![]() To start, entering the Alternative Funds market will undoubtedly have an impact on the AIM’s human capital. For example, alternative strategies are complex, and significant effort will be required to educate investment advisors, financial planners and investors. There is an expectation by Canadian Mutual Fund Managers that AIMs will make Investor Relations personnel available to assist with marketing by participating in road-shows and conferences. Also, with increased regulation and investment restrictions, come additional compliance and order management responsibilities. ![]() ![]() In addition to determining whether an Investment Manager’s strategy is compatible with the Alternative Fund constraints, the AIM must also establish whether it has sufficient operational infrastructure to meet increased demands on the firm. AIMs who would consider an innovative alternative investment product in Canada are encouraged to contact their local securities regulator to discuss the applicable securities law issues. Under certain circumstances, AIMs may be granted exemptive relief in order to launch products that currently exist outside the proposed rules. The use of leverage, shorting and derivatives, as well as diversification and transparency requirements should also be included among the AIM’s fundamental considerations.Ĭertain strategies may not currently fit under the proposed rules. However, the CSA has indicated that it may support engagement with AIMs who want to launch a portfolio with characteristics that fall outside the proposed rules. ![]() Adjustments may not be difficult in terms of securities liquidity, however, the AIM must consider the impact of redemptions on returns, not only for the Alternative Fund, but for other portfolios under management. The necessity to honor liquidity demands is a key factor that should be taken into account when deciding to pursue Alternative Funds as a product option. Alternative Funds may have far shorter liquidity terms than hedge funds – daily, weekly or monthly, as compared to quarterly or longer, and as such, AIMs may need to adjust portfolio management to meet the more frequent redemption rights. Just because an AIM can theoretically convert its strategy into an alternative fund following implementation of the final rules does not mean it should. A few of the key restrictions, and obligations, for Alternative Funds are set out in the following table: Similar, but not the same: key differences between Canadian Alternative Funds (“Alternative Funds”) under the Proposal and Private Funds – at a glanceĮven though the Proposal provides investment flexibility and permits performance fees, the Proposal still places bounds on the more flexible strategies engaged in by Alternative Investment Managers (“AIMs”). ![]() This innovation is an extremely positive outcome for all participants, and should the proposals put forth by the Canadian Securities Administrators (“CSA”) be adopted, strategies, that were not readily accessible to retail investors will become available. The Canadian mutual fund market, like the markets for European Alternative UCITS, and US ’40 Act Liquid Alts before it, is on the verge of historic change with proposed amendments to National Instrument 81-102 (the “Proposal”), which introduces a framework for offering greater choice to retail investors. ![]()
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