Private financing is the new normal

The word financing can have different meanings to different people. For those that often borrow, financing means securing the money and capital needed to either stay afloat or engage in a new venture. For investors, financing is a form of investment where you essentially provide money to those who need it at terms that are acceptable to both parties.

Matching supply and demand

In other words, financing is a relatively simple concept. It’s about matching those who need money with those that can provide it. Financing has certainly evolved over time. As economies have advanced and modernized, financing moved from private and select transactions to essentially institutionalized exchanges of capital. That’s what the banking system has become, hasn’t it?

But, as with so many aspects of life, we’re coming full circle again as we see private forms of financing becoming increasingly more common. There are many reasons for that. In a nutshell, public financing has become highly regulated, highly predictable and, as a result, highly cautious, too. So, people have turned to private forms of financing.

Finding unique opportunities

Again, there are two sides to the financing equation. On one side, there are those that are seeking sources of money and capital. On the other side, there are those seeking to invest money and capital. So, when private financing is involved, these types of arrangements tend to be very unique, less compliant with rules and regulations, and more open to higher returns.

In fact, private financing has grown so much that the Canadian federal government even has an entire website section dedicated to the sector. From private debt and equity, commercial term loans and lines of credit to microcredit, commercial mortgages and angel investing, the number of ways that individuals and organizations can transact in private investing is as infinite as one’s imagination.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.


NAFTA’s effect on investments

The North American Free Trade Agreement (NAFTA) has been in the news in recent months because of President Trump’s desire to renegotiate the trade deal. Although various aspects of the treaty have become a topic of public discussion, such as the dairy sector, as well as subsidies for aerospace companies, what has been less talked about, but perhaps more impactful in scope, is the effect that these NAFTA negotiations can have on the continent’s investment sector.

Chapter 11 of NAFTA is specifically titled: Investment. It provides an established and predictable set of rules to invest across the borders of Canada, the United States and Mexico, while also establishing dispute-resolution mechanisms that facilitate the movement of capital across national boundaries.

The Donald Trump factor

NAFTA renegotiation investment

However, since the rise of Donald Trump onto the American political landscape, accompanied by his skepticism towards established trade treaties, an uncertainty about the future of NAFTA has most definitely had an impact on Canada’s investment sector.

According to Global News, a report prepared by research firm Pitchbook states that only $490 million dollar was invested in venture capital in Canada so far this year ending in April, which predicts a significant decline from 2016, which saw a record $2.11 billion invested in Canada’s venture-capital sector.

Canada’s private-equity sector was hit particularly strongly, in which only $990 million was raised up until April of this year, which is down from a level of $3.4 billion from the same time last year, and suggests totals this year will be below the $7.3 billion for all of last year. This puts Canada’s private-equity sector on pace to have its worst year since 2012.

The current uncertainty

So, the uncertainty surrounding NAFTA renegotiations seems to have a detrimental effect so far on Canada’s investment sector. What does this mean moving forward? Well, it can mean one of two things.

On the one hand, this current unease about NAFTA reflects just how much Canada has become dependent on the treaty, and how important its continuation is to provide stability and predictability.

On the other hand, there are suggestions that Canada might have to start thinking very seriously about the prospect of an end to NAFTA. Former Canadian Prime Minister Stephen Harper himself has recently said that he doesn’t believe the cancellation of the treaty is a bluff from President Trump. Instead, forces are at play south of the border that have made protectionism more prevalent.

Nevertheless, good investors know they have virtually no control over the politics of trade and investment. Instead, investors should always look for opportunities, despite any uncertainty. As the NAFTA process works itself out, Canada has ratified its free-trade treaty with Europe (CETA), and there will always be landing spots for global capital, whether it’s south of the border, or across an ocean or two.

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