian” crowds wouldn’t let an Ottawa Mall Santa have a quiet word with hopeful kids. Several of Canada’s largest universities were awash with illegal encampments, and Ford advised administrators to “remove these people.”

U of T’s leadership paid the Premier no heed, while Toronto Police (TPS) falsely claimed they needed a court order to remove agitators from private campus property. Police leadership seemed more concerned about their own reputations, and currying favour with Olivia Chow — a mayor who has herself dabbled in anti-Israel protest — than enforcing the law.

The problem isn’t just disruption in the name of “freeing Palestine.” Even when some protesters crossed the line into outright antisemitism, targeting Jewish neighbourhoods on countless weekends, TPS stood by and watched. Even as it became ever clearer that Toronto was the proverbial “boiling frog,” with each passing day bringing some new ignominy: Jewish schools shot up, mezuzahs torn down, retail stores with Jewish connections defaced or torched.

On the rare occasion when TPS did arrest protesters for “public mischief,” the perps were invariably released after a few hours: no harm, no foul. When TPS went so far as to charge 11 individuals for plastering an Indigo bookstore with red paint and posters in November 2023, all criminal charges against the “Indigo 11” were either dropped or conditionally discharged.

Not a single NEXUS card was bruised in the process.

Ontario Solicitor General Michael Kerzner and Attorney General Doug Downey may have said all of the right things, but none of it translated into concrete action — emboldening the worst elements of the anti-Israel camp.

 According to a new Ottawa-commissioned report, 96 per cent of Jewish students experienced or witnessed antisemitism on Canadian campuses in the past 12 months. A shocking 18 per cent of incidences involved faculty members. Alexa Barett-Taller, a student at Ottawa’s Carleton University, told the story of her professor stating that “the Jewish people were to blame for Oct. 7th.”

When an IDF veteran was invited to speak to a group of Toronto Metropolitan University students last November, masked anti-Israeli activists allegedly tried to storm the event, leading to five arrests. Ever defiant, the TMU branch of Students for Justice in Palestine promised to “continue shutting down any attempt to platform genocidal propaganda. Until liberation and return, long live the student intifada.”

That scary incident gave TMU President Mohamed Lachemi little choice but to commission a second independent study in as many years. This time, he appointed retired Court of Appeal Justice Mary Lou Benotto to review how TMU balances “freedom of expression, campus safety and the orderly functioning of the university.” Having asked one of Canada’s most respected Jurists to weigh-in on the challenge of our times, TMU is now being accused of sitting on Benotto’s findings.

Hit the link to read the rest of the column in The Star.

MRM

(This post is an Opinion Piece)

What is clear to all is that Canada continues to make the mistake of agreeing to some material items in exchange for nothing from the other side. That’s breaking one of the simple rules of negotiating: “Don’t agree to anything until you’ve agreed on everything.”

For the PM to have recently changed gears makes sense, but it’s not Mr. Trump’s fault that Canada has continuously been outplayed. That’s on the Liberals, and it’s been clear for more than a year (see representative prior posts What exactly is Ottawa’s tariff strategy? Mar 12-25, As Carney stumbles in negotiations with Trump, how should the Conservatives respond? July 9-25, Does switching our U.S. Ambassador bring Canada closer to a trade deal? Dec. 6-25, What to make of Carney’s TAWO negotiating strategy? July 19-26).

If you want to see how this week’s Star column ends, buy a print copy, use your Apple News, or subscribe to The Star online via my special discount code: www.thestar.com/informed.

“The only winning move is not to play.”

Prime Minister Mark Carney must be a fan of sci-fi movies, as this memorable line from the 1983 Oscar-nominated movie “WarGames” neatly sums up Canada’s current CUSMA negotiating stance.

It’s becoming clear that the Liberals have determined that there’s no good deal to be had with U.S. President Donald Trump. Rather than go through the motions, Carney seems to have pivoted to a completely new tactic: not playing the game. The current dynamic is surely far more appealing than the alternative: signing a revised U.S. trade agreement that’s substantially less palatable than what was achieved by either Brian Mulroney or Justin Trudeau in years gone by.

Canadians are tracking the increasingly dour mood, with only 43 per cent of us now “confident that Carney can deliver a good deal,” down from 51 per cent in April, according to the Angus Reid Institute.

At some point not too long ago, it likely dawned on Trump that his well-publicized ratchet negotiating tactics were working like a charm. Whatever concessions Carney gave the U.S. on any given day, the Americans held firm, just as economists Laffont, Tirole and Hart popularized via their game theory academic work in 1988.

That was the same year Carney graduated from Harvard College and I suspect our PM came to realize at some point earlier this spring that Trump’s team was giving Canada the ratchet treatment. That would certainly explain Carney’s savvy adjustment to back off CUSMA negotiations entirely.

The recent Gordie Howe bridge fiasco is the perfect case study in how Trump’s ratchet tactics work in practice.

Back in February, the president vowed that “I will not allow this bridge to open until the United States is fully compensated.” In June, Canada unilaterally announced the bridge would open, naively taking the word of the Governor of Michigan (a Democrat) that the Republican White House had signed off.

Far from it.

That event got cancelled, giving Michigan Republicans a temporary black eye. After a flurry of negotiations between our two ambassadors, Trump’s new bridge side-deal put incremental money into the state economy, delivering a high profile win for the Republican candidate in Michigan’s upcoming key Senate race.

No sooner had Carney announced the revised bridge agreement, Trump unveiled new tariffs on things like Canadian wine and hockey sticks. Perhaps he didn’t appreciate Carney trying to minimize the quantum of bridge “profits” that we’d be sharing with the U.S., or that Canada was the only country of 16 nations to skip the July hearing by the Office of the United States Trade Representative on the use of forced labour.

Canadian lawyer Barry Appleton attended on his own behalf, while Mexico sent its minister of economy. We didn’t show up.

More evidence for Trump that Canada was slow-playing him. That’s the only logical explanation for his new 30-day negotiating window and it puts Carney in a real bind.

Hit the link to read the rest of the piece.

MRM

(this post is an Opinion Piece)

Leading to a rare bad news cycle for Mr. Carney, despite the CBC’s attempts to spin it all away:

“Despite Carney’s claims, money will flow to the U.S. before Canada gets the $6.4 billion it paid to build the [Gordie Howe] bridge.” - Global News “Exclusive,” July 16th @ 8:44pm

“Bloomberg has the text of the bridge deal. It confirms our earlier reporting: there’s no clause about money going to Canada’s debt before revenues are split with the US. Only operational expenses like snowclearing are deducted.” - Bloomberg News, July 17th @ 12:21pm

That the U.S. Administration agreed to finally open the Gordie Howe International Bridge was a telling sign; it was barely a month ago that Ottawa cancelled its planned opening due objections from Washington (see prior post “Gordie Howe bridge debacle is a mess of Carney’s own making” June 12-26). When Mr. Carney told reporters that there would be very little profit to share with the U.S. for the first “five or six years,” Washington took that as a slight — as though they’d been wizzed by Ambassador Mark Wiseman and had foolishly agreed to accept bupkis over the near term.

Obviously, President Trump wouldn’t have agreed to a deal where the USA came out no further ahead than a month ago. That’s how we knew Ottawa was dissembling.

As the bridge’s inaugural Chairman, I’m not telling any secrets to say that the anticipated structure of the P3 contract wouldn’t have provided for any revenue sharing until the capital cost was recovered by Canada; after deducting operating and financing expenses. Given the Battle Royale that the owners of the Ambassador Bridge had put everyone through for 15+ years, Michigan Governor Rick Synder shared the concerns of Stephen Harper’s government that whatever toll agreement was done needed to be bullet proof — that’s why that bridge has an International Authority Board, made up of three Americans and three Canadians.

Formed in 2014, this body was charged with monitoring “compliance of the Windsor-Detroit Bridge Authority with the Crossing Agreement signed by Canada and Michigan.” The unique terms of the appointees were designed to avoid political interference from the U.S. side on things like tolls and actually getting the project built. That International Authority structure is actually working like a charm, as two of the original three U.S. appointees remain in their chairs 11 years later!

Not that it mattered, in the end, if Ottawa wasn’t going to hold the line. Despite the fact that the original agreement between Canada and Michigan was designed to protect against very situation.

I’ll leave it to Conservative MP Andrew Lawton to make the Opposition’s case:

I’ve listened to Mr. Carney’s various explanations a few times, and I’m not sure that Mr. Lawton is right. Canada isn’t sharing the pre-servicing profits from the bridge, per se. It has just agreed that Canadian taxpayers will send a sum that’s the same as if the WDBA was sharing the pre-servicing profits from the bridge. Mr. Carney may have done the prudent thing, and the fact that he spoke with a forked tongue once again (see representative prior post “Pro Tip: Don’t sign a document if you intend to deny the facts later” Feb. 28-25) won’t have any bearing on his fabulous polling numbers in the weeks to come.

The issue is CUSMA, not the bridge. And that’s the problem with doing a bad deal on Gordie Howe.

As anyone who works at Brookfield will tell you, no two transactions are the same. What carries through countless deals, however, is your reputation as a negotiator. Both as a firm and an individual. Although Prime Minister Mark Carney campaigned on a promise in March to inflict “maximum pain” on the United States (see prior post “As Carney stumbles in negotiations with Trump, how should the Conservatives respond?” July 9-25)., his government unilaterally recanted tens of billions of dollars’ worth of counter-tariffs against it a month later. Mr. Carney then ditched the Liberals’ controversial digital services tax — despite receiving zero concessions in return.

Sixteen months ago, Canadians had no insight into the Liberal government’s CUSMA negotiating strategy (see prior post “What exactly is Ottawa’s tariff strategy?” Mar. 12-25). When his title was merely “PM-designate,” Mr. Carney deserved the time and space to size-up every element of a very dynamic and tempestuous situation: His team, the cards he had to play, the U.S. Administration’s own goals, not to mention the political realities of his caucus — it would be hard for anyone to truly appreciate the power of the Dairy lobby without sitting down with all of the Liberal caucus members who might have some insight on the matter.

Now that the learning curve is over, it’s ironic that Canada’s only big stick has been the one wielded by Ontario and Quebec liquour boards. In a recent Twitter post, California Senator Adam Schiff said that the “boycott of California wine is causing devastating harm to winegrowers.” Given California’s political leanings, President Trump isn’t likely to be too sympathetic.

Canada has two real power moves: energy and electricity. As soon as Washington figured out that we weren’t going to play either card, we’d lost.

The Ambassador Bridge has been making hay for 90+ years. Whether the competing Gordie Howe Bridge opens this year or next is irrelevant in the grand scheme of things. By caving, yet again, Mr. Carney’s advisors are proving that Trump Always Wins Out.

That’s the kind of reputation that gets you fired at Brookfield.

MRM

(note: this post, like all blogs, is an Opinion Piece)

Literally.

As I listened to a live interview of a 30-something male on that day, the keffiyeh-wearing Palestinian supporter complained to CBC TV reporter Idil Mussa that, among other thing, “this has been going on for 70 years.” He proudly announced that “we are here to support it all,” before quickly catching himself, and assuring CBC viewers that he and his fellow Palestinian supporters weren’t milling around at Toronto’s Nathan Phillips Square to celebrate the death of 700 (at that time) Jews.

A few hundred feet away, over by the Old City Hall Cenotaph, someone was waving a green Hamas flag.

If one didn’t support “resistance” “by any means necessary,” which included “mass rapes, tortures, bonding and immolation of toddlers, beheadings, and live mutilation,” you wouldn’t fly that battle symbol on that particular day. But someone did, and our media corps missed it completely.

To have flown the Hamas flag in the shadow of a memorial to “Our Glorious Dead” defiled the memory of those who’ve fought against tyranny around the globe. (As I’ve written before, I wonder how our lost ones would feel if they discovered that they died so that Canada could be a nation where people are allowed — even encouraged — to twist our freedoms into countless pointless protests in front of a Jewish-owned coffee shop on Bloor Street, block a CN rail line, or call for the death of Jews around the world.)

Having described the situation as “mostly peaceful,” I wish Ms. Mussa had taken the opportunity to ask that Hamas ally if they, too, weren’t celebrating the Hamas rapes and mass murder.

Carnage that was still underway at that very moment.

All of this took place on Bay Street, Corporate Canada’s own front yard. Given its advocacy of so many other societal issues, it would have been both timely and appropriate for Corporate Canada (and I don’t mean Brent Belzberg, David Ossip, Heather Reisman, Dani Reiss and Gerry Schwartz) to have intervened in the days that followed (see prior post “Corporate Canada must do more to combat anti-Semitism” Oct 31-23).

Our business leaders got another chance to step into the fray when 400 “pro-Palestinian” protestors marched down Toronto’s Yonge Street shouting “Viva, Viva, Intifada” (see prior post “‘No Justice’ in Gaza means ‘No Peace’ in Toronto” Mar 29-24). There was also the time that “pro-Palestinian” protestors blocked access to Mount Sinai Hospital, as I wrote about in a Star column (see prior post “Premier Ford speaks for the Silent Majority” May 15-24.

Having now found its voice on antisemitism, albeit belatedly, Corporate Canada needs to publicly outline how we are going to re-establish Canadian values (see prior post “Is the silent, sane majority ready to re-establish the parameters of ‘Canadian values?’” Sept 9-25).

Before it’s too late.

If you want to see how this week’s Star column ends, buy a print copy, use your Apple News, or subscribe to The Star online via my special discount code: www.thestar.com/informed.

What’s our plan to deal with anti-Jewish hate? The current tactics, such as they are, have failed.

It took just six days for two Canadian bank CEOs to issue forceful statements about “racial inequities and excessive [U.S.] police force” following the May 2020 murder of American George Floyd.

TD’s Bharat Masrani observed that “as a society we must have zero-tolerance for racism of any kind,” according to Reuters, while CIBC’s Victor Dodig wrote that “Tragedies like these are far too common, where people in our communities — in particular those who are black or indigenous — senselessly lose their lives.”

Most Canadians are beneficial shareholders of these two companies, which means that proactive pronouncements like these are made not only for our consumption but in our collective name. Although Floyd’s death and the fiery civil unrest that followed occurred in a foreign country, many local corporate leaders took the opportunity to inspire our inner angels.

That’s to be applauded.

If you review the websites of these or similar firms, you’ll find a plethora of corporate press releases and charitable donations regarding a range of key societal concerns, including anti-Black racism, anti-Asian hate, climate change, “inclusive economic opportunity,” LGBTQ, mental health and Truth and Reconciliation.

All of this came to mind when I read the recent open letter signed by 66 “leading non-Jewish Canadians” condemning antisemitism. For those of us who’ve spent the last 30 months trying to raise awareness about the onslaught of Jewish hate in our streets, the initiative was welcome.

Late, but welcome.

I know many of the talented signatories personally and several have been actively supporting the Jewish community for decades, ever more so in the wake of the Oct. 7 Hamas attack. Given the speed at which so many business chiefs publicly reacted to Floyd’s murder in Minneapolis, it’s a shame that this initiative only gained traction following Prime Minister Mark Carney’s “Canadian Covenant” speech at Toronto’s Holy Blossom Temple on June 1.

Moral leadership doesn’t require Ottawa’s permission.

I do wonder if the daily fare of antisemitic bile would be as rampant had these words been published 30 months ago. It was already obvious where we were headed.

The scene was Nathan Phillips Square on Oct. 9, 2023. In a CBC interview a 30-something male summed up his reaction to the Hamas attack this way: “It’s been going on for decades now, for the last 70 years, ever since the occupation of Israel, Palestinian land that is belonging to the Palestinian people. And we’re here to support it all …” (the man added “it’s not the case” that he and other Palestinian supporters had gathered to celebrate the murder of Israelis). A few hundred feet away, someone was flying a green Hamas terror flag beside the Old City Hall Cenotaph.

That would have been a good time for Bay Street to intervene.

Hit the link to read the rest of the piece.

MRM

(this post is an Opinion Piece)

That said, Canada appears to be on the doorstep of announcing the winning bidder for the Canadian Patrol Submarine program, and the speedy common sense that’s been brought to bear here must be saluted. If Canada wants to be able to truly defend our coasts, this procurement is a start — provided that working subs get delivered to us in a timely manner.

For the critics of the Upholder-class acquisition (ie., the used British subs that have failed us more often than not), the one undeniable benefit of the program was that Canada was able to maintain Submariners as a trade. You might have missed it, but then-RCN Commander VAdm Ron Lloyd sent one of our subs (HMCS Chicoutimi) on a mission from Esquimalt, B.C. to Japan in 2018, for example. That’s a determinative piece of the pending CPS program as we have experienced RCN folks ready to take the helm of the new boats once they show up.

Speaking of national security, getting our defence house in order will go a long way to reduce tensions with the Trump Administration and growing our economy, as I’ve written in the past (see prior posts Canada has win-win deals it can make to satisfy Trump, Dec 30-24; Incoming defence chief must be set up for success, May 29-24; Hitting NATO’s 2% target a pipe dream without addressing Ottawa’s faux procurement machine, Mar 26-24; RCN “facing some very serious challenges,” says Commander, Dec 2-23). With President Trump’s decision to not renew CUSMA yesterday, these large procurements demonstrate to our NATO partners that we intend to pull our weight. That macro backdrop will help set the table whenever the Liberal government decides to get serious about doing a trade deal with the USA.

If you want to see how this week’s Star column ends, buy a print copy, use your Apple News, or subscribe to The Star online via my special discount code: www.thestar.com/informed.

For all the ills former prime minister Justin Trudeau left his successor to face, the defence file has been a surprising bright spot.

What makes this all the more remarkable is the fact that just 30 months ago, the then-head of the Royal Canadian Navy took to YouTube to declare that his team and equipment were in a “critical state.” At any other moment in the last 50 years, Vice-Admiral Angus Topshee’s political masters would have punished him for daring to share his unvarnished message.

To my pleasant surprise, successive Liberal defence ministers have welcomed such frank assessments — despite the bleak picture they paint. Trudeau’s cabinet recognized the need to engage Canadians directly, and the fact that our senior military leaders were offering up solutions to decades of neglect and underinvestment without pointing fingers made for unusually constructive public dialogue.

In Topshee’s case, his recent promotion to the No. 2 position in the Canadian military appears to confirm Althia Raj’s report for the Star last month that Prime Minister Mark Carney appreciates those in the problem-solving business.

When our newly elected PM arrived in Ottawa last year, the public focus was on U.S. tariffs, resolving Canada’s immigration mayhem and testing our willingness to build new energy infrastructure. Despite U.S. President Donald Trump’s call for NATO members to pull their collective weight, it wasn’t clear that Carney would bite.

Historically, Finance and Treasury Board bureaucrats have always found reasons to put off military spending, and even when funding had been approved, Ottawa’s (intentionally?) broken procurement system ensured nothing got ordered. According to the Parliamentary Budget Officer, “defence department efforts to buy new equipment fell short by $18.3 billion” between 2017 and 2023.

The first sign that the Carney government understood the challenge could be seen in last year’s decision to dramatically increase pay for members of the Canadian Armed Forces. For years, successive governments relied on the patriotism of our servicemen and women as the primary retention strategy. We weren’t taking advantage of those who wear a military uniform, but as a nation, we were definitely ambivalent.

With each passing year, the compensation differential between equivalent roles in the military and the private-sector got wider. Inevitably, recruiting got even tougher, and the war for talent intensified as corporate Canada poached experienced non-commissioned officers for their breadth of specialized skills.

Foreign militaries also got in on the game, offering big pay raises for junior officers having at least five years of relevant experience. It’s not that sleepy Victoria, B.C., isn’t a great place to retire — but you can imagine the appeal of San Diego to a twentysomething who’s being recruited by the U.S. Navy to sail newer ships and be paid far more money than Canada had on offer at the time….

Hit the link to read the rest.

MRM

(this post is an Opinion Piece; it reflects a personal view and is in no way to be taken as being authorized or approved by any other party)

Mr. Musk’s arrival as the world’s first trillionaire served, unfortunately, as an opportunity for many of our fellow citizens to take pot shots at an entire class of society. The touch-less-famous entrepreneurial Canadians who’ve created the jobs, paid the taxes and earned a fabulous financial return for themselves (and others) along the way. I thought it was worthwhile to explain why we need to create more billionaires, and the jobs and wealth they create for all.

One Star reader had this to say this morning, in response:

If these super rich have so much money they can give it away as charity, then paying higher taxes would obviously not hurt them, and we could as a society pay for improved hospitals and the like without relying on “alms from the Rich” - Mr. McQueen.

Back in the good old days, the Rich maintained feudal estates, and generously employed serfs to work the land. This is the Golden Age to which the Conservatives wish to return us to.

Alas, the answer is always “raise their taxes” to many of my fellow Star subscribers. Oh, and Conservatives would like to return to the days where tbe Lord of the Manor ruled all. I’m confident that’s not on Pierre Poilievre’s (himself an anti-elitist) political agenda.

Earlier this week, a fellow by the name of Jake Landau posted on X that”I used to oppose the notwithstanding clause, now I think we should nationalize Shopify with zero compensation to the shareholders. Tobi and Harley are using their wealth machine to facilitate their right-wing politics, so we must strip it away from them.”

This Stalinist position may not be representative of every hater, but I doubt that he’s alone. Whether it’s simple jealousy or a suspicion about political influence, this dynamic isn’t going away: the self-styled Economic Justice Activists are everywhere (see prior post “Memo to Jon Shell: Not everything is ‘Sexism’” May 9-24). As for Harley Finkelstein’s politics, I’m pretty sure that Justin Trudeau appointment him to the CBC Board of Directors during his tenure as PM — an odd move if Mr. Finkelstein is truly a supporter of “right-wing politics.”

One thing is for sure: The start-ups, corporations, jobs, economic growth and advancements that create the wealth that allow folks with names like Gilgan, Jackman, Lassonde, Lawson, McKean, Munk, Reiss, Rogers, Rotman, Schulich, Schwartz, Sharp, Slaight, Smith, Temerty, Trottier, Weston, Wolf, etc. to donate substantial sums to our great cities and public institutions must be replicated time and time again if Canada is going to survive as an independent country for another 150 years.

If you want to see how this week’s Star column ends, buy a print copy, use your Apple News, or subscribe to The Star online via my special discount code: www.thestar.com/informed.

To some Canadians, the world’s richest man is a “monster,” and in the wake of the successful initial public offering (IPO) of SpaceX, a national newspaper ran an opinion piece entitled (until it was amended): “SpaceX IPO makes Elon Musk the first trillionaire. Here’s how to properly hate him.”

Do you want to guess which group of Canadians probably don’t hate him? The beneficiaries of the Ontario Teacher’s Pension Plan.

A canny $300 million pre-IPO investment into SpaceX is now worth more than $20 billion to 346,000 Ontario teachers. It’s a windfall that must surely be the single best payday in the history of their plan. For every teacher in the plan, the pension fund has already gained over $35,000 from Musk’s efforts – capital that can be used to enhance future pension benefits or reduce payroll deductions.

Silicon Valley’s much maligned “Bro culture” delivered handsomely for our educators, a sector that’s about 75 per cent female.

The irony is that had anyone asked the devotees of Environmental Social Governance (ESG) investing, or canvassed the teacher’s union prior to backing Musk financially, they’d have likely passed on the opportunity. After all, parts of both corporate Canada and the public sector backed away from both posting and advertising on Twitter (now X) following Musk’s acquisition of the social media platform in 2022. The concerns surrounded “moderation” and “brand safety,” but one had to wonder if his political views didn’t factor into what wound up being a failed attempted boycott.

Now that Musk’s a trillionaire, many commentators seem horrified than one person could amass such a fortune. Even self-made Canadian billionaires are caught in the crossfire. Independent journalist Rachel Gilmore stated that, Tobi Lutke, the founder and CEO of Shopify (Canada’s most valuable publicly-traded technology company) “is an all time loser, up there with Elon. Just a mortifying wealth glutton.”

His apparent crime against humanity? Creating a business that’s now worth $200 billion. In Shopify’s case, hundreds of millions of profits were earned by the municipal firefighters that belong to the OMERS pension plan — an early SHOP investor — among other first responders and public servants.

Most startups fail, and entrepreneurs such as Musk and Lutke take indescribable personal, financial and career risk when they launch such ventures. Nothing compares.

Occasionally, someone hits a home run. Whether a new drug is discovered, a global online store platform is launched, or a clean tech innovation breaks through the noise, unimaginable wealth might be created for those who took a risk.

That’s a good thing, and we need more of it, along with the new jobs they generate.

Hit the link to read the rest of the piece.

MRM

(note: this is an Opinion Piece)

If you’re wondering why the Gordie Howe International Bridge isn’t open already, no one should be blaming U.S. President Donald Trump. That’s largely former WDBA Chairman Dwight Duncan’s fault, as has been crystal clear over the past decade (see representative prior posts “Canada’s bridge to Nowhere?” Feb. 10-26 and “Pressure on Gordie Howe bridge project may be paying off” Oct. 26-16).

Despite what The Star’s headline writer crafted, this latest “debacle” gives us some insight into just how poorly Prime Minister Mark Carney is being served by everyone involved in his CUSMA negotiating team.

Ask yourself this simple question: when Ottawa agreed to open the bridge and allowed the WDBA (a federal Crown Corp. run by Directors appointed by Liberal Cabinet Ministers) to invite a delegation of U.S. elected officials for today’s now-cancelled 1:00 pm ceremony, did no one think to clear this major development with The White House first?

Didn’t our new Ambassador to the U.S., Mark Wiseman, take the opportunity to call his new contacts at 1600 Pennsylvania Avenue? It was only February when the media reported that President Trump “threatened to block opening of new bridge between Windsor and Detroit.” Surely that made the embassy’s morning clipping package.

If the answer was hazy, did no one confirm with Minister Dominic Leblanc, Minister Responsible for Canada-U.S. Trade, that a unilateral launch fit within the delicate framework of his negotiating strategy?

Assuming that Canada has one, that is (see prior post “What exactly is Ottawa’s tariff strategy?” Mar. 2-25).

As someone who used to happily toil in the Langevin office immediately adjacent to the PM’s, complete with its twelve-foot-high ceilings, I hope that whomever in the PMO or PCO briefed the PM on the opening plans prior to his Tuesday pre-Cabinet scrum was confident that it was a good idea for Mr. Carney to personally “confirm” that this contentious irritant had been resolved. That’s a lot of personal capital to risk, if not.

And, if it hadn’t been resolved, that Mr. Carney’s “Elbows-Up” attitude meant that his government had formally decided to proceed anyway. Sometimes, sending a shot across the bow is a great negotiating tactic.

Indeed, a unilateral opening fit with the Davos speech narrative, and the long-awaited bridge is ready to go. The feeder roads are connected, the lighting and toll systems have been tested 5,000+ times, and Canadian taxpayers are invariably covering the weekly $8M (guessing) availability payment due to the private sector P3 consortia that built the bridge — whether traffic flows or not.

Apparently, given today’s cancellation, that wasn’t our intention. We just didn’t check with the right people in Washington, and when the President reacted poorly to Mr. Carney’s “confirmation” — which was as predictable as night following day — Canada folded. As Logan Roy would say, these are not serious people.

If the PM was running the government like a business, he’d have fired someone by now. Yes, it’s that bad a screw-up.

If you want to see how this week’s Star column ends, buy a print copy, use your Apple News, or subscribe to The Star online via my special discount code: www.thestar.com/informed.

As the July 1 Canada-US-Mexico Agreement (CUSMA) trade pact renewal deadline looms, Canada’s negotiating strategy continues to defy logic.

On Tuesday, Prime Minister Mark Carney “confirmed” that the $6.4 billion Gordie Howe bridge would be opening at the end of this week — at long last. I took that as a sign of warming relations., As recently as February, President Donald Trump insisted that American politicians negotiated an insufficient share of the toll revenue, despite the fact that the project was 100 per cent financed by Canadian taxpayers.

A subsequent telephone call between the president and the PM left Carney with the expectation that the “situation would be resolved.” Hopes soared last week when U.S. Homeland Security Secretary Markwayne Mullin told a Senate Committee that his team of customs officers was “ready to facilitate trade and travel” on the Detroit side of the border.

When Carney advised reporters that “the bridge will be open at the end of the week,” I assumed that he’d cleared things with the president.

Why else would the PM describe the opening as “a symbol of, but also a fact of co-operation between our countries?” Invitations were issued by the federally-owned Windsor-Detroit Bridge Authority, with U.S. VIPs, such as Michigan Governor Gretchen Whitmer and former Gov. Rick Synder, making plans to attend.

When asked for a reaction, the White House threw a wrench in the works, saying that the “president’s position on the Gordie Howe Bridge has not changed. The Administration remains committed to securing the best possible deal for the American people.”

One could take that statement to mean either that the bridge would be opening, despite the president’s prior objections. Or, ominously, that Ottawa’s announcement didn’t have the support of the U.S. Administration.

Windsor Mayor Drew Dilkens left everyone with the impression that Ottawa wasn’t worried, telling CTV’s Vassy Kapelos that “we knew it was just a matter of time.” When asked if he was “concerned about Trump further delaying the opening, Dilkens said ‘no.’”

On Wednesday, the trump card was quickly laid, with the president telling reporters that he is “not looking to renew” the CUSMA. Period.

Terrible poker players that they are, the federal Liberals folded immediately. Early yesterday, Ottawa formally rescinded its invitations. Dilkens tried to put lipstick on this pig, posting to X (formerly Twitter): “Although we would all like the Gordie Howe bridge to open, Canada need not fall on bent knee to make it happen. Get us a great trade deal Mark Carney!”

This is not a trade strategy. It’s amateur hour, as I pointed out here last summer.

Recall that in March 2025, Carney campaigned on a promise to inflict “maximum pain” on the United States, only to unilaterally recant tens of billions of dollars’ worth of counter-tariffs a month later. The Grits then dispensed with their controversial digital services tax in an effort to restart trade talks.

A lot of good that did us.

Hit the link to read the rest of the piece.

MRM

(note: this is an Opinion Piece)

If you’ve been waiting for a deluge of go-private deals in the Canadian small cap tech space over the past couple of years, you’ll have been sorely disappointed. It was almost two years ago that I laid out an argument for a continuation in the 20 year tradition of consolidation of TSX-listed software firms (see prior post “Canadian Tech go-privates: who’s up next?” July 30-24).

And then, zippo. Nada.

Whenever I thought about updating that post, I wasn’t sure what to say. Nothing had happened, and worse, many of the firms had sold off. Was I early, had I picked the wrong names, or had the SaaS-pocalypse ushered-in a permanent valuation adjustment for many of Canada’s small stable of publicly-listed software firms?

The jury may be still out, but the $6.50 all-cash bid for Kneat has come just in time to bail me out. It was on the list I highlighted two summers ago (trading at $4.42 at the time), and there’s no better sign of a potential floor when a firm like Thoma Bravo decides they won’t likely get something cheaper than its current trading price.

As I reflect on the names that were highlighted at the time, I’m not sure what I’d do differently. Add Haivision (HAI:TSX), for example? Despite its “soft FQ2 results, with revenue down 5.1% YoY and EBITDA margins pressured by multiple factors?” It may go away, but not at a 50% premium to the current quote.

More likely to achieve a big premium is Kinaxis (KXS:TSX), one of the few stellar Canadian tech names still trading on our market. With a market cap of $4.5B, I know it doesn’t qualify as a “small cap” name for the purposes of this review, but the stock has risen from $146 to $167 over the last couple of years, and the company announced in February that it would double its NCIB limit to up to ~10% of its public float. A very unusual step for a software name.

To remind, these are the names from the July 2024 post:

Calian (CGY:TSX) - Was trading at $55.51; now at $82.70, thanks in part to a macro environment that’s constructive for anyone with exposure to the defence sector.

Coveo (CVO:TSX) - What was once $6.09 two years ago is now trading at $4.08. Worse, our fav tech CFO, Brandon Nussey, left the firm about six months ago for another opportunity. Here’s what I wrote two years ago:

There were few hotter private Canadian software cos circa 2019, and Coveo was doing AI before it became table stakes. As with most COVID-era IPO names, shares sold off as valuations corrected. I bought some in August 2023, then again in January, March, and averaged down in May 2024. I didn’t tender into the $7.70/share substantial issuer bid, and now have the chance to average down at $6.50, once again. ;-(.

I’m a big fan of the company’s CFO, Brandon Nussey (more on him here), and am not worried about this ending well. This is just a chance for a gut-check, maybe.

It still gets research coverage, and I’m riding this one out, recognizing that I’ve been wrong from the beginning.

D2L (DTOL:TSX) - This name has traded down from $12.19 to $10.68 over the relevant period, although CIBC’s most recent research report was positive:

D2L reported a strong quarter, with revenue growth of 8% Y/Y and adjusted EBITDA margin of 14.5%, in line with full-year guidance and above Street expectations. ARR growth was resilient, up 7.6% Y/Y in constant currency, or 11.4% excluding K-12, and D2L continues to win share from all three main competitors. With K-12 impacts and database migration headwinds expected to roll off in FQ2, revenue growth and margin expansion should further improve in H2, positioning the company to achieve its F2027 guidance and tracking towards medium-term F2028 targets. With D2L now trading at 1.2x EV/F2028 Sales, near the low end of its Substantial Issuer Bid price range, we expect share buybacks to provide support at current levels. We retain our Outperformer rating and C$15.00 price target.

Docebo (DCBO:TSX) - This one has sold off about 50%, from $36.75 to $18.27. Ouch. That’s a long way from the the $89+ it reached coming out of the Covid mania.

At CIBC’s recent Tech & Innovation Conference, DCBO management was asked about the overall demand environment and AI disruption risk. This is the summary of their remarks:

DCBO is continuing to see strong demand momentum with a robust pipeline, improving product‑market fit, and solid enterprise new logo activity. It has an expanding government pipeline, and strong win rates on the enterprise side, with ~$300MM annual replacement opportunity from contracts coming up for renewal that have been serviced by legacy vendors. Enterprise customers are increasingly looking to sign longer-dated contracts. Enterprise LMS use cases require auditability, traceability, and compliance (e.g., FDA audits), where current LLM-based tools fall short. DCBO’s differentiation sits in “enterprise readiness” (infrastructure, integrations, compliance), which can take several years to replicate. Customer demand for AI solutions is uneven, and split between early adopters and more cautious buyers.

Kneat.com (KSI:TSX) - See above.

Quarterhill (QTRH:TSX) - This name got down to $1.04 in late March, and has bounced back to $1.85 at the moment. Not far off the $1.64/share from July 2024.

This is what Raymond James had to say in March 2026 after the Q4 results:

With its problem tolling contracts firmly in the rear view, this 4Q, Quaterhill gave us a glimpse of its margin potential with A-EBITDA margin ~11.4%, coming in above consensus. Management commentary implies ~90% of its revenue backlog carries ~40% GM, ~20% A-EBITDA type contracts.

In-line revenue, solid A-EBITDA performance in 4Q. Revenue $38.5mln vs consensus $39.5mln. A-EBITDA $4.4 mln (11.4% margin) better than consensus $2.5 mln. Margins on the way up. Gross margins ~31.5% in 4Q and potentially looking up given management comments on its earnings call that the majority of its $404 mln backlog (like 90%+) carries 40%+ gross margin. Now that all its problem contracts have been settled, we should see an improvement in profitability which bodes well for valuation. We will be watching this trend in future quarters and have modeled GM continue to improve in the low 30s for F2026.

Balance sheet. Cash at $25 mln vs. debt at ~$54 mln. Net debt is now ~ $29 mln. Refinancing. QTRH is actively engaged in discussions regarding the refinancing of credit facilities, including its senior secured bank debt (Sept 2026 maturity date) and convertible debentures (Oct 2026).

We roll forward our estimates. Our target ($1.80) is unchanged based on 1.0x F2027E sales (unchanged), at a discount to peers given execution challenges.

Last month, the company cleaned-up its balance sheet overhang with the early re-fi of its bank debt. A private credit firm I’ve never heard of stepped-in with a mere US$160M of debt capacity.

Real Matters (REAL:TSX) - This one has traded down from $7.03 to $5.21 over the past 23 months as the U.S. mortgage market remains gummed-up. Yawn.

Thinkific (THNC:TSX) - According to CGF’s Analyst, the “transition continues as ARR deceleration delays recovery.” I think that’s a polite way of telling we shareholders that things have yet to recover. With a market cap barely north of $100M, I do worry if the company is big enough for anyone to care.

From CGF’s May 5th report:

Thinkific delivered Q1 results broadly in line with expectations as the company progresses through multiple elements of transition. Q2 guidance, however, was weaker than expected, reflecting lower growth in Plus and Commerce alongside anticipated deceleration in Self-Serve. Thinkific is focusing its R&D and sales resources on a shift upmarket towards larger, more established and monetizable content creators (i.e., Ryan Serhant, MissExcel) and higher-value enterprise customers (Datadog, Lululemon, GoDaddy). Revenue deceleration continued, growing 5% YoY in Q1, driven by 12% growth in Plus (and connected commerce), down sequentially from 17%, and 2% in Self-Serve, down from 3%. To facilitate the transition, CEO Greg Smith took control of the company's AI and R&D roadmap and absorbed the duties of the former CTO/CPO. The shift upmarket and focus on a new target customer profile has lengthened the sales cycle and pressured growth while incremental R&D investments, particularly in AI, have pressured operating margins. We continue to have limited visibility on the timing and pace of growth re-acceleration. On a more positive note, Thinkific identified Leigh Ramsden, former CFO of Trulioo, as the incoming CFO effective June 1. We rate THNC a HOLD and reduce our target to $1.75 (from $2.00) based on 0.5x NTM EV/Sales (from 0.6x).

VerticalScope (FORA:TSX) - The mkt cap. has shrunk from $180M to around $60M, and one has to wonder when the beating will stop.

The latest from CG’s equity research analyst lays out the case for the current valuation taking into account the declining revenue picture. I guess that’s good:

VerticalScope’s Q1 results were mixed, with better-than-expected MAUs, albeit accompanied by weaker digital ad trends and a miss in terms of adj EBITDA. We see stabilising FORA’s digital audience as a first step toward a prospective recovery, and the trend since Q3/25, and comments by management on post-Q1 patterns suggest some positive signs. With that said, steep programmatic declines and the present cost base are translating to steep EBITDA declines. We see investors becoming more constructive on the name if management delivers on their cost rationalization efforts and MAU strength returns. Additionally, content licensing progress would be a potential catalyst for the thesis.

We maintain our HOLD rating owing to still steep decline rates but recognize FORA’s attractive valuation with the FCF yield just shy of 20%.

WELL Health Technologies (WELL:TSX) - What you could have bought for $4.59 is now available for just $4.54/share two years later. One would have thought that “digital healthcare” would be a hot commodity these days, but it may well fall to the new CEO at Telus (T:TSX) to get investors their lift here via a strategic acquisition.

We will see.

MRM

(note: this post, like all blogs, is an Opinion Piece; furthermore, I’m not licenced to give financial advice. This post is just to stimulate your thinking.)

(disclosure - we own shares of Coveo, Thinkific and Real Matters in our household, and I should probably consider KXS)

If you’re entering the second week of your first-ever summer internship tomorrow, this post is for you. I did a three-part series a year ago about how to succeed at the office, and it drew more feedback than almost anything I’ve published to date.

What was meant to be a single post (see “15 tips for Summer Interns” June 1-25) became a three-part series as folks began to share their own ideas to my own growing list.

I’ve combined those three posts here to make it easy to breeze through them all. Here’s the intro to that first piece:

If you’ve got a young adult headed off for some form of office Internship tomorrow, this post is for them. I don’t doubt that you, as a parent, grandparent or Aunt/Uncle, have given your cherub all of the advice they need to navigate this next phase of their life. But, sometimes, it can be useful if they hear the same stuff from someone else.

Attn: young budding professional. As you enter this new and likely foreign world, understand what a novelty it is to be 18, 19, 20 or 21 and even have the luxury to not be cutting lawns or painting houses this summer. Not that there’s anything particularly “luxurious” about borrowing a cubicle for a few weeks, but there are a lot fewer blackflies on Bay Street or in Back Bay than if you spent the rest of the summer tree planting in Northern Ontario or Vermont, for example.

One of the many odd things about our generation of parents is that we’ve manufactured “internships” so that some of you can get a feel for certain types of career paths. In 1985, or even 1995, such roles didn’t really exist. While one was too old to be a Camp Counsellor at the time, you were certainly too young and unformed (at age 19 or 21) to show up every day at a formal place of work.

And that was back when we had the benefit of Grade 13, with the extra year of maturing under our belts. In any event, here are the Top 15 tips to be successful over the coming eight-ten weeks. I’m told that your generation doesn’t have the longest attention span, so I’ll keep this shorter than my usual:

1. Be on time. Whether you are being paid or not, whomever hired you didn’t hire someone else instead. Show that you understand how lucky you are by being on time. It’s a small thing but no one forgets the staffers who roll-in distinctly later than everyone else.

2. Take public transit to work each day. There’s no better way to get a feel for how your city “works” than to Ride The Rocket. Don’t stare at your phone for the entire trip - the point is to get a sense of your surroundings: i) Which firms / organizations advertise on the subway or bus? Why? ii) Where are the people in your car headed? What do they do for a living? iii) Are they having an interesting life? Who did they vote for? iv) Might they be customers of the firm you’re interning at? If so, what are you seeing in them that you could share back at the office? v) if all else fails, read more about the company you’re working at, as well as its competitors.

3. If you are offered the chance to work IN THE OFFICE, say, 2 or 3 days a week, opt for the 3 days. Or 4. Or 5. Whatever the maximum is...that’s the right choice. You’ll learn a lot more “in the office” and you’ll meet far more people than if you’re sitting in the very same room you did zoom-school during Covid. It’ll definitely be a far more fulfilling experience as a result. “Remote work” is fine for a certain type of role — but not you, not this summer.

4. Take it all in. Figure out which of the full-time staff at your company are great at what they do. What makes them successful? Who are the “duds,” and how have they survived? As for the “Steady-Eddies,” every office has them — what is it about them that is holding them back professionally? The late Ted Rogers had a great line about someone being “Too good to fire, not good enough to hire.”

5. If you were in charge, what might you change (keep those thoughts to yourself)?

6. This is an opportunity to invest in yourself. Everything you learn will go into your personal toolbox for next time. These folks are paying you to learn — honour that by learning. Every day you leave the office with something undone, you’re actually stealing from yourself. I worked 90 hours a week as an M&A Associate in 1999 — it wasn’t always fun, but 45 hours/week isn’t going to kill you this summer. Five extra hours a week, times eight weeks, is an entire extra week of learning — which should equate to 10% more knowledge than you’d have gained otherwise.

7. As much as society claims to love “authenticity,” I’m not sure that’s entirely true. Elon Musk is authentic, for example, and while that didn’t prevent him from becoming the world’s richest man, there are lots of folks who hate him for what he believes — which people only get to know about in detail because he’s “authentic.” I could write a book on this topic, but, in summary: be careful with just how “transparent” you are in this early phase of your professional life. My embrace of authenticity isn’t for everyone.

8. Avoid office gossip, and don’t fall into the trap of sharing war stories with others about how you landed the opportunity. Nothing good comes from that.

9. The days of the $6 sandwich and pop at Shopsy’s deli are long over. You won’t be able to buy a sandwich for under $13, and they’ll jam you for $3.75 for a small box of milk. If you spend $20/day on lunch, plus another $40 getting beers twice a week after work — that $180 of after-tax spend, plus dry cleaning and $7/day for public transit, will give you a good sense of why so many 30 year-olds can’t afford to buy a condo, even if they’re earning $125k.

10. Coffee culture: you may not have seen this at school. There are a lot of people who “go downstairs” a few times each day and get a $6 Latte or Frap at Starbucks. If you can learn to drink the free stuff at the office, you’ll save a million dollars over the course of your professional career (assuming you invested that $ instead). Don’t make the mistake I did. It’s a good opportunity to network, but you can cart the free stuff with you and accomplish the same thing.

11. Read the newspaper each day. Watch BNN and CNBC. Be informed. TikTok isn’t sufficient to see you through the day.

12. If everyone at your new shop goes out for some form of “organized drinks” after work, be cautious if the Glenn Sauntry of your office suggests that everyone tell a joke. The chances of someone not being justifiably offended by one of them are low, given the nature of the jokes you might have heard at school during your last year.

13. Find yourself some Mentors. It’s likely that they’ll be friend’s of your parents, and that’s normal. The connections have to be natural, but you have no idea how important they’ll end up being to your professional and personal development. Life-changing.

14. Use LinkedIn, not Instagram. If you meet folks, connect to them — it’s not stalking.

15. “See” everyone. You’ll pass a lot of people in any given day. Don’t take any of them for granted, regardless of their station in life.

    

16. Over the course of your first two decades on the planet, the overarching goal was to get you to eat the right things, at the right time. It is entirely possible that allowances were made for the “how” part. Plus, there was some parental tip-toeing around during Covid. Understandably, this may have confused you to believe that “how” you eat doesn’t matter — this would be the wrong conclusion to have drawn. You may not think that how you hold your fork and knife matters, or that shovelling food into your mouth as your forearm rests on the side of the table gets noticed, but I can assure you that you’ll never become the CEO of anything beyond your own Start-up company if eating dinner with you is like a scene out of Quest for Fire.

17. Table manners, how you treat a server, if you talk with your mouth full, how loud you are at the bar after work, etc. All of this will be noticed by someone who may wind-up having a key role to play in your career progression (or not).

    Don’t believe me? Try Plan B and call me in 30 years and we can commiserate about why you’re neither Chair nor CEO of Brookfield. (It also gets noticed by a future romantic partner, and will be a deal-breaker for some of them as you’ll invariably come to find.)

18. This next piece of advice comes via a comment from a reader by the name of “Toronto Observer”: “On #10, I might add that the ‘office’ coffee in general has improved a lot in the last two decades, and its bad reputation is really something lingering from the distant past. To combine #10 and #4 (on the commandment to ‘take it all in’), I would also suggest someone in a 2025 summer intern role might pick up more useful insights from colleagues by say 2 visits a day to the coffee machine (and using them as excuses to have quick 5-7 minute chats with various different colleagues) than say from visibly disappearing from one’s desk once a week for 45 minutes for a long coffee with one colleague. As in all things in life - your mileage may vary, and this is not intended as definitively prescriptive advice.”

19. As you’re working at an office, wear “business attire” each and every day. And, having gone to the trouble of doing so, take some pride in it. If your black, hard-soled shoes have salt stains on them from last Christmas, clean them. Whether you like it or not, you’re constantly being judged in the business world. Everyone loves a free spirit, someone who allegedly doesn’t sweat the small stuff — particularly if they’re a success in the music or artistic world. However, unless you are Interning with Ben Buchanan at CAA (which is a great idea btw, but Artists are also sticklers for detail), it is more than likely that you are working somewhere that’s regulated by someone/something. Ironically, that crowd cares a lot about “the small stuff,” as you’ll come to learn. There’s a connection between success and getting the small stuff right. Follow Derek Guy on Twitter if you want to learn more about the rules of men’s fashion; or just go to Harry Rosen and beg Ralph Sansone or one of the other pros there to guide you. Oh, and don’t always wear brown shoes with a dark suit — your Teen friends are wrong about that. Women — I defer to Marlo Sutton (@marlofrance) and Mariangela D’Agostino (@fashion_scramble) at Holt’s.

20. More on the attire front from my former colleague Paul McKinlay, CFA: “Dress like you care. Put the effort in. Clothes that fit, neat, no more casual than your bosses for sure. The world has gone too casual and it’s starting to swing back.”

21. Paul would also recommend that you should “tinker with AI tools. Even if it’s just GPT/Gemini or maybe the deep research tools…get in the habit of using them.”

22. Paul’s next bit of advice is to “learn to be a good dinner guest or host. It matters!”

23. From Tony S.: “Make sure tasks are completed diligently and listen carefully to instructions. And there’s no need to ever respond with ‘I know.’”

24. From Christian G.: “If you didn’t get the internship, use www.hifinance.ai to practice!”

25. Next comes a package of six tips from Neil Selfe, founder of INFOR Financial, one of Canada’s leading advisory investment banks. I wouldn’t be surprised if he sent them from a small island in Greece (which means, if YOU ever want to be vacationing on a small island in Greece on your own dime, take these all to heart): “Be intellectually curious about everything. If you do not understand something, research it. Do not ask others to help explain it until you’ve done at least a base level of research yourself.” NS: “Listen way more than you talk. Be a sponge and absorb as much information as you can. Be open to everyone’s ideas. The seemingly most far-fetched ideas are often the best.”

26. NS: “Always follow the money. Find out which companies are making the most money and understand why. Also, ask yourself why certain companies are failing and understand the root causes of their failures.”

27. NS: “Find out who are the most successful people at your firm without engaging in gossip. Make sure you work with those people, emulate their best traits while at the same time being true to yourself.”

28. NS: “Keep controversial or provocative opinions to yourself. You do not have enough experience yet to be overly critical or controversial.”

29. NS: “Do not mistake intelligence for wisdom. The latter requires experience. Pattern recognition is a very valuable skill. Whether with people or businesses, look for common traits of success and emulate them. Conversely, ask what characteristics make people or businesses unsuccessful, and ensure that you avoid those characteristics.”

30. Last but not least, a contribution from Substack subscriber Joel Watson: “I would add that in the office environment, whether they are called ‘Secretaries, Assistants, Executive Assistants, or Clerks,’ be nice and learn from the people who know the place and get things done. Be humble and learn from them even if they do not have fancy MBAs or LLBs because they know the ropes and they are the gatekeepers for the bosses. If you do not see them, they definitely see you and it will be related. On the work site, there are similar folks without titles but a host of experience who can teach you things and importantly make your life easier or harder. Be humble, work hard, listen and learn.”

31. Up until now, you might never have been exposed to what I’ll call “corporate secrets.” These “secrets” can take many forms, even if they don’t seem like a big deal. By opening their door to you this summer, the company in question is invariably going to share info about their business, clients and team members. Confidentiality is expected, even if you weren’t asked to sign a document where you promise to keep everything secret.

32. As much as you’ll be excited to share your new office environment with your friends and family, keep any briefing as generic as possible. Learn to talk about the nature of your work without mentioning specifics that might give someone not associated with the company any insight that isn’t already in the public domain.

33. When you and a fellow Intern take the elevator together, or go out for lunch or drinks, be conscious of your surroundings and how private the setting truly is. That person beside you in the elevator can likely hear everything you’re saying, and will also figure out where you work based on the floor you got on at. It’s not as easy in every random situation, but that’s not the point. It wasn’t hard to determine which hospital the three Residents worked at (they got on at the Queen subway station) recently as they debriefed on their day. The subway car is very tight during rush hour, and voices carry. As much as I don’t really care which St. Mike’s Doctor runs the toughest rounds, or who “could care less” about their proteges, per se, one of the names they dropped might have been my sibling or buddy. Although they were careful to not disclose confidential patient info, it was still tacky. Texting company secrets is no different, as accidents happen. Just ask U.S. Defense Secretary Pete Hegseth.

34. If you’re ever tempted to “get rich quick” using information you’ve gained at work, understand that the consequences are brutal and ever-lasting. Don’t do it. Don’t even think about it. The easiest example to cite is “insider trading,” which refers to buying or selling securities (such as shares or options) in a publicly-traded company based on something you heard or saw or read at work; either directly or by giving tips to someone else. To risk destroying a long and successful career so that you and a close friend from high school can stay in better hotel rooms, or buy a slightly faster car — NOW, rather than a few years later — is insane. Think of all the effort that you and your family have put into getting you where you are today: you’ll blow it all up in the blink of an eye.

35. Make sure you know what the company’s policies are before buying shares in your new employer; they’ll be delighted to hear that you want to invest in their business (CIBC Investor’s Edge has free trading for university students, btw), and they’ll be equally impressed that you knew enough to ask the question in the first place.

MRM

(this post, like all blogs, is an Opinion Piece)

(photo credit: Street Photographer (A), New York, 1951 by Irving Penn)

(disclosure: I own CM:TSX)

If you want to see how this week’s Star column ends, buy a print copy, use your Apple News, or subscribe to The Star online via my special discount code: www.thestar.com/informed.

As then-Prime Minister Stephen Harper stood at a construction site in Windsor in 2015, preparing to rename the Detroit River International Crossing after the great Gordie Howe, I could tell he was chuffed. “It’s a great day when you get to pick the name for a bridge all on your own,” I said.

That moment crossed my mind as Prime Minister Mark Carney beamed during a press conference with Premier Danielle Smith to announce a putative “pipeline agreement” with Alberta. What could have been an undoubtedly distasteful moment for Carney, who believes “we are dithering towards climate disaster,” was in fact a victory.

The PM knew that he’d negotiated a shrewd deal.

While acknowledging the global demand for increased oil production, and recognizing that the political backdrop requires our PM to at least appear to be “approving” the construction of a new oil pipeline to tidewater, he also saddled Alberta’s tiny proposed pipeline with a plethora of pointless, expensive conditions.

At a recent business summit, Cenovus CEO Jon McKenzie complained that Canada was the only country of the top 10 global oil producers that still has an industrial carbon tax. “It is nothing more than a cost. It doesn’t incent us to decarbonize. It is solely a cost of doing business,” he said. To secure Carney’s signature, Alberta agreed to raise that same industrial carbon tax even further over the next few years.

It’s an increase that will cost the Canadian economy 50,000 jobs, according to the Fraser Institute.

Carney’s deal also forces the private sector to invest tens of billions into an unproven carbon capture scheme that former Liberal MP Martha Hall Findlay courageously now admits is wrong for Canada. Her rationale? The project will have “a negligible effect on global emissions.”

Nevertheless, the PM’s climate “Value(s),” as detailed in his book of the same name, are becoming the law of the land, proving that the levers of power are much more effective than a UN bully pulpit.

Sadly, we already know how this movie ends.

More than twenty years ago, Europe began to prioritize tackling climate change at the expense of its economic independence and national security. Germany outlawed the construction of new nuclear plants. France introduced a carbon tax on both consumer and industrial players. In 2021, the EU went so far as to propose a ban on internal combustion engine vehicle production beyond 2035, a move that Porsche AG resisted, recognizing that even its most loyal customers would never buy a “Turbo” sans the twin turbos.

Then, reality set in. It turned out that the “tragedy of the horizon,” as then-Bank of England boss Mark Carney warned in 2015, wasn’t a loss of “financial stability” due to the distant threat of global warming. It was the countless self-defeating policies that were exposed by a war in Ukraine, sky high energy prices and stark political shifts that forced several of our European allies to prioritize domestic economic needs over their earlier virtue.

Hit the link to read the rest of the piece

MRM

(note, this post is an Opinion Piece)

As a Conservative, few columns should be easier to write than one about privatizing public assets in an effort to improve service and reduce costs for consumers. We are all for it, as a rule.

When it comes to public infrastructure, unlike a railway or airline, the topic is more complicated. Basic economics get in the way, and hospitals and airports are but two examples of quasi-monopolistic “operating businesses” that also happen to be publicly-owned and operated infrastructure vehicles where life and death are the daily fare. One gets us safely onto an airplane, while the other gets us healthy — why is it that one should never be privatized while the other shouldn’t be publicly-owned?

For years, allies of the federal Liberals have been making the case that Ottawa should sell them our airports and “recycle” that capital into more risky projects; the pitch didn’t progress very far until Mark Carney — himself a former institutional investor — got the big chair.

It’ll be fascinating to watch this topic play out, the further we get into the details. As someone who utilized a public-private partnership model to get the pedestrian tunnel built at Billy Bishop Toronto City Airport (sans taxpayer dollars), I’m all for the concept of governments and investors working together to get new stuff done. As a consumer, one has to be on guard for any deal that looks to be “heads they win, tails we lose.” At the moment, it’s too early to know what to make of it all.

Like any other deal, that’s see what we find in the data room.

If you want to see how this week’s Star column ends, buy a print copy, use your Apple News, or subscribe to The Star online via my special discount code: www.thestar.com/informed.

At first blush, privatizing taxpayer-owned airports in places like Calgary, Edmonton and Vancouver in exchange for a “free” high-speed rail line between Quebec City and Toronto sounds like a no-brainer, despite the distasteful political optics. The Liberal government will deny the link, but the math really is that simple: realizing an estimated $90 billion from the sale of (primarily) English Canada’s key airports might just cover the aspirational cost of building a Quebec-led high-speed rail (before the guaranteed cost overruns, that is).

By opening the door to the sale of the nation’s larger airports, Prime Minister Mark Carney is responding to a compelling pitch by some of our most sophisticated institutional investors: that Canada should “recycle” our existing low-risk assets (such as airports and ports) and reinvest those proceeds in new, higher risk infrastructure. These same institutions already own key airports around the world, and advocates pose a fair question: why are we being so protective here at home?

Canada’s history with privatization lends credence to this FOMO mantra.

Air Canada, Canadair, CN Rail and Petro-Canada are just some of the 24 public assets that were privatized during the first term of the Mulroney government. Canadair was sold to Bombardier, while Petro-Canada was taken public on the Toronto Stock Exchange. Once the fat was cut at CN Rail, the Jean Chrétien government took it public in 1995, with Michael Sabia — now Clerk of the Privy Council — serving as its chief financial officer. The initial public offering has generated a 3,400-per-cent return to date.

Carney’s recent economic update teased that reforming the airport system would lower air passenger costs, and much of the discussion will hinge on just how an institutionally owned Toronto Pearson International Airport (currently managed by the federally appointed Greater Toronto Airports Authority (GTAA)) would be more efficient and better capitalized than the current not-for-profit model.

This is where the privatization pitch needs to be fleshed out. Unlike a traditional quasi-monopoly business, such as a government-owned railroad, it’s not clear how much profit can be wrung from what are already well-run airports.

At present, the GTAA (among others) already issues billions of dollars of bonds for airport improvements at a rate not much higher than Canada’s largest provincial governments. Under private ownership, those debt costs would likely rise, and there’s no evidence that airports can’t raise more than enough capital under their current structure to meet every growth scenario.

On the expense front, I’m unsure — as a former airport chairman — what fat there is to cut, given the costs of things such as security screening, runway maintenance, air traffic control, snowplowing and de-icing are all essential. The new owners would be able to dispense with the $236 million rent payment Pearson made to Ottawa in 2025, for example, but the $41 million in payments in lieu of taxes (PILTS) paid to Mississauga and Toronto helps cover water and sewage services — an expense that privatization can’t avoid.

If they’re going to spend $90 to $100 billion, these institutional investors (many of which are pension fund managers) will justifiably want to earn eight to nine per cent each year on their/your capital, which means they’ll need to grow revenue faster than expenses. There’s the rub.

Whichever airport is analyzed, the income statement is the same: revenue comes from fees paid by airlines, cargo firms, passengers, and tenants, such as restaurants and shops. If traveller demand is there, new runways and additional gates would certainly help grow revenue faster, but that requires additional capital investment. There are no freebies in this business.

That leaves few other options, beyond increasing existing landing fees and gate charges (which either increases the cost of your ticket or reduces the earnings of the airline in question). Upping the rent paid by Tim Hortons and Starbucks leads to higher prices for your cup of coffee.

There’s also the airport improvement fee, which in Pearson’s case is $40 per departing passenger (plus tax). Travellers paid $715 million in such fees last year, more than double the $314 million that was spent on construction and new equipment. That may represent an opportunity to cut costs, but should those excess funds be returned to travellers or the new owner?

If you ask WestJet CEO Alexis von Hoensbroech, he’ll tell you that between gate and landing fees, Canada is already “far, far, far more expensive than any other country.” As every Torontonian who has jetted-off to New York for a weekend on a points ticket knows, you pay $123 in fees to leave Canada, and $44 to come home — despite the fact that LaGuardia has elevated security risks and a state-of-the-art new terminal.

Airport investors will need to be clear how they will trim costs, improve service, maintain safety and grow revenue without doing so on the backs of the travelling public.

For NDP Leader Avi Lewis, this issue could be a generational gift.

Hit the link to read the rest of the piece

MRM

(note, this post is an Opinion Piece)

One of the great fortunes in life has been the luxury of truly benefitting from the political mentorship of Sen. Norman Atkins, Dalton Camp OC, the Hon. Mary Collins, Father Sean O’Sullivan CM and the Hon. HCapt(N) Ret’d Dr. Hugh Segal OC OOnt CD, among others. Their pride as leaders within the traditional brokerage politics-version of the Progressive Conservative Party of Canada always meant that the Reform-types assumed I was a Red Tory.

The label never fit, as someone who is a fan of the free market, small government, pro-choice, pro-defence, anti-capital punishment, pro-free speech, pro-self defence, tough on crime, tougher on immigration mayhem, and wants to freeze/preserve the Canadian values I grew up with in the Bloor West Village circa 1985. The lion’s share of which isn’t traditional Red Tory territory.

Most of those mentors aren’t alive today, and if they were, I know that they may not comprehend why I continue to cut our current party leader some slack. Perhaps it’s the analyst in me, but the math is clear, as I wrote prior to the last general election (see prior post “The Conservatives have a plan. But the Liberals have something you can’t plan for....” Apr. 1-25):

Not that Conservatives deserve to lose. It’s just that — for one reason or another — the Liberals have won 15 of the past 24 federal elections (post-Second World War). And, of the nine elections we did win, we were able to pull off a majority on just four occasions. Had Lucien Bouchard launched the Bloc Québécois in 1987 rather than 1991, we might not have won that pivotal majority in 1988 either. No “Orange Wave” in 2011, no CPC majority.

When Pierre Poilievre threw-over my friend Erin O’Toole and was elected leader in 2022, my reaction can be summed up as: “Alright, nothing else has been working; let’s see how the Red Meat guys do.” This is that experimental window, and I’ve yet to see sufficient evidence that the experiment has run its course .

Had the would-be assassin in Butler, PA turned the dial on his scope one more notch, Mr. Poilievre is PM today. Had Democratic candidate Kamala Harris not blown a four-point lead and a US$1.5B war chest, Mr. Poilievre is PM today. Had Chrystia Freeland not quit cabinet and pushed out Justin Trudeau (see prior post “Freeland as “The Fall Gal” Dec. 15-24), Mr. Poilievre is PM today.

That doesn’t mean that I agree with all of the daily fare coming out of the OLO; far from it. Nor does it mean that this version of the Conservative Party can be successful in this particular political climate, with this particular Leader. But we can’t deny that the party was leading in all of the necessary parts of the country not that long ago.

Have things changed since 2024? For sure. Is PM Mark Carney riding on a high right now, billed by the MSM as one of the greatest at the craft in recent memory? Absolutely, just as Justin Trudeau was in the fall of 2016.

Does this new dynamic guarantee that Mr. Poilievre is Dead Man Walking? Maybe, but maybe not. Convince me.

If you want to see how this week’s Star column ends, buy a print copy, use your Apple News, or subscribe to The Star online via my special discount code: www.thestar.com/informed.

The grandpas underpinning the “Elbows Up” movement have washed their hands of Conservative Leader Pierre Poilievre for the moment, but it’s their grandchildren who may ultimately decide his political future — and that of his party.

The Conservatives’ weak byelection performance was billed as a defeat, but that was the best possible outcome for Poilievre, at least personally. Dodging a second defeat in a general election denied Poilievre’s increasingly noisy Tory detractors a legitimate reason to bring the knives out despite the absence of a saviour waiting in the wings. Even if they had their golden child lined up, these non-believers must know future Liberal victories are all but guaranteed so long as the NDP wallows in the single digits.

Given Prime Minister Mark Carney’s new majority standing, engineered though it may be, Poilievre has a luxurious three-year window in which to convince voters he’s got both the gravitas the electorate seems to yearn for and the flavour of politics they dearly need.

Former Progressive Conservative leader Robert Stanfield took three kicks at the electoral can before throwing in the towel, but at least he could count on the support of Ontario’s then-premier, Bill Davis, himself a Tory. The current political reality is that Premier Doug Ford is more likely to side with Carney than with Poilievre: earlier this month, Ford referred to the PM as a “good man” and a “sharp guy.”

This unpalatable dynamic plays into the Liberals’ hands, and while Poilievre should redouble his efforts to fix the schism between them, it’s no reason to throw him overboard.

The federal Tory caucus seems to be holding together in the wake of four recent defections, and individual Conservative MPs are being showcased more now than they have been at any time in Poilievre’s term — a signal, I hope, that some of the “lessons” of the 2025 campaign have been duly learned.

The received wisdom among most national media pundits is that Poilievre can never win, but of that I’m far less certain. They see Carney’s net favourability rating at a whopping +22 (according to Abacus), and yet a plurality of us say Canada is “on the wrong track.” Will voters give Carney a pass in three years’ time if the country isn’t back on the rails?

When he pitched his new “sovereign wealth fund” on Monday, the PM referred to a “very broad range of things that Canadians are doing to grow Canada Strong that involve entirely new ports in the Arctic, a host of critical minerals, data infrastructure.” Despite a year under his belt, nothing on that list represents a shovel-ready project that’ll create meaningful Canadian jobs prior to the next election.

Pipe dreams won’t diversify our economy.

What’s more, Carney’s announcement confirms Poilievre’s claim that this version of the Liberals is no different from the last: Justin Trudeau launched his own infrastructure bank in 2017, “tasked with financially supporting revenue-generating infrastructure projects (and) … catalyzing private investment.” To date, Carney hasn’t articulated what pressing national problem his “new” vehicle will solve.

Hit the link to read the rest of the piece

MRM

(note, this post is an Opinion Piece)

Deep sector expertise is separating winners from losers as artificial intelligence creates disruption across the software industry. (Mar. 17/26 via CNBC)

And while that supports the thesis of my own new fund plans (see prior post “Private Credit gets sideswiped by the “SaaS-Pocalypse” Feb 26-26), it’s interesting that Mr. Bravo draws a line between private equity-owned companies and publicly-traded software firms. In his mind, listed firms “face accelerating disruption, [and that] recent valuation declines in some names are ‘very warranted.’”

In the public markets, if you look at it, there are many, many software companies in the public markets that will be disrupted from AI. Those companies were going to be disrupted anyway. AI will create a disruption a lot faster.

As one of the world’s largest and longest-serving private investors in the enterprise software space, Thoma Bravo has successfully navigated many an earlier storm. He and his colleagues have earned the benefit of the doubt.

That’s relevant when, just two days earlier, The Wall Street Journal reported that Apollo’s (APO:NYSE) John Zito (co-President of the firm’s asset-management arm) recently told investors that when it comes to the carrying values of the private equity community’s software deals, “I literally think all the marks are wrong.” For a firm that takes pride in its very modest exposure (sub 2% of AUM) to the sector, it’s fair to wonder how he can be quite so definitive. Mr. Zito specifically cited well-known problems at Medallia, a US$6.4B go-private equity Customer Insights deal that Thoma Bravo closed in 2021: “it will be worse than people expect.”

In keeping with the theme, Mr. Zito was even more negative about private-credit loans “to a generic small or midsize ‘Joe Software Company.’”

Joe Software Company, if he’s in the wrong place, I think is going to recover somewhere between 20 and 40 cents

As anyone with experience in software lending would attest, Mr. Zito isn’t off-side on the last point. Put capital into the wrong small-to-midsize firm and you might well recover only 40% of your loan; that was also true in 2010, long before the pretenders got into the space. Not every growth story works out.

However, to get yourself into a situation where you might lose 80% of your capital, you’ve got to have truly mishandled a sub-$1B EV portfolio co. post-closing — at least historically. The true impact of AI is still playing out, and it’s impossible to assess just how exposed you might be without reviewing your underlying portfolio.

While the horizon has always been at least somewhat cloudy in the credit space —you’re always at risk of a Recession, for example — concerns about a “lack of transparency” in the private credit space are curious considering the SEC has tabled a proposal to eliminate the requirement to report earnings quarterly for public companies. How can investors track the impact of AI on SaaS companies if they only get to analyze revenue and gross margin trends every six months?

What is certainly clear, though, is that if you lent 3x revenue against a break-even or cash flow negative business that was never worth more than 5x or 6x — except during the 2021-22 bubble — your issue isn’t the risk of AI, per se. It’s that you got over your skis, and the coming pain may well be exacerbated if you didn’t have a performance covenant.

As for the troubles at Medallia, which qualifies as a far larger deal, Mr. Bravo isn’t shy about sharing details:

When we bought it, we way overestimated or extrapolated the very high rate of growth of that company into the future. We made a mistake. And that cost us to pay too much. Now, the equity from our standpoint has been impaired for a long time. Our investors, this group that holds the capital in the world, has known that for years. So there is no new news.

The other 77 companies that we have, for the most part — and it’s so relevant for AI — they’re absolutely crushing it. (Mar. 17/26 via CNBC)

If 77/78 of his names are in great shape, then there should be no scenario where the lenders to his portfolio companies take a licking; at least not in the foreseeable future. If the SaaS-Pocalypse is going to hit somewhere, Thoma Bravo won’t be the poster child.

That said, the daily media reports have understandably convinced investors that the Private Credit sector is going to take a serious pasting over the next 36 months.

In February, UBS analysts believed that “private credit defaults are currently between 3% and 5% and that signs of strain such as interest paid-in-kind (PIK) are nearing post-pandemic highs.” That’s nothing to be alarmed about, per se, except that UBS Strategists also predict that default rates could surge “as high as 15%, two percentage points more than the firm forecast less than a month ago, if artificial intelligence triggers an ‘aggressive’ disruption among corporate borrowers. What is new: a clearer catalyst — rapid, severe AI disruption.”

I’m not sure how AI’s threat to the world’s software firms became more obvious over that four week period, and Ares Management Corp.'s CEO Mike Arougheti was quick to dismiss the call as "absolutely wrong."

Morgan Stanley forecasts default rates of “8% as advances in artificial intelligence continue to disrupt the software industry.” Default rates aren’t the same thing as losses, of course, but that figure may not be comforting with so many loose covenant deals on the books. A “tight deal” going offside is less dangerous, all things being equal, than one that was unjustifiably loose from the outset.

As I warned earlier this month, “structure, not software loans, is the real LP risk.”

In that context, “structure” refers to how the the lender itself is set-up. Your assets and liabilities have to match, or else you ultimately run the risk that brought down Silicon Valley Bank three short years ago (see prior post “In a matter of hours, decades of brilliance is undone at SVB” Mar. 10-23). It takes longer when liquid deposits aren’t involved, but the end result might not be any different.

For the private credit vehicles that promised their investors that they could provide regular liquidity in the event they wanted to withdraw some or all of their capital at a later date, these negative headlines are having a predictable impact. We saw the same dynamic take hold in the real estate space beginning in 2022, with firms such as Canada’s Romspen Mortgage Investment Fund, for example:

One of Canada’s largest private debt managers, is restricting redemptions from its flagship real estate fund, as the North American mortgage market adjusts to a prolonged period of rising interest rates.

Relative to the software debt world, the private real estate lending sector is both larger and arguably more important to that corner of the economy. Without a doubt, the lesson of that earlier excitement is that it’s tough for debt funds to raise new capital — institutional or retail — when negativity is swirling around their asset class.

For Blackstone’s (BX:NYSE) Jon Gray, if UBS is right, his firm’s credit portfolio’s are at risk of losing three hundred basis points of annual return over the next few years. I suspect that downside scenario would still generate a net return to LPs in excess of the risk free rate, but if you run a pension plan or similar large pool of institutional capital, you have every reason to be galvanized by the daily cut-and-thrust.

Despite the threat that AI supposedly represents to lenders near and far, JPMorgan (JPM:NYSE) continues its push “to become the startup world’s new Silicon Valley Bank:

JPMorgan has now quadrupled the number of total clients it has in the business to nearly 12,000, served by 550 bankers on both coasts, according to the lender, all of whom draw resources from different parts of the company. (CNBC Mar. 13-26)

That’s all happening even as JPMorgan Chase & Co. CEO Jamie Dimon “[doubles down] on his previous warnings of credit market ‘cockroaches,’ lambasting the ‘dumb things’ some lenders are doing and highlighting the similarities to the run-up to the financial crisis.”

For those who can stand back and take it all in objectively, some LPs tell me they’re starting to appreciate that their risk might not be their exposure to a portfolio of innovation economy loans, but how their credit fund GPs generate returns; as with the Romspen experience, hard assets aren’t some Pollyanna.

If you’ve got a few billion already committed to the private credit space and would like to figure out if your colleagues need to spend a day doing individual portfolio reviews at XYZ Fund, I’d ask these pesky questions (in no particular order):

1. What percentage of portfolio loans had one or more performance covenants at the time they were booked?

2. What percentage of the portfolio has had one or more covenants amended since the first loan tranche was advanced?

3. What percentage of the portfolio has raised new equity capital since the first loan tranche was advanced? Valuation higher or lower?

4. What percentage of portfolio companies pay at least some portion of their interest income in the form of payment-in-kind (PIK interest), and how does that compare to each of the last three fiscal years?

5. What percentage of portfolio companies have increased the proportion of interest income paid as PIK interest over the last three fiscal years?

6. What percentage of portfolio companies have required a formal covenant waiver or other loan amendment in each of the last three fiscal years?

7. What percentage of portfolio companies have required some form of “blend and extend” loan amendment in conjunction with attracting new equity to the company over the last three fiscal years?

8. What percentage of portfolio companies have been (during the last 24 months), or are currently involved, in an active sale process where an Agent was engaged to sell the business? How many have been underway for at least six months? What proportion of the portfolio is under LOI with a prospect of closing the same transaction within the next 120 days?

9. Where does your loan capital rank in the capital structure, taking into account FOLO situations, shared collateral, and/or “Dollar One?”

10. What percentage of loans are backed by the equity of a business, rather than perfected first-raking security against the company’s actual assets (cash, IP, fixed assets, real estate, etc.).

No individual question implies that your Private Credit GP has done “dumb things,” to quote Mr. Dimon, merely by utilizing one or more of the above tools. There are often prudent reasons to bob-and-weave when you’re dealing with one or more loan workouts (that’s how Wellington Financial LP was able to make money in both 2008 and 2009, despite the Global Financial Crisis).

Institutional LPs just need to be sure that their GPs didn’t take equity risk at debt pricing.

MRM

(notes: this post, like all blogs, is an Opinion Piece; for the new readers, CIBC acquired my former firm Wellington Financial LP in 2018)

(disclosure: I’m not licenced to give financial advice, and this post is not an offering to sell securities)

(photo credit: Deep Sea Diver (A) New York, 1951 by Irving Penn)

Truth!

Despite what some might think, I really don’t have a dog in the brewing battle over Premier Doug Ford’s plan to bring jet service to Billy Bishop Toronto City Airport “one way or another.” I want the airport to continue to thrive, but the jet issue is a complicated one. The list of people who truly appreciate what I mean by that is short. Fun and productive as that exciting eight year period was, it’s no longer my fiduciary responsibility (see representative prior post “Public Service can be truly rewarding” Aug. 23-15).

That said, given all of the early misinformation, the issue deserves a hearing.

As a starting point, The Star’s recent coverage (via Alyshah Hasham and Robert Benzie) will do the trick. (I appreciate the paper’s deference to the airport’s actual name, even if the Premier goes back and forth. There was a time {circa 2013} when The Star would generally refer to it as the “Island Airport,” despite the fact that i) both the Publisher and the Ed Board were supporters of its existence (as evidenced by the Editorial published June 8/09, for example), ii) it wasn’t built on the Toronto Islands, iii) to make it sound as though the airport operates within a park, CAIR haters and their ilk always resort to the “Island Airport” moniker, and iv) one of Canada’s first war heroes, “Billy Bishop” was awarded the Victoria Cross for his exploits during the First World War & credited with 72 victories, making him Canada’s top ace.):

Premier Doug Ford said Monday the federal government is on board and jets are coming to Billy Bishop airport “one way or another.”

“We’re going to move forward with the Island airport with co-operation with the federal government,” Ford said during a hospital groundbreaking in New Tecumseth, northwest of Toronto, adding that Ottawa is “endorsing the plan.”

“I know Mayor Chow wants to expand it. She may disagree with the jets, but those jets are coming in there, one way or another.” (Star, Mar 10/26)

If “the federal government is on board,” that’d be a marked departure from an earlier political era, when then-MP and devious BBTCA foe Adam Vaughan got Justin Trudeau to “sign off on [Vaughan’s GTA Caucus 2015 election] platform that included no island airport expansion.” Now that Mr. Vaughan is in the employ of Ontario Place developer Therme (his Toronto City Council & MP pensions aren’t as rich as you might think, I guess), I expect him to sit this battle out — publicly, anyway; pissing-off the Premier would be a CLM.

As for Mayor Chow wanting to “expand” BBTCA, this is even more shocking than my old friend Mr. Vaughan’s ability to mind his Ps and Qs.

I have a distinct recollection of Olivia Chow vowing to close the airport when she was a NDP MP. As I reminded Toronto Star readers in a column 18 months ago, once that ploy failed and Porter Airlines launched at BBTCA in 2006, Ms. Chow called on her Parliamentary colleagues and federal bureaucrats to “boycott” Porter — despite the fact that the airline’s mere existence had lowered airfares for consumers.

In October 2024, with major runway rehab capex on the table and only nine years left on the airport’s 50-year mandate, BBTCA asked Ottawa and City Hall for an extension to its prop-only lease. City Hall staff have never been fans of BBTCA, and with Mayor Chow as their newish boss, it was a forgone conclusion that they’d recommend against extending the airport’s life beyond 2033.

As the lease extension debate raged at City Hall in late 2024, Star columnist Edward Keenan took the opportunity to roll out some old chestnuts, showing sympathy for the airport haters “who feel that prime downtown space on the water, on public land, should be available for public use.” In my mind, an airport serving two million passengers a year, plus thousands of live-saving Medevac flights annually, is the definition of communal use. He went on: “We need to have that talk about Billy Bishop airport” and reflect on whether it should exist “25 or 50 years from now.”

As one of many proof points of the benefit of having some diversity of thought at a national newspaper, I wrote my own Star column in response (see prior post “Why are we still debating Billy Bishop’s future? All roads lead to City Hall” Oct. 5-24). The upshot: “The last time the airport’s future was a hot topic, 90 per cent of Torontonians thought that Billy Bishop Toronto City Airport was an ‘asset’ to our city. With that level of support, you might ask yourself why we are wasting even 60 seconds debating whether or not the airport should be allowed to operate beyond 2033.”

Perhaps the Feds have seen similar polling:

Federal Minister of Transport Steven MacKinnon was more circumspect than Ford at a separate Monday morning appearance to mark the opening of a U.S. preclearance facility at Billy Bishop airport, but nonetheless suggested it’s time for a change.

In response to questions about whether the federal government is now in support of jets at the downtown airport, he said: “We support modernizing the arrangements at this airport.”

Ottawa wants to “sit down and look at a way forward” that takes into account technological advancements, safety requirements and the economic need in a city that has seen significant growth since the tripartite agreement that prohibited airport expansion was signed in the 1980s, he said. (Star, Mar 10/26)

Now, Minister MacKinnon’s statement can be taken a variety of ways. As he was present for an announcement about the much-delayed opening (so much so that we were working on this prior to my departure as Toronto Port Authority Chair in 2015 to focus on the Windsor-Detroit bridge project) of the BBTCA U.S. pre-clearance customs facility, it would be natural for the Minister to “support modernizing the arrangements at this airport.”

Does that mean the federal Liberal Cabinet would agree to amend the recently-extended 50-year Tripartite Agreement governing BBTCA’s operation — the one that prohibits non-Medevac jets? (A little known fact is that in any given year there might be ~100 Medevac jet movements at BBTCA.)

I didn’t read anything quite so bold as that. But Ottawa seems prepared to let Premier Ford push the football down the field for a bit, if you take these two backbench MPs as being representative of the Liberal GTA caucus:

James Maloney, Liberal MP for Etobicoke-Lakeshore, said all levels of government need to ensure “this asset is used to its full extent,” noting the airport is used for medical emergency landings from Northern Ontario, for quick access to downtown Toronto hospitals.

“People need to stop talking about jets, people need to start talking about the importance of the airport, the safety, commercial and health perspective,” Maloney said in an interview on Monday.

“It isn’t about jets, it’s about noise. We’re going to make sure that this place operates at a noise level which is acceptable to the community, including my very own community,” said Maloney, adding that there are much quieter planes available now than in previous decades.

”The conversation of 10 years ago has changed” said Julie Dzerowicz, Liberal MP for Davenport, in an interview, adding that she sees a balance that can be struck between increased business interest in airport expansion and the community and environmental concerns.

Other Toronto Liberal MPs provided statements that included stressing the importance of hearing from the community. (Toronto Star, Mar. 10/26)

That last sentence shouldn’t be ignored. Once this generation of NOJETSTO organizers get rolling, they might stir up some trouble for rookie downtown Liberal MPs trying to keep their traditionally NDP seat.

What you might want to turn a blind eye to, however, are the onslaught of newspaper Op-eds that are bound to flow over the coming months. The ratio of airport foe vs. fan will be 7-1, I expect, and there’s no point in playing whack-a-mole with them all. You can rest assured that most will make the same stale, and often specious, arguments that we’ve seen and heard over the past 20+ years.

Take last week’s piece by Christopher Holcroft in The Star, for example: On Billy Bishop, Doug Ford doesn’t hold all the cards.

A consultant who works with groups such as Canada Without Poverty, the Canadian Association of Refugee Lawyers, and Doctors for Fair Taxation, Mr. Holcroft’s firm’s advocacy credentials will sound familiar: “Empower has contributed to important progress on major public policy issues - from refugee health care to environmental protection, fair taxation to food allergen labelling, gun control to vaccine equity.”

Although infrastructure and transportation aren’t obvious specialties, Mr. Holcroft is correct to point out that Prime Minister Mark Carney and his Toronto-area MPs have “the opportunity to step up and intervene.” While Ontario can expropriate the small subset of the runway property that belongs to the City of Toronto, I’m unaware of legislation that lets a Province unilaterally grab Federal land. Nor can it “take over” the airport itself, as some headlines imply.

The TPA is a Federal Business Enterprise which owns and operates the airport, along with Toronto’s Port. Ottawa also appoints a majority of Board members, meaning the Liberal government could ultimately put a stop to any major future use changes if it wanted to.

I am grateful that Mr. Holcroft’s only specific argument against Premier Ford’s plan was the "environmental” one:

The case against expansion is clear. A 2013 report from Toronto’s medical officer of health warned that residents on the central waterfront were already being “exposed to health risks from airport-related air pollution” and that introducing jets would raise their “risk of premature death, and cardiovascular and respiratory health outcomes.” The report also addressed threats to water quality, traffic safety, noise and climate change. (Toronto Star, Mar. 13/26)

The truth is, arms-length environmental studies conducted for the TPA in the 2008-2014 era showed that the Gardiner Expressway was the primary source of air pollution for waterfront residents. As BBTCA air traffic has been consistent over the past 15 years, and area vehicle traffic has invariably increased during that period, the findings wouldn’t be different today; in fact, electrification of the airport ferry in 2021 led to a “measurable reduction in the concentrations of some BBTCA-generated air pollutants,” according to one study.

That didn’t stop someone from pitching the Toronto Star newsroom on a weekend news-analysis piece that cited a 2019 study by Greg Evans, a chemical engineering professor at U of T. He and a team of researchers were hired by the Bathurst Quay Neighbourhood Association, a long-standing airport foe; a potential conflict of interest that journalists shouldn’t ignore.

I’m not sure how newsworthy it is that Prof. Evans found that “the airport was a source of air pollutants [and] the current turboprop planes that run out of island airport emit ultrafine particles that have wide-ranging health effects.” Seems like a waste of money to hire consultants to write a report outlining that an airport generates pollution, but I give the haters full marks for never letting up.

Likewise, I give The Star credit for making it clear that these same ultrafine particles are “also produced by road vehicles.” That’s an important admission, as the Bathurst Quay neighbourhood is adjacent to a portion of the Gardiner Expressway that is used by over 50 million vehicles each year. Plus Lake Shore Blvd, etc.

What was unfortunate, however, was that The Star’s Transportation Reporter, Andy Takagi, made no mention that the first key finding of Dr. Evans’ report was that “on average, the concentrations of the air pollutants measured in Bathurst Quay are similar to other urban locations in Toronto.”

Oh well.

As for noise, BBTCA is already closed to non-Medevac use from 11:00pm to 6:45am every evening — unlike Pearson Airport, which has ~100 overnight commercial arrivals and departures while the good folks of Brampton and Mississauga are trying to get some shuteye.

During the daytime, independent studies conducted for the TPA at six different waterfront locations found that the noise spikes from motorcycles, the horn from the City of Toronto Ward’s Island ferry, traffic helicopters, and even the odd car and heavy truck were as high or higher than a commercial Q400 operating at peak at BBTCA.

Mr. Holcroft also made the traditional case that residential growth around the waterfront is a reason to prevent the airport’s further expansion:

Many new parks, homes, cultural spaces and transit hubs have recently been built or are currently under construction at the lakeshore, bringing real economic and social benefits to the city. (Toronto Star, Mar. 13/26)

That angle harkens back to May 2002, when the late Allan Sparrow (the former head of the anti-airport lobby group Community Air) told the Toronto Star that Porter’s launch would cause property values to plummet as much as 25%, and jeopardize some $20 billion in waterfront redevelopment.

But what actually happened, just as BBTCA grew from 25,000 to 2 million commercial passengers a year?

Redevelopment went ahead just the same, and waterfront condo values rose more than 70% between 2003 and 2013, mirroring the rise in average home prices across Toronto. In fact, condos prices in the C1 market rose 10% more than C8, even though C1 is closer to the airport.

Polling is all well and good, but money talks. Over a ten years period, home buyers paid extra to be closer to a growing airport — further evidence of BBTCA’s positive impact on Toronto’s waterfront.

As one might expect, Mr. Holcroft also claims that “Billy Bishop’s convenience advantage was negated back in 2015 with the advent of the Union-Pearson Express train.” When then-Minister Glen Murray began construction on the Pearson airport train in 2013, no one could be sure what the introduction of UPX might mean for BBTCA traffic patterns. Covid-19’s dramatic impact on air travel makes any analysis more difficult, along with remote work and the increase in virtual business meetings.

Consider this:

• BBTCA’s passenger traffic has moved around a bit, pre- and post- the introduction of UPX, but has stayed within the range of two million passengers each year. If the UPX has “negated” the airport’s convenience, someone should tell the fliers. And those pax traffic figures pre-date the introduction of U.S. pre-clearance, which opens up several new route opportunities for a slot-controlled airport like BBTCA (LGA versus Sudbury, for example).

• Moreover, in 2009 for example, almost a million Canadians made the trek to Buffalo to catch a flight. A figure that represented more outbound departures than Billy Bishop handled that year. The patterns were such that Buffalo-Niagara International Airport spent $8 million to expand their parking lots; Canadian vehicles represented 47% of the airport’s long term parkers that year, up from 8% in 2002.

• In 2024, nearly one million Canadians continued to use that same foreign airport, whether for convenience to their home, cheaper airfares (U.S. departure fees and taxes are much lower) or destination preferences.

As busy as Pearson Airport is, GTHA air travelers clearly want other options.

In a speech before the Toronto Region Board of Trade on October 21, 2013, I laid out a series of tests that the original “Porter [Jet] Proposal” would have to meet to gain support from the TPA’s Board of Directors, provided that it was first approved by the elected representatives on Toronto City Council. Our tests were broad, and I’ll leave it to the current TPA team to develop their own list of considerations:

1. Maintaining the 1983 Noise Restrictions

2. Better Slot Utilization - not Necessarily More Flights

3. No Negative Impact On The Environment

4. Livability For Our Neighbours

5. Improving Vehicle Traffic Flows

6. The Business Case

7. Growing Toronto’s Economy.

As the City was a signatory to the Tripartite Agreement covering the airport’s operations, it made no sense to invest our user’s capital in various expensive studies if the idea was ultimately DOA at City Council. Now that Premier Ford has said he’ll step into the City’s shoes, it falls to the TPA and Ottawa to analyze all of the elements that go into the proposed project. Starting with the business case, which should never be far from anyone’s mind (see representative prior posts “When it comes to “key” infrastructure projects, should price matter?” Feb. 21-25 and “High Speed Rail launch is the triumph of Hope over Experience” Dec. 20-25).

To continue the TPA’s long and sincere tradition of being a “good neighbour,” any jet proposal must ensure that the area surrounding Billy Bishop is no less livable than any other multi-purpose neighbourhood in Toronto. In my mind, that’s always meant “Do No Harm.”

My advice for the airport’s perennial opponents is simple: stale arguments won’t defeat Premier Ford’s dreams for Billy Bishop. Voters are too concerned about the cost-of-living, housing prices, safety and the state of the Canadian economy to be galvanized by your desire to close an airport that’s been in operation since 1939.

That doesn’t mean that the Far Left won’t try to make this the key issue in the coming Mayoral race. Debating a bridge to BBTCA served to get David Miller elected in 2003, even if he ultimately failed in his push to shut the airport for good. That we ultimately got the pedestrian tunnel built after an 80-year wait, without a single dollar from taxpayers, speaks to the airport’s resilience.

Buckle-up for the coming turbulence.

MRM

(this post, like all blogs, is a personal Opinion Piece and has not been reviewed or approved by any other party)

You might be a sub-par money manager (see representative prior posts “O’Leary Funds appear to shed another 20% of assets in 2012” Jan. 27-13 and “America discovers the mirage that is Kevin O’Leary’s investment prowess” Apr. 2-23), but if you had a zeal for sales, you could still spin a convincing story about your superlative investment prowess. Some journalists don’t seem to have time to check IRRs, and the one requirement is that you must constantly pound the table about your talents — whether that be on BNN, CNBC (see prior post “Did CNBC finally cut formal ties with Kevin O’Leary?” Nov. 20-24), Fox, the Toronto Sun or Dragon’s Den.

Oh, and don’t forget to feed online “news” platforms in places like Cyprus and India with juicy click-bait quotes to keep up your SEO rankings (while suppressing less flattering material from pesky Bloggers).

If you’re relentless, you can even convince The Globe & Mail to run a rehab piece under the heading “How Kevin O’Leary went from reality-TV supervillain to Oscars darling,” despite the fact that you didn’t actually receive an Oscar nomination. The same Globe and Mail that it once ran a highly critical magazine cover story about you titled “He’s not a Billionaire, he just plays one on TV.” Incroyable!

KO’s focus on marketing came to mind when one of my morning newspapers reported that Canada’s Business Development Bank of Canada (BDC) launched a $4 billion “platform” last December “as a way to help small-to-medium-sized Canadian businesses participate in major defence procurements and to support startups working on technologies with military and civilian applications.” Given the focus on bolstering our military capabilities, it was a timely announcement, even if the federal procurement system remains seriously challenged (see prior post “Hitting NATO’s 2% target a pipe dream without addressing Ottawa’s faux procurement machine” Mar. 26-24).

Over the past few months, the BDC team has advanced $91.7 million to 16 different small companies, which works out to an average loan size of $5.7M per name. You don’t have to be good at math to know that after the distribution of those modest cheques, BDC still has more than $3.9B of its initial $4B to deploy.

If the new team kept up this pace and shovelled ~$100M out the door every three months, the original $4B commitment will last a full decade.

Nonetheless, BDC has rushed to the MSM with the news that it has reserved an additional $2B for the ecosystem. Taken together, BDC wants us to think it’ll deploy $6 billion into a nascent sector, plus whatever private investors might sign-up for, in the near term. That $6 billion is a huge figure when you consider BDC’s entire gross loan portfolio amounts to just $42.4 billion, and the investment book runs a mere $6 billion in aggregate — and that’s after several decades of indirect/direct VC investing.

I get that Canada’s domestic defence industry deserves more support, and that OSFI has finally made it easier for regulated banks to support the sector, whether it be something as simple as opening bank accounts or fulfilling new working capital needs. These are important, overdue steps.

But the idea that after four short months BDC has already identified enough deal flow to launch an additional $2B of SME defence funding is laughable. As with Ottawa’s promise to make Canada a conventional energy superpower (see prior post “Canada must build—or risk being left behind” Oct. 2-25), hollow press releases won’t get Canada out of the ditch.

BDC would do well to either go public and add some competition to Canada’s banking sector (see prior post “Take the Business Development Bank of Canada public” Jan. 21-25), or focus on truly solving the problems surfaced by a recent study by David Stein and Gideon Hayden from Leaders Fund (see prior post “Where have all the Canadian startups gone?” Oct. 22/25):

1. Since 2020, Canada has been contributing fewer of the world’s high-potential startups.

2. Founders are increasingly starting their companies abroad.

So, yes, supporting local defence sector Start-ups will help. But the problems are so much bigger than that, and if there’s $6B of new capital to deploy...there are plenty of entrepreneurs clamouring for growth capital (see prior post “Only entrepreneurs can get Canada out of its economic funk” Jan 8- 25).

Whether BDC should lead or follow is a question of our time, but what’s not in doubt is that they should stop pretending to be saving XYZ ecosystem via vacuous media pitches. It took time, but Mr. O’Leary eventually came to admit that he was better at marketing than money management.

BDC might want to look for a different role model.

MRM

(note: this post, like all blogs, is an Opinion Piece)

As ever-more private credit funds put up their gates, and the shares of global asset managers drop upwards of 50% from their highs, I’ve been trying to figure out if we are retracing the steps tread by the debt market of 2007.

As some of you may recall, there were plenty of signs back then that serious trouble was brewing — provided you were paying attention. It’s crystal clear with the benefit of hindsight, which we get to apply this time around! The representative list of some of my blog headlines from that year demonstrates just how many datapoints presented themselves prior to the eventual Global Financial Crisis of 2008:

Mar. 14/07: US mortgage liquidity crisis at hand

Mar. 18/07: More subprime fallout at HSBC

April 12/07: Moodys worried about slide in lending standards

June 29/07: News flash!: Dead Tree Media unearths connection between subprime and corporate debt

July 29/07: “Panic” sets in to the debt markets

Aug 13/07: Buckle up – the wheels have come off

Aug. 18/07: Has the run started at Countrywide?

Nov. 15/07: Barclays denies subprime writeoff is coming, then takes it anyway

Subprime definitely wound up to be the bomb that blew the global market’s head off, and, yes, Countrywide was eventually acquired for two bits back in July 2008. And although we had a plethora of signs last time, the litany of recent media headlines regarding “concerns” about private credit loan books don’t yet seem to mirror anything along the lines of the list above.

That said, the momentum isn’t your friend, and there’s a proverbial “run on the bank” currently underway. Investors see an article reporting that others are requesting redemptions from various private credit funds, so they figure they should ask for their money back, too. No one wants to be left when the music stops and the last chair is pulled away.

It starts slowly, as is always the case at first. For those of you who manage private credit funds, you know what I’m talking about: investors seems to be of a mind to “shoot first” and ask questions later. According to Bloomberg, the pressure is mounting from the very people who didn’t take kindly to the fact that private credit was siphoning-off some of their best loan clients:

Wall Street lenders like JPMorgan act as banks to private credit funds, providing them with cash using their loans as collateral. A reduction in the value of those assets will curtail the amount the bank is able to lend to these funds, heaping further pressure on an industry already grappling with a succession of hefty withdrawals from retail investors, spooked by renewed scrutiny of underwriting standards and developments in AI.

What this means is that JPM’s credit dept. reserved the right to cut the carrying values of private credit loans, even if they’re showing none of the traditional impairment signs. If XYZ private credit fund borrowed against a pool of loans that JPM has now unilaterally marked down, the fund may need to return some of that capital to cover what is, essentially, a margin call by its bank.

This has always been a risk for any private credit fund that utilized a bank warehouse line. We saw it play out in 2008, when certain large banks cancelled 80-100% of the availability on the warehouse lines of several U.S.-based private debt funds. Unless these debt funds had sufficient cash on hand, they had to declare “MACs” on their own individual borrowers, forcing those clients to repay their underlying loans so that the private credit lender could in turn repay the provider (invariably a very large bank) of their warehouse line. Whether you’re either a borrower or Limited Partner of a private credit fund, today’s news from JP Morgan can’t be ignored.

Ironically, it’s an October quote from JPM’s CEO that’s serving to justify much of the market’s angst, even if that quote is being misrepresented in some media channels. Here’s what he said (via Fortune):

But JPMorgan CEO Jamie Dimon also warned that if or when an economic downturn comes, investors should expect more companies that have taken on too much debt go the way of First Brands.

“My antenna goes up when things like that happen,” the Wall Street veteran said. “And I probably shouldn’t say this, but when you see one cockroach, there are probably more. And so we should—everyone should be forewarned on this one.”

Today’s Bloomberg News piece on the FT report has turned Mr. Dimon’s warning about more corporate bankruptcies to come into a pox on the House of all Private Credit:

Dimon warned in October that more “cockroaches” would surface in the once-booming but opaque world of private lending, where prices aren’t typically disclosed.

That’s not actually what he said, but the narrative is now very dark — that’s all that matters at this point. According to Bloomberg TV’s Silas Brown, the impact of JPM’s revaluations could be “extraordinary” for the private credit sector.

For my friends in the LP community, there are four traditional types of private credit structures. Make sure you know what you own:

1. Unlevered private credit. In this structure, you and your fellow LPs put up $1 billion of capital, and your GP lends out $1 billion of capital. Your only risk is that they did some loose structures to some crappy companies.

2. Unlevered private credit that utilizes a capital call line. In this structure, you and your fellow LPs committed $1 billion of capital, but your GP borrowed $500 million from a syndicate of banks. Although your GP lent out $1 billion of capital, they only drew down $500 million from you and your fellow LPs, and took the other $500M from the bank syndicate. If the banks cancel the capital call line, you can deploy your committed dry powder and all is well, provided you have the cash yourself. (In August 2008, not every pension plan did.) Your only other risk is, as with #1, that your GP did some loose structures to some crappy companies.

3. Levered private credit. In this structure, you and your fellow LPs put up $1 billion, the GP borrowed $1 billion from some banks, and used that combined capital pool to deploy $2 billion in loans. So long as the loan book looks good, there’s no issue. Except if the bank lenders get skittish. If 25% of the face value of those loans is written down by those banks, the portfolio NAV drops to $1.5 billion (from $2B). That’s probably still ok, as you’ve got $1.5 billion of loan value backing the outstanding $1 billion credit facility; unless the banks want more collateral, that is. The GP probably can’t do any new deals, which is a problem for their sponsor clients, as well as every performing portfolio company looking for an upsize.

4. Levered private credit with the opportunity for redemptions. In this structure, you and your fellow LPs put up $1 billion, the GP borrowed $1 billion from some banks, and used that combined pool to deploy $2 billion in loans. If, say, 10% of investors what their money back, you have two immediate problems: You need to raise $100 million to pay-out the 10% of investor redemptions, and it’s likely that the bank facility is going to contract accordingly. That forces the GP to get a bunch of portfolio companies to cough up $100 million, or raise new equity to cash out the investors who want to hit the exits. Assuming the same 25% haircut gets applied to the portfolio, things begin to get tighter. The loan pool to lever is smaller, the equity box underpinning the portfolio is smaller, and any further credit issues (real or feigned) will only tighten the noose that much further.

Having committed US$50 billion from its own balance sheet to “direct lending” a short time ago, it’s not as though JPM hates the product. Levered structures, not software loans (see prior post “Private Credit gets sideswiped by the “SaaS-Pocalypse’” Feb. 26-26), is the real LP risk.

MRM

(note: this post, like all blogs, is an Opinion Piece)

The topic can be the benefits of oak vs. steel barrels in the wine-making process, the ongoing prohibition regarding an open can of beer even though one can smoke dope on that same street, CP Newswire’s policy that prohibits an article about an “armed and dangerous” man from including the name and photo of said man (see prior post “Has CP Newswire lost the plot?” Dec. 2-24), or Dalton McGuinty’s decision to upend decades of classroom success with the introduction of “Discovery Math” in 2005.

If anything can save a democracy in despair, perhaps it’s critical thought. Starting with the power of asking a simple “Why?”

Over four million temporary resident visas are in the process of expiring across Canada in 2025-26. Whether you came from Scotland or Seychelles, it matters not. Rather than say “goodbye” to folks who promised to depart after their two-year Conestoga College marketing course was complete, the Federal Liberals are recommending that these visitors apply to extend their stays. As Immigration Minister Lena Metlege Diab exclusively told a friendly Toronto Star just days ago in a “rare” media avail:

If you’re in Canada on temporary status, be it visitor, be it student, be it worker, for whatever reason you wish to stay longer than the time limit, we are saying please apply for an extension.

For some, this will sound like a version of Justin Trudeau’s infamous January 2017 Tweet: “To those fleeing persecution, terror & war, Canadians will welcome you, regardless of your faith. Diversity is our strength #WelcomeToCanada.” In a province like Ontario, where 25% of taxpaying citizens don’t have a family doctor, hospital emergency ward wait times can exceed twelve hours, and urban rents remain unaffordable for many, the Minister’s new policy seems tone deaf, if not dangerous.

No less disturbing is the fact that Canada’s largest city has suffered a surge in violent crime, coincident with the four million bump. For the first time since the Rosedale neighbourhood was settled circa 1890, upper middle class families have been forced to pool their resources and hire their own private security forces. Over the past three years — despite a $1.4 billion police budget — Toronto experienced an 83% increase in home invasions, while “assault causing bodily harm” and “robbery with a weapon” are both up over 20% (see prior post “So why do many people think crime is getting worse in Toronto? Because it is. part 2” Feb. 15-26).

Why did that happen? Is there a causal relationship between the outsized increase in temporary residents and Toronto’s crime surge, or is it just an unfortunate coincidence?

No one seems to know. Why?

During the 2025 election campaign, Prime Minister Mark Carney said “that it is time for Canada to get smart on crime.” As Mr. Carney will attest, the easiest way to get “smart” on a subject is to have the data at your finger tips. In countries such as France, Ireland, Norway, the UK or USA, for example, the police and Courts both collect and disclose the citizenship status of an accused criminal. Not in Canada.

Why? Who decided that Canadians don’t deserve similar insights, and to whose benefit? What’s there to hide?

In an open society such as ours, where the salaries of 679,000 Ontario neighbours are released on an annual basis in the name of “transparency,” why do Canada’s elected bodies, police forces and Courts shield the public from knowing something so basic as the background of an accused criminal? Not race or orientation, but their citizenship status, in keeping with the practice of so many other Western nations?

Particularly when a criminal offence makes them potentially ineligible to avail themselves of Minister Diab’s remarkable generosity.

If the issue is a fair trial, how will the collection of that particular factoid prevent them from receiving one? The jury system is designed to weed-out anyone with a bias, the accused doesn’t hide behind a blind in Court, and it’s not as though the public isn’t already trusted with a variety of potentially prejudicial insights, such as the fact that 94-98% of mass shootings over the past 30 years have been committed by men, for example (see prior post “The impossible task of a newspaper’s “Public Editor” when a mass murderer isn’t male” Feb 22-26).

If there’s some benefit in the Feds tracking that in 2022, 22,010 Canadian women between the ages of 18-24 “often” received their “health care in the official minority language,” surely it would be instructive to also know the demographics behind Canada’s wave of child exploitation crimes?

According to a 2021 study for the John Howard Society, using (Ed. note: increasingly stale) data from 1976–2011, “more immigration to Canada means less crime.” To arrive at that conclusion, the author had to “control for demographic and socio-economic factors,” whatever that means. Interestingly, the dataset was simply population growth and crime rates.

What story would those same trends tell today?

In March 2023, McGill University economics prof Nicolas Ajzenman led a study under the heading “Does immigration really increase crime?” His conclusion was “that migrants don’t cause crime rates to increase but false perceptions endure,” based upon migration and crime data drawn from Chile:

Studying a country whose proportion of migrants has tripled in less than ten years, researchers find immigration significantly impacts people’s perceptions of crime but has no effect on actual crime.

Hostility towards immigrants has become a powerful component of far-right politics and extremist groups around the world.

Our research demonstrates that the concerns of citizens and governments over the potential relationship between immigration and crime in Chile appear to be unfounded, which holds significant implications for policy.

The irony is that less than three years following the release of the McGill study, a November 2025 media report by Reuters painted a different picture of that very same Chile:

The murder rate [in Chile] more than doubled from 2.32 per 100,000 in 2015 to 6.0 in 2024 and kidnappings reached an all-time high of 868 in 2024, with the state attorney’s office linking 40% to organized crime.

Shootouts in broad daylight, contract killings, dismemberments and extortion kidnappings, long a reality in parts of Latin America but previously very rare in Chile, have shocked the nation and even stunted economic growth as people adjust their daily habits.

The surge has come alongside a wave of migration of Venezuelans, going from 82,998 in 2017 to 669,408 in 2024 according to the latest census data.

I’ll leave it to local sociologists to determine whether or not Chilean-born gangs are to blame for the “surge” in violent crime — the “why” in this instance — but Professor Ajzenman may need to refresh his work.

In the waning days of my time as a national newspaper Columnist last Fall, I wanted to tackle what seemed to be a dramatic increase in “child luring” cases across Canada (see what wound up being a Substack post “We don’t need to bury child abusers ‘under the prison’...” Dec. 3-25).

The impetus was my shock that, over the span of just two days, London, Ont. police caught eight adult males in my hometown trying to have sex with minors. How could the proud, leafy city where I was born and studied be home to the worst of the worst?

Unlike the police force in nearby Guelph, Ontario, which intentionally deep-sixed the name of their most recent child-lurer, London’s finest initially named the alleged perps in a press release: Messers Abdalmalek, Attar, Kanani, Raut, Sadat, Sing, Singh and Tawil. It was even posted to Facebook:

One assumes that by proactively sharing the names, police are giving area parents the opportunity to check their kid’s messaging apps to see if any of the accused had been in contact with their own offspring. Despite having gone to that trouble, the London Police Service recently wiped these same eight names from their website. Why?

LPS claim that it was merely a byproduct of a “website update,” although no other press releases from that same period seem to have suffered from broken web links — such as the one involving the photo of a Caucasian male “high risk offender” who has been ordered to stay away from “females under the age of 16 years.” (No doubt they’ll fix the Nov. 6th link once their PR team reads this piece; justice being “blind” and all.)

In any event, each of the eight accused appeared before the Superior Court in London between Nov. 27 and Dec. 11th, although it was literally impossible to follow their cases. For reasons that fly in the face of an “Open Court,” the vast majority of criminal defendants that appear at London’s Superior Court division are only cited by their initials, unlike those appearing before that same city’s Family and Civil Courts, where the name of every single case participant is posted in the off-chance a nosy neighbour wants to join the hearing via Zoom.

Why? Who is that serving?

A few months prior to the London-area bust, 36 men were charged with various child exploitation crimes, including one gross fellow who brought “condoms and lubricant” to what he believed would be an underage sexual encounter at a motel.

Wouldn’t it help Minister Diab to know about bit more about their backgrounds?

In 2017, my old pal Adam Vaughan, then Liberal MP and parliamentary secretary, told the CBC that he wasn’t interested in “theories. We’ve got to ... get the data. We have to manage the data so that we can understand where the problems are emerging and deal with them quickly.”

His then boss, Justin Trudeau, was fixated on data-driven decision making. Funding flowed accordingly:

• $39.9 million for the creation of a new “Housing Statistics Framework”

• $241 million to CMHC to, in part, “improve data collection and analytics”

• The Canadian Institute for Health Information received $53 million to address “health data gaps” and strengthen “reporting on health system performance”

• $13.6 million will go to Statistics Canada to “broaden tourism data collection.”

• Developing a “Clean Technology Data Strategy” — $14.5 million

• Transport Canada received $50 million to establish a new “Canadian Centre on Transportation Data”

• $95 million to gather data on the availability of child care

Do you notice that certain high profile topics are missing from that list? Doesn’t it make you wonder, “why?” According to one “senior Liberal official”:

Data allows you to know what is the scope of the problem you’re trying to solve, or is there a problem that actually needs solving, and to measure how you’re doing and if [your policy] is working.

If all that data is made public, it could also foster a better policy debate.

I couldn’t agree more, but it begs the question: why don’t we know the citizenship status of every accused criminal? Or is it Canada’s position that France, Ireland, Norway, the UK and the USA are all racist to collect this data?

According to several pollsters, “public sentiment in Canada towards immigration is eroding at an alarming rate.” Several factors are at play there, including high youth unemployment, housing costs and specious asylum claims. As recently as November, 52% told Abacus that “crime and public safety” are negatively affected, with only 13% believing there was a “positive” impact.

Four-to-one. And that poll was taken before the Mayor of Surrey, B.C. called for a “national state of emergency amid an extortion crisis.”

If the John Howard Society and Prof. Ajzenman are right, and these demonstrable surges in crime have nothing to do with other external factors, a sure-fire way of allaying the public’s concern requires governments and police agencies to start collecting and sharing this data.

For a society that tracks almost everything else, what is it about this information that makes it unworthy of collecting? Why is it more important that I have the legal right to know the $101,000 salary of my neighbour, just because they work for UofT, than the citizenship status of the person who broke into my neighbour’s home last night and held a knife to the throat of their child?

Why?

MRM

(note: this post, like all blogs, is an Opinion Piece)

An alleged Terrorist killed and wounded several civilians in Austin, Texas while wearing a “Property of Allah” jersey (via Associated Press), and a Thornhill, Ontario gym was fired at sixteen(!) times around 3am Sunday morning. Although the GTA gym was sporting several pre-revolutionary Iranian flags, York police are “trying to determine a motive” — as with the Austin attack, where the accused was wearing an Iranian flag design, it certainly feels “related to the current conflict in the Middle East.”

(image credit: FoxNews)

The risk that Iran has militant sympathizers within North America’s borders will surprise no one, but my mind turns to the fact that the Liberal government waited 1,500 days after the Iran’s downing of UIA Flight 752 before naming the Islamic Revolutionary Guard Corps a terrorist group in 2024. The Star ran a column from me on that stupidity (see prior post “Why do the Liberals find the easy parts so difficult?), June 26-24), but the larger question at the time still remains: what has our government done about the 700 IRGC Agents that were believed to be in Canada at that time?

As Conservative Deputy Leader Melissa Lantsman continues to remind:

Canada’s Border Services Agency has been investigating dozens of individuals linked to the Iranian regime who are here in Canada. And yet, only one removal has been publicly confirmed.

One.

For years, the IRGC has operated as a terrorist arm of a brutal regime, funding, directing, and exporting violence right into our communities, and into Iranian-Canadians who fled tyranny. Canadians deserve answers. How many suspected IRGC-linked individuals are still here? Why has removal been so ineffective?

Canada can’t be sanctuary for terrorists. The government owes this country transparency and action. Kick them out.

Prior to Saturday morning, this didn’t seem a priority for Prime Minister Mark Carney’s Liberal government. With a docile Parliamentary Press Gallery, PM Carney had good reason to believe that the imperceptible progress over the past 18 months might go unnoticed — few outlets seem to fuss on national security issues, whether due to woke newsrooms or tight resources. That faux-luxury, however, was before U.S. President Donald Trump committed military forces against Iran’s IRGC regime.

The same IRGC entity that we appear willing to host here in Canada.

Prior to the most recent U.S. and Israeli strike, The Globe and Mail reported that “Canada’s spy service will be alert to any Iranian attempts to direct its proxies in Canada to strike U.S. targets in this country if the United States attacks Iran, according to former top spies.” I’m not sure that’ll mollify President Trump once he’s briefed that CBSA has deported but one IRGC official to date.

In the eyes of many U.S. legislators, we’d been laggards on the domestic security front well prior to President’s Trump’s re-election.

Back in August 2024 (see prior post “Some easy steps on terror front” ), I reminded Toronto Star readers that some U.S. Senators (including the current U.S. Secretary of State) were worried about our ability to do a thorough visa screening program for the 3,000 Gaza-related refugees that then-Prime Minister Justin Trudeau had promised to help. That security tussle followed a separate bipartisan initiative of 14 members of the U.S. House and Senate who took it upon themselves in December 2023 to remind the Liberal government that “in both words and deeds, the IRGC as an entity is ideologically committed to destroying Israel and undermining U.S.-Canadian security interests in the Middle East and around the world.”

Canadians must appreciate why we’ve earned this type of attention down south: in 2023, U.S. Customs and Border Protection (CBP) officers encountered 484 people on the “terror watchlist” at the U.S.-Canada border — up 55 per cent over 2022. In 2024, another 358 “terror list” encounters took place on America’s northern border, including a Pakistani National residing in Canada who was charged regarding a plot to carry out an ISIS-inspired mass shooting at a Jewish Center in New York City. Oh, and while that’s below 2023’s mark, it was still about seven times higher than the similar interceptions along the U.S. southwest border.

These facts, when combined with the 700 IRGC agents hiding in plain sight here in Canada, should scare us all.

While one can overlook locals holding a “vigil for one of the most vile tеrrorists in history,” planning is already underway for Toronto’s 2026 Al-Quds Day march — despite Premier Doug Ford’s promise to ban it in 2018. Unlike the seemingly daily protests in favour of “Palestine,” this well-attended annual rally lauds the current Iranian Regime and extols its supporters to “Globalize the Intifada.” The very same government that murdered tens of thousands of its own citizens just over a month ago.

When I attended in 2024 (see prior post “‘Toronto the Good’ bows down to Iran”, April 12-24), the Toronto Police Service arrested a well-known Canadian-Iranian activist by the name of Salman Sima, yet TPS 51 Division freed a majority of the pro-terrorist supporters they arrested that same day with no conditions. Does TPS Chief Myron Demkiw not realize that border enforcement is much more challenging for U.S. Homeland Security when we whitewash the alleged criminal offences — even if they’re minor — of Iranian regime supporters?

The NEXUS program is a cherished representation of the trust between our two countries: being charged with a criminal offence generally makes you ineligible to be a “Trusted Traveller,” and we shouldn’t be suppressing that type of intel.

(photo credit: MRM)

Although University Avenue is no longer a Provincial highway, its proximity to Courthouses and the Legislature building gives the Ontario Provincial Police an excuse to finally bring closure to that particular day.

What they can do little about, however, is how President Trump will react when he finds out about the 699 remaining IRGC agents. The media (other than Sam Cooper) might have been dubious about claims that Canada was a source of southbound fentanyl smuggling, but there’s no denying our terror problem.

As Ottawa is still looking for some quick wins on that front, these three ideas remain a place to start (from an August 2024 piece I wrote in The Star):

First, while Canada can’t match the U.S. budget, we can leverage the American intensity around national security. Canada’s “No Fly” and “Terror Watchlists” should mirror the U.S. versions. Ottawa has no better insight into the world’s global hotspots than the CIA, FBI and NSA. The Canadian Security Intelligence Service and Immigration Refugees and Citizenship Canada are both overstretched, and CBSA needs to focus on executing its outstanding warrants. We shouldn’t waste our tax dollars Canadianizing a pre-existing U.S. list of foreigners with potential terror ties.

Before you cry “sovereignty,” Ontario has no qualms about applying demerit points against your driver’s licence if you get caught speeding on New York States I-90 Thruway.

Second, the RCMP’s vast mandate includes terrorism, investigating money laundering and setting-up radar traps on B.C.’s Sea-to-Sky highway. It was the FBI, not the RCMP, that initially uncovered the pending 2016 terror attack by a known ISIS sympathizer from Strathroy, Ont., for example.

Could they better focus if the RCMP split into a national and local force?

Third, why do we automatically grant visitors a six-month stay, when Ireland, for example, has a 90-day ceiling? Let’s take some pressure off CBSA’s enforcement team, and telegraph to the world that “Fortress North America” was not such a bad idea, after all.

We may wish the world were different, but it’s hard to argue with Concordia University’s Gad Saad when he says, “One must see the world as it is.”

It’s only a matter of time before President Trump hears about our historical open door policy towards members of the IRGC. CUSMA negotiations are already tough enough, and Canada’s choice is clear: fix our own security issues before Mr. Trump concludes that he has to do it for us.

MRM

(this post, like all blogs, is an Opinion Piece)

This unsubstantiated groupthink reminds me of the early days of 2000, just as the NASDAQ crashed: “It’s the End of the World as We Know It.” Valuations had good reason to come-off back then, predicated solely on “eyeballs” in some cases, but the notion that the sector was toast for all-time was laughable. Today’s Equity Analysts are welcome to moderate their outlook for tech earnings, for that’s their call — but I’d like to meet the person who’s done the work that demonstrates that these profitable (or fast-growing and currently unprofitable) businesses are all going bankrupt over the next decade.

As someone who is currently speaking to institutional investors about what I believe are very appealing opportunities in the innovation private credit space (via my newly-formed Wellington Growth Partners, Inc.), any negative sentiment in the public markets is bound to stimulate questions about what AI means for your garden variety software company. Concerns abound, and for good reason. Some publicly-traded SaaS names, such as Workday (WDAY:Q), are down ~40% so far this year, as slower growth, tighter margins and chatter that AI is going to somehow make the company obsolete have led to contracting valuations.

Putative advances in AI are giving CFOs the upper hand when the time comes to negotiate renewals on their payroll, HR, CRM and other backbone software platforms; just as the GFC turmoil temporarily shifted power from seller to buyer in 2009-10.

Private credit CEOs, such as Orchard Global’s (US$8.6B AUM) Paul Horvath, are taking to CNBC to assure investors that his firm likes to play in the “asset heavy” sectors, while staying “away from those asset-light industries.” When asked if his firm is still lending to tech firms, Blue Owl’s Craig Packer recently told CNBC that his firm is “being super selective.”

As Wellington Financial’s LPs would attest, if you want to be successful as a tech lender over the long haul, being “super selective” is a key success factor (see representative prior post “Preqin names Wellington Financial to list of “Most Consistent Top Performing” funds” Oct. 24-16). That’s not been the case of late. With ever-expanding multiples and consistent equity flows into the sector (VCs and Growth Equity investors have invested US$1.97T into U.S. Start-ups and growth stories over the past decade), lending to software firms has been a lay-up over the past five years. When something looks easy in the credit space, and incremental management fees are there for the taking, you’re going to draw plenty of tourists.

“There are going to be winners and losers in private credit,” says Mr. Horvath, which might call for new “guard rails” to protect retail investors. Market Technicians, such as Piper Sandler’s Chief Craig Johnson, seem to be staying clear of publicly-listed private credit managers.

The perceived looming crisis is such that Op-eds are now warning investors to “Beware the private-credit dark money infecting Wall Street.”

The private-credit sector has been described as a private junk-bond market, providing high-interest loans to steeply leveraged, unlisted companies, often unprofitable software startups.

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The biggest problem with private-credit funds is that they operate largely in the dark, providing investors limited disclosure and no real-time public pricing (regulated BDCs are more transparent). The value of their assets at any moment is whatever the manager says it is, based on internal analysis and outside consultants. That, says Moody’s, makes “it difficult to assess the underlying risks.”

That should be enough to make you hit the sell button, for fear that the Global Financial calendar has been turned back to February 2008.

Team by team reporters, baffled, trumped, tethered, cropped, look at that low playing, fine, then. (Lyrics: Michael Stipe, REM)

My PA continues to be long banks and tech, so I’d hope that I’m not looking at this with rose-coloured glasses. That rating agencies aren’t yet screaming isn’t determinative, given their pre-GFC track record, but there’s nothing in the Houlihan Lokey private credit index, nor the more traditional high yield bonds, telegraphing that a major credit crisis is in the offing:

What gives, you ask?

The combination of both the heft and genius of JP Morgan’s Jamie Dimon was on full display last October when, in the wake of two high profile U.S. bankruptcies, he warned shareholders that there were more blow-ups to come. Investors, Analysts and business media heard him loud and clear. En masse, they seemed to conclude that the risk wasn’t in the banking sector, but in the “opaque” private credit market.

Despite the fact that private credit funds held only small slivers of TriColor ($900M) and First Brands ($10-11B) secured / off-balance sheet debt. An S&P Global Ratings Analyst told CNBC’s Squawk Box Europe the other morning that “so far, credit fundamentals are good at the BDCs. We’ve run some stresses on them and they are solid.” And yet, shares in private credit firm Blue Owl (OBDC:NYSE) are off 22% over the past twelve months.

Blue Owl did sell US$1.7B of their loan portfolio at 99.7 to four other lenders a few days ago, which served to demonstrate the quality of that particular list of individual credit exposures. And it also provided enough cash to satisfy the demands of various investors who were asking for some/all of their capital back. There’s an obvious mismatch when investors put money into a credit fund — which in turn deploys that capital via a 5-year loan to a company — only to change their minds a year later and wonder why they can’t just get their capital back when they want it. Because we put it into a company at 10%, like you asked, is why.

When you look at the next chart, you get some insight into what might be pissing off senior bank executives. The “huge” growth in the private credit market over the last two years is being blamed by some for weaker structures and lower spreads:

It’s a volatile market, as you can see above. Spreads might be down because private credit managers are mis-pricing risk, or they’ve simply moved so far up-market that it’s only natural that spreads would get tighter as the credit quality of the borrowers improved. Or a bit of both, which is why banks like BoA, JPM and Wells Fargo have wisely made their own inroads in the asset class.

The doubters point out that “Moody’s worries that competition in the sector will encourage looser lending standards, and expects that private-credit funds ‘will likely be more central in the financial system in future stress periods’ and large banks less so. ‘In other words, the locus of contagion has shifted toward nonbank lenders, including private credit.’” Ashok Bhatia, Chief Investment Officer at Neuberger Berman, indirectly refutes the point, at least as far as the First Brands and Tricolor deals are concerned: “that the drivers of the issues at these two companies were idiosyncratic in nature.”

As large as the private credit market has become, I just don’t see the systemic risk it represents. An aggregate global capital pool of US$2 trillion sounds like a lot, but that merely represents the loan book of a single large bank, such as Citi (C:NYSE). And those Citi loans are largely funded by customer deposits, unlike private credit facilities, which are funded by limited partnership commitments from institutional investors, such as pension plans, Sovereign Wealth Funds and life insurance companies.

In the table below, you’ll see why that’s important.

PNC Bank, a very credible lender to growth companies in the tech sector, has a US$327B loan book across a countless individual and commercial entities, but “only” US$60.6B of equity capital. If anyone is worried about “leverage,” PNC’s ratio is 5.4x. Over at Blue Owl’s BDC, the loan book was just 2.2x the firm’s “net asset value.” And, importantly, no customer deposits are involved, unlike PNC, BANC or Stifel’s FDIC-insured venture banking arm, for example.

If Mr. Market was truly worried about Late-stage software loans going sour, I can’t believe PNC shares would have been up 19% over the past twelve months.

I don’t want to leave you with the impression that every VC-backed Innovation story is going to work out. Take Montreal-based Sheertex, which is in the process of completing an insolvency sale:

In a filing with Quebec Superior Court, the company said that despite raising more than US$200-million since its founding in 2017, by last fall SRTX was struggling with limited financial resources after encountering multiple challenges, including high production costs, delays in scaling the company, the cyclical nature of the hosiery sector, exchange rate fluctuations “and shifting trade policies” that “collectively contributed to the applicants’ cash flow challenges.”

Montreal-based SRTX raised US$37.5-million last year from existing investors including H&M Group, BDC Capital, Export Development Canada and Investissement Québec and hired a new chief executive officer in September to replace founder Katherine Homuth. The new funding was supposed to give SRTX enough cash to fund a planned production expansion.

But liquidity issues continued, and the replacement CEO, retail and fashion veteran Sophie Boulanger, departed after less than two months as the board put SRTX up for sale in October. (via G&M)

Talented management, a market vision, customer take-up and hundreds of millions of dollars of equity investment are no guarantee of success. That’s how it’s always been in the innovation economy, dating back at least to Wellington’s first loan transaction in August 2000. I don’t wish ill on the beneficiaries (via the LPs) of any particular private credit firm, but, if there’s pain to be felt within the tech lending world, bring it on.

When times get tougher, entrepreneurs, VCs and LPs alike both need and deserve experienced lenders. We saw that circa 2000-2004, 2008-09, 2016, March-August 2020, and most certainly in the months and years to come.

As Warren Buffet famously reminds: “Only when the tide goes out do you discover who's been swimming naked.” The ocean isn’t the issue, in his metaphor, it’s the absence of protective bathing suits.

MRM

(notes: this post, like all blogs, is an Opinion Piece; for the new readers, CIBC acquired my former firm Wellington Financial LP in 2018)

(disclosure: I’m not licenced to give financial advice, and this post is not an offering to sell securities)