McKinsey & Company released its fifth annual report on the Canadian private equity industry today.

Private Equity Canada 2006 marks this milestone by looking back at the industry’s rapid evolution over the past five years — and the impact this has had on General partners (GPs) and Limited Partners (LPs) — and then looks forward to provide perspectives on the key trends likely to shape the maturing marketplace in the next five years.

The report also provides an in-depth statistical review of Canada’s private equity market over the past year; in particular, it compares market growth rates, the creation of new partnerships, and domestic and global deal activity relative to prior years.

Here are some of the key points Private Equity Canada 2006 highlights.

Since 2001, the Canadian industry has experienced unprecedented growth, breaking all records with $65.5 billion of private equity capital under management in 2006. It has also undergone a structural change, shifting from a primarily venture capital market to one dominated by buyout activities. Last year, buyouts increased to 58% of Canadian private equity versus 43% in 2002, whereas venture capital dropped to 34% from 47% in 2002.

Not surprisingly, the GP and LP landscape has changed significantly in response to a bigger and more competitive marketplace. Canada’s GPs are increasingly adopting US-based strategies and tactics to succeed. And Canada’s LPs are now recognized around the world as strong partners and true industry shapers, given their innovative approaches to institutional investing like active risk budgeting, direct private equity investments, and infrastructure investing.

The next five years should be equally exciting, with five key trends likely to have an impact on Canada’s marketplace:

  1. Private equity firms taking over some larger Canadian publicly- listed companies;
  2. GPs facing increasing competition from U.S.players seeking opportunities in Canada;
  3. The high-yield market growing;
  4. The infrastructure market heating up; and
  5. Canadian buyout firms increasingly operating like their U.S. counterparts attempting to shift private equity to permanent capital structures.

The report’s conclusions are drawn from McKinsey’s proprietary research of the Canadian and American private equity markets and from the Canadian Private Equity Activity Survey 2006, conducted by Thomson Financial Canada on McKinsey’s behalf.

The 2006 survey was consistent with the 2005 one, permitting year-over-year comparisons. The 101 survey respondents represented Canada’s largest private equity firms — and 94% of the capital under management in the industry. For the first time, the 2006 survey included Thomson Financial interviews with several of Canada’s leading private equity managers on market trends and issues.

To obtain a copy of Private Equity Canada 2006, visit www.mckinsey.com or www.thomson.com.