By Cora Pettipas
There has been a lot of growth and development in the exempt market since NEMA’s inception in 2011, and there has never been a more exciting time to be in this space. Newer and more sophisticated Issuers are coming to our market to raise capital for their businesses. The result is an increase in quality and variety of the private investment options that are being offered to investors.
Private investing, and subsequently private capital raising, is increasing. There is no cohesive national data for capital raised in the exempt market, but Ontario (the OSC) has been tracking it under their new process since 2014. The total exempt market capital raised has been increasing year over year, with 150 billion raised in 2015, 163 billion in 2016, and an astonishing 102 billion in just the first two months of 2017. These numbers are Ontario only and blend what we would consider private offerings with public firms making use of prospectus exemptions, but the numbers clearly indicate a positive growth trend
There are many reasons why the exempt market is growing. The increasing trend of technological innovation and low-cost passive fund options are pushing financial advisors to specialize. Many are becoming exempt market licensed to offer this specialization. There are now currently approximately 1020 licensed dealing representatives in Canada out of an estimated total of 121,000 - an estimated 0.8% of total registrants. Interestingly, about 40% of them work for the largest top fifteen EMDs. There are also numerous reports from members that Exempt Market Dealerships are opening up to meet the demand, and over 70 have opened in Ontario this past year alone.
Private investments are also becoming much more popular with investors, as a way to diversify and partially overcome the prolonged low-interest rate environment that has been a cancer to portfolio yield. Members are reporting that private equity and private debt funds are showing the most promising yields compared to their publicly traded equivalents. Contrarian investing is also doing well, where private issuers are taking advantage of the distressed real estate and energy sectors. The meat and potatoes of the exempt market are still real estate investments, which are estimated by members at 40-60% of the market offerings. Alternative lending, leasing and factoring businesses are also popular currently.
Though the growth in investor interest still seems to be concentrated in the high net worth segment of the population, other investors are taking an interest, which will only gain more momentum as private investing continues to become more mainstream and less of a niche marketplace. Our cover article, about the ultra-high net worth Tiger21 investors, discusses how important private investments and alternative investments are for investors to achieve successful portfolio yields and diversification. Mainstream investors need these strategies too, especially in Ontario, the biggest Canadian market, where retail investors have not previously had exposure to private investments in the past.
We thank our members for successfully creating more vitality and growth to the capital markets by funding small business and providing more options for investors. Our industry is strong and growing because of your efforts. We continue to serve you as the voice of the exempt market.