Investment Fund Manager
By: Stephanie A. McManus
In today’s volatile public markets and with the ever-growing draw for entrepreneurs to stretch themselves, it seems that investing in the private markets is becoming a more and more viable alternative to traditional investing. The Federal budget of March 2012 even acknowledges the critical role played by venture capital in the recovery of the Canadian economy by committing $500 Million to the industry and by capitalizing innovation with the innovation funding pool.
And yet, provincial securities laws somehow seem to be at odds with this broader policy approach. The introduction of National Instrument 31-103 in 2009 cast a very broad net over all market participants, including those engaged in raising private equity and has created significant barriers to capital-raising. Some jurisdictions have been more affected than others and there are only a small number of ways the registration requirements in one or another category can be avoided. Therefore, in this new landscape, those issuers of private equity need to conduct a complete and thorough analysis of their business model, with the help of a securities law expert, before engaging in capital raising activities in the private markets. The cost of a regulatory compliance failure down the road could be catastrophic.
In the early days of NI 31-103, what triggered the need to register in the category of Investment Fund Manager (“IFM”) was still very fact-specific and needed to be considered by regulators on a case by case basis. However, while each case is still fact-based, there appear to be fewer and fewer exceptions to the registration requirement
An IFM is defined under NI 31-103 as a person or company that is permitted to direct the business, operations or affairs of an investment fund.
If your enterprise meets this definition, and your fund is an investment fund, your firm must not only be registered but must comply with a comprehensive compliance regime set forth in NI 31-103. As part of its compliance regime, put in place a thorough and documented oversight process for all of its service providers.
In short, the means of avoiding registration in this category are narrow and the obligations once registered are significant. One need only look to recent consultations on possible changes to accredited investor and minimum amount investment exemptions as well as stepped-up review of exempt market dealers by regulators to discern their keen interest in protecting members of the public participating in the exempt market. Isn’t it worth the up-front investment in knowledge and infrastructure to avoid disaster down the road?