XEQT and the Private Credit Boom: Why Canadian Retail Investors Should Stick With Index Funds

I was at a dinner party a few months ago – one of those casual Saturday night things where you end up sitting next to someone’s financial advisor friend – and within about fifteen minutes of small talk, the conversation took a sharp turn into “alternative income strategies.” This guy, let’s call him Derek, was practically vibrating with enthusiasm about private credit. He pulled out his phone and showed me a marketing deck for a fund that was promising 9.5% annual returns with “bond-like stability.” He said his firm was allocating clients into it aggressively. He said this was what the big pension funds had been doing for years and now, finally, regular investors could get in on it.

“It’s like getting paid to be the bank,” Derek told me, leaning in like he was sharing a state secret.

I smiled, nodded, and asked a few polite questions. Then I went home and bought more XEQT.

Look, I am not going to pretend I was not intrigued. When someone tells you there is a way to earn 9-10% with low volatility and institutional-quality returns, your ears perk up. That is human nature. And private credit is not some fringe asset class – it is genuinely one of the fastest-growing corners of the financial world. Bay Street has noticed, and the marketing machine is now pointed squarely at Canadian retail investors.

But after digging into how these products actually work, what the fees really are, and what happens when things go wrong, I came away more convinced than ever that XEQT is the right answer for the vast majority of Canadians building wealth. This post is going to walk you through why.

1. What Is Private Credit, and Why Is Everyone Talking About It?

Private credit is, at its core, a simple concept: instead of a company borrowing money from a bank, it borrows money from a private fund. That fund pools capital from investors (historically institutions, but increasingly retail), lends it out to businesses, and collects interest payments. The investors in the fund earn a yield from those interest payments, minus fees.

Think of it as being a mini-bank. You lend money to companies that cannot or do not want to borrow from traditional banks, and you earn a higher interest rate because you are taking on more risk and providing less liquid capital.

So why has private credit exploded over the past decade? A few reasons:

Banks retreated. After the 2008 financial crisis, regulators tightened the screws on bank lending. Basel III capital requirements made it more expensive for banks to lend to mid-market companies and riskier borrowers. That created a gap, and private credit funds rushed in to fill it.

Low interest rates drove yield-seeking. From roughly 2010 to 2022, interest rates were at historic lows. Bonds paid almost nothing. GICs paid next to nothing. Investors were desperate for yield, and private credit – with its marketed returns of 8-12% – looked like an oasis in a desert.

The asset class genuinely grew. Global private credit assets under management have grown from roughly $400 billion in 2012 to over $1.7 trillion today. This is no longer a niche strategy. It is a massive, institutional asset class.

Now here is what changed recently: Bay Street wants retail money. The big firms realized that the pool of institutional capital was getting crowded and competitive, so they started packaging private credit for everyday investors. In Canada, you are now seeing:

• Interval funds that offer quarterly liquidity windows (companies like Ninepoint have launched products in this space)
• Private credit ETFs that attempt to securitize private loans into a daily-traded wrapper
• Exempt market products sold through dealers and financial advisors, often with $25,000 or $50,000 minimums

The pitch is always the same: “Institutional-quality returns, now available to you.”

And if you need a reminder of how these products can go wrong in Canada specifically, look no further than Bridging Finance. This was a Canadian alternative lending firm that managed roughly $2 billion in investor capital before the Ontario Securities Commission stepped in and appointed a receiver in 2021. Investors – many of them regular Canadians who were sold on the promise of safe, steady income – discovered that the loans were far riskier than disclosed, there were massive conflicts of interest, and a significant portion of their capital was impaired. It was a devastating collapse that barely made the mainstream news.

Bridging Finance is not ancient history. It is a warning.

2. The Pitch: Why Private Credit Sounds So Good

I want to be fair here. Private credit is not a scam. The pitch is compelling for real reasons, and I think it is worth understanding why so many smart people are drawn to it.

Higher Yields

The headline number is always the yield. Private credit funds in Canada are marketing returns of 8-12%, sometimes higher. In a world where a 5-year GIC pays 3.5% and the 10-year Government of Canada bond yields around 3%, those numbers look extraordinary. You are essentially being told you can earn equity-like returns from a lending strategy.

“Low Correlation” to Public Markets

This is the diversification argument. Because private credit loans are not traded on a stock exchange, their prices do not bounce around with daily market sentiment. Funds claim this gives your portfolio a diversifier that zigs when stocks zag.

“Institutional-Quality” Returns

Every marketing deck references the same names: CPPIB, OTPP, CDPQ, Harvard’s endowment, Yale’s endowment. The implication is clear: if the smartest money in the world is in private credit, shouldn’t you be too?

Smooth Returns

This one is subtle but powerful. Private credit funds report returns that look almost eerily smooth – steady monthly or quarterly income with minimal drawdowns. Compared to the rollercoaster of equity markets (XEQT dropped roughly 20% during the 2022 sell-off), these smooth return streams look deeply attractive to anyone who has ever panicked during a market crash.

FOMO From Pension Fund Allocations

Canadian pension funds have become global leaders in private market investing. The Canada Pension Plan Investment Board allocates a meaningful percentage to private credit and private debt strategies. When you read about CPPIB’s returns and see their private credit allocation, it is natural to think: “I should be doing that too.”

These are all legitimate observations. The problem is not that the pitch is entirely wrong – it is that the version of private credit available to you as a Canadian retail investor is fundamentally different from what those pension funds are accessing. And the risks are not being presented with the same enthusiasm as the returns.

3. The Reality: 5 Problems Canadian Retail Investors Should Know

Here is where we need to get honest. Private credit has real structural issues that are especially problematic for retail investors. These are not theoretical concerns – they are features of the product that directly affect your money.

Problem 1: The Liquidity Illusion

This is the big one. When you own XEQT, you can sell it in about three seconds on your Wealthsimple app. The money settles in your account within a day or two. You have complete, unconditional access to your capital at all times during market hours.

Private credit funds? Not even close.

Most retail-accessible private credit products in Canada use an interval fund structure, which means you can only request redemptions during specific windows – typically once per quarter. Even then, the fund usually reserves the right to limit total redemptions to 5-10% of fund assets per quarter. If more investors want out than the fund can accommodate, you get a pro-rata allocation – only a fraction of what you requested.

And when things go really wrong? Gates go up. The fund suspends redemptions entirely. You cannot get your money out at any price. This happened with Bridging Finance, it happened with numerous real estate funds during COVID, and it will happen again during the next financial stress event.

The smooth return profile is partly a feature and partly an illusion. Because these loans are not publicly traded, fund managers have significant discretion in how they mark them. A loan might be going bad, but it will not show up in your quarterly statement until the fund finally writes it down. The volatility is not absent – it is hidden.

Problem 2: Fee Stacking

This is where private credit becomes a genuinely bad deal for most retail investors.

A typical Canadian retail private credit fund charges:

• Management fee: 1.0-2.0% annually
• Performance fee: 15-20% of returns above a hurdle rate
• Operating expenses: 0.25-0.50% for administration, auditing, legal
• Fund-of-fund layer: If you are accessing private credit through a feeder fund or platform, add another 0.50-1.0%

When you stack all of these together, total annual costs can range from 3% to 5% or more.

Compare that to XEQT’s all-in MER of 0.20%.

Let me put this in dollar terms. On a $100,000 investment earning a gross return of 8%:

• XEQT cost: $200/year. You keep $7,800.
• Private credit fund cost (at 3.5% all-in): $3,500/year. You keep $4,500.

You are paying 17.5 times more in fees for the private credit fund. And the net return you actually receive (4.5%) is actually lower than what you could reasonably expect from a global equity portfolio over the long term. The fund managers are capturing a massive portion of the gross return before it ever reaches you.

Problem 3: Transparency Gaps

When you own XEQT, you can go to BlackRock’s website and see every single one of the 9,000+ stocks the fund holds. The price updates every second during market hours. The NAV, tracking error, and historical returns are all verified by independent sources. Everything is public, audited, and regulated.

Private credit funds operate in a different universe. The underlying loans are private. There is no daily pricing – the fund manager determines loan values based on their own models (called “mark-to-model” or, less charitably, “mark-to-make-believe”). There are no public audits of the individual loans. You are trusting the fund manager’s judgment about what the portfolio is actually worth.

The Bridging Finance collapse revealed that the firm had been overstating the value of its loan book for years. Investors thought they were earning steady returns when the underlying assets were deteriorating. By the time the truth came out, it was too late.

Problem 4: Concentration Risk

XEQT holds over 9,000 stocks across 49 countries spanning every sector of the global economy. If any single company, industry, or country has problems, the impact on your portfolio is negligible.

Many Canadian private credit funds, by contrast, are lending to a concentrated pool of borrowers. In Canada specifically, a disproportionate amount of private credit goes to:

• Real estate developers (condos, mixed-use, commercial)
• Mid-market Canadian companies in a handful of sectors
• Bridge loans for companies between financing rounds

If you are a Canadian who already owns a home and works for a Canadian company, adding a private credit fund that lends primarily to Canadian real estate developers and mid-market firms is not diversification. It is the opposite – you are doubling down on Canada at a time when your human capital, your real estate, and now your investments are all tied to the same economy.

Problem 5: Survivorship Bias

This is the quiet killer. When the private credit industry shows you historical returns, they are showing you the returns of funds that still exist. The funds that blew up, closed down, or merged into other products after poor performance simply disappear from the data.

In Canada alone:

• Bridging Finance collapsed with approximately $2 billion in assets
• Several exempt market dealers have faced regulatory action or gone under
• Numerous small private lending funds have quietly wound down after loans went bad

You never hear about the failures in the marketing pitch. You only hear about the survivors. This creates a deeply misleading picture of what the “average” private credit experience looks like for retail investors.

4. Private Credit vs XEQT: Side-by-Side Comparison

Let me lay this out clearly:

That last row is the one I want you to stare at. The gross returns being marketed for private credit are not dramatically different from what global equities have delivered historically. But after the fee stacking, the net return to the retail investor in a private credit fund is often lower than what XEQT delivers – and you are taking on illiquidity, concentration, and transparency risk to get there.

5. “But Don’t Pension Funds Use Private Credit?”

Yes. They absolutely do. And this is the single most effective argument the private credit marketing machine uses on retail investors. So let me explain why what pension funds do is completely irrelevant to your situation.

Pension funds have dedicated investment teams. CPPIB has hundreds of professionals with deep expertise in credit analysis and legal structuring. They originate loans directly, negotiate terms, and actively manage exposure. You are buying a retail wrapper managed by someone else.

Pension funds invest $100 million+ per allocation. At that scale, they access top-tier managers, the best deal flow, and the most favorable fee structures. The fees they pay are a fraction of what retail funds charge. They have negotiating power you will never have.

Pension funds have 10-20+ year time horizons. CPPIB invests on behalf of Canadians who will not retire for decades. They can lock up capital for 7-10 years without blinking. If you need that money for a down payment or retirement within the next 5-10 years, you do not have that luxury.

Pension funds get MUCH better fee structures. A retail investor paying 3-5% all-in is a completely different proposition than an institutional investor paying 0.75-1.5%. The gross returns might be similar, but the net returns diverge dramatically.

The bottom line: you are not CPPIB. You do not have their team, their scale, their time horizon, or their fee negotiating power. Saying “pension funds use private credit, so I should too” is like saying “Formula 1 teams use custom-engineered race fuel, so I should put it in my Honda Civic.” The product is not designed for your vehicle.

6. When Private Credit Makes Sense (And When It Doesn’t)

I want to be fair. Private credit is a legitimate asset class that plays a real role in certain portfolios. Here is when it might make sense:

It could work if:

• You are an accredited investor with a portfolio of $1 million or more
• You have a 10+ year time horizon for this specific allocation
• You are allocating no more than 5-10% of your total portfolio
• You have access to a genuinely institutional-quality manager (not a retail wrapper)
• You have a fee-only financial advisor helping you evaluate the specific fund
• You have already maxed out your TFSA and RRSP with low-cost index funds

It probably does not work if:

• Your total investment portfolio is between $50,000 and $500,000
• You are still building your core wealth and retirement savings
• You would be putting a significant percentage (20%+) of your portfolio into private credit
• You are drawn to it primarily because of the marketed yield or because it sounds sophisticated
• You do not fully understand the fee structure, redemption terms, and risks
• You heard about it from a financial advisor who earns a commission on the sale

For the vast majority of Canadians reading this blog – people in their 20s, 30s, and 40s who are building wealth through regular contributions to a TFSA or RRSP – private credit is a distraction. Not a scam, not evil, just a distraction from the thing that actually works.

7. Why XEQT Is Still the Better Choice for 95% of Canadians

Let me bring this back to the thing I actually believe in.

XEQT gives you:

• Instant liquidity – sell anytime during market hours
• Total transparency – see every holding, every day
• Global diversification – 9,000+ stocks across 49 countries
• Rock-bottom fees – 0.20% MER all-in
• A proven strategy – broad market indexing has a 100+ year track record
• No minimums – buy a single share for about $30
• Full regulatory protection – traded on the TSX, held at a Canadian custodian, governed by robust securities regulation

But let me make the fee difference tangible, because I think this is where it really hits home.

The $500/Month Comparison

Imagine two investors, both contributing $500 per month for 20 years. Both earn a gross return of 8% annually. The only difference is fees.

Investor A: XEQT (0.20% fee)

• Net annual return: 7.80%
• Total contributions: $120,000
• Portfolio value after 20 years: ~$304,000

Investor B: Private Credit Fund (3.5% all-in fee)

• Net annual return: 4.50%
• Total contributions: $120,000
• Portfolio value after 20 years: ~$192,000

The difference: $112,000.

Let me say that again. On the same $500/month contribution, with the same gross return, the fee difference alone costs Investor B over $112,000 in wealth. That is almost as much as the total amount invested. The private credit fund’s fees consumed nearly an entire portfolio’s worth of growth.

And that is assuming the private credit fund actually delivers 8% gross – which, as we discussed, is far from guaranteed once you account for defaults, the funds that blow up, and the survivorship bias in reported returns.

Over 30 years, the gap becomes even more staggering: roughly $685,000 for XEQT vs $357,000 for private credit. That is $328,000 evaporated into fund manager pockets.

This is the 1% rule on steroids. When the fee difference is 3.3%, the compounding destruction is almost hard to believe.

8. My Take

I have been writing this blog for a while now, and I have lost count of the “hot new investment” trends I have watched come and go. Cannabis stocks, meme stocks, crypto, NFTs, SPACs, thematic ETFs, leveraged products. Every time, the story is the same: an exciting new thing promises to beat the boring old approach, attracts a flood of retail money, and then either collapses or dramatically underperforms a simple global index fund.

Private credit is not in the same category as NFTs or meme stocks. It is a real asset class with genuine economic purpose. For institutions with the right scale, expertise, and time horizon, it can be a valuable portfolio component.

But the version being marketed to Canadian retail investors right now? The interval funds with 3-5% in stacked fees, the exempt market products with questionable transparency, the marketing decks promising “institutional returns” in a retail wrapper? That is a diluted, expensive imitation of what pension funds do, and it is being sold on FOMO.

My portfolio is still mostly XEQT. It will probably be mostly XEQT for a very long time. Not because I think it is the absolute optimal portfolio for every possible scenario – nothing is – but because it is liquid, transparent, diversified, dirt cheap, and backed by a century of evidence that broad market indexing works.

When someone at the next dinner party tells me about their private credit fund’s smooth 9% returns, I will smile and nod. And then I will go home and buy more XEQT.

The boring strategy wins. It just takes a while to believe it.

Related Reading

• What is XEQT?
• XEQT vs Private Equity & Alternatives
• The 1% Rule: How Fees Cost You $100,000+
• XEQT MER Explained

Disclosure: This post contains referral links. I may receive compensation if you sign up. This is not financial advice. Private credit is a complex asset class — consult a fee-only financial advisor before investing in alternative products.