On September 22, 2016, the Canadian Securities Administrators (CSA) published Notice and Request for Comment – Modernization of Investment Fund Product Regulation – Alternative Funds (the Proposals). The Proposals involve a series of amendments to National Instrument 81-102 Investment Funds (NI 81-102) and represent the final phase of the CSA’s ongoing policy work to modernize investment fund product regulation.
The Proposals introduce a regulatory framework that allows publicly offered mutual funds to invest in asset classes or use investment strategies not otherwise permitted under NI 81-102. The framework establishes a new category of prospectus offered investment funds called “alternative funds”. These funds are commonly referred to as “liquid alts”.
The net effect of the Proposals is that alternative funds not listed on a stock exchange would be subject to the same disclosure regime as conventional mutual funds under National Instrument 81-101 Mutual Fund Prospectus Disclosure , which includes the preparation of a simplified prospectus, annual information form and fund facts document, with the fund facts having to be delivered at or before the point of sale.
The 90-day comment period closed on December 22, 2016 and the CSA received 41 comment letters. Overall, the industry reaction to the Proposals has been positive and many commenters expressed their support for the CSA’s initiative to make liquid alts available to retail investors in Canada under NI 81-102. Some of the points raised in several comment letters include, among others, excluding the notional value of derivatives used for hedging purposes from the calculation of the 300% leverage limit which will be applicable to alternative funds, permitting the offering of alternative funds that follow market neutral strategies and exempting government securities from the short sale limits.
As of now, the CSA has yet to confirm the exact date the amendments would come into force. However, the Proposals are expected to be in place by the middle of 2018.