Private Equity Investing for Canadians 2025

Updated March 2025 — bremo.io

Private equity (PE) refers to ownership stakes in companies that are not publicly traded on a stock exchange. Historically the domain of institutional investors and the ultra-wealthy, private equity is gradually becoming more accessible to a broader range of Canadians. This guide explains what private equity is, how returns are generated, who can invest, and the pathways available to Canadian investors in 2025.

What Is Private Equity?

Private equity encompasses several investment strategies:

• Buyout (LBO): Acquiring controlling stakes in mature companies, often using leverage, then improving operations and selling at a profit over 3–7 years
• Venture capital: Early-stage investments in startups with high growth potential
• Growth equity: Minority investments in established, growing companies that need capital for expansion
• Mezzanine financing: Hybrid debt/equity investments in companies seeking capital below senior debt
• Distressed investing: Buying debt or equity of financially troubled companies at a discount

How Private Equity Generates Returns

PE returns come from multiple sources:

• Multiple expansion: Buying a company at a lower valuation multiple and selling it at a higher multiple
• Earnings growth: Improving the company's profitability during the holding period
• Debt paydown: Using the company's cash flows to reduce acquisition debt, increasing equity value
• Operational improvements: Cost cutting, revenue growth, new market entry

PE funds typically target net returns of 15–25%+ annualized (IRR), though actual results vary widely by manager quality and vintage year.

Accredited Investor Requirements in Canada

Most private equity funds in Canada require investors to qualify as "accredited investors" under National Instrument 45-106. The individual accredited investor thresholds are:

• Net financial assets (excluding primary residence) of at least $1 million, alone or with spouse; or
• Net assets of at least $5 million, alone or with spouse; or
• Annual income of at least $200,000 (or $300,000 combined with spouse) in each of the last two years, with expectation of same in the current year

Non-accredited Canadians have fewer options but are not completely excluded from private equity exposure (see below).

How Accredited Canadians Can Access Private Equity

Direct PE Fund Investment

Accredited investors can invest directly in PE limited partnerships managed by Canadian or international PE firms. Minimum commitments are typically $250,000 to $1,000,000+. Capital is called over time (capital calls) as investments are made, and returns are distributed over 7–12 years. Major Canadian PE firms include Onex Corporation, Borealis Capital, and Birch Hill Equity Partners.

Fund-of-Funds

PE fund-of-funds invest in multiple PE funds, providing diversification across managers and vintages. Minimums are often lower than direct fund investments ($100,000–$250,000) but add an extra layer of fees.

Exempt Market Dealers

In Canada, exempt market dealers (EMDs) can sell PE and other alternative investment products to accredited investors outside of the prospectus-based regulatory framework. EMDs are registered with provincial securities regulators. Products offered include private debt, private real estate, and PE funds.

How Non-Accredited Canadians Can Access PE Exposure

Listed PE Companies (TSX/NYSE)

Several PE firms are publicly listed, allowing retail investors to buy shares through any brokerage:

• Onex Corporation (ONEX): TSX-listed, one of Canada's largest PE firms
• Brookfield Asset Management (BAM): TSX/NYSE listed, large alternative asset manager
• KKR & Co. (KKR): NYSE-listed global PE giant
• Blackstone Inc. (BX): NYSE-listed, world's largest alternative asset manager
• Apollo Global Management (APO): NYSE-listed PE firm

Publicly Listed PE ETFs

ETFs that hold shares of PE companies and alternative asset managers are available on major exchanges, offering diversified exposure in a single ticker.

The J-Curve Effect

PE fund returns follow a characteristic "J-curve" pattern: in early years, management fees and initial investments produce negative returns. As portfolio companies are developed and eventually sold, returns turn positive and often significantly exceed public market equivalents. This means patience is essential — PE is a long-term, illiquid commitment.

Fees in Private Equity

PE funds typically charge:

• Management fee: 1.5–2.0% per year on committed capital
• Carried interest: 20% of profits above a hurdle rate (typically 8%)

These fees are significantly higher than public market ETFs and must be overcome by superior returns to justify the investment.

Tax Treatment of PE in Canada

Returns from PE limited partnerships are typically a mix of capital gains, dividends, and business income depending on the nature of each portfolio company disposition. Limited partnership income flows through to investors and is reported on their personal T1 returns based on annual T5013 slips.