aima canada handbook
TRANSCRIPT
AIMA CANADA Handbook
Including an Introduction to the Canadian Hedge Fund Industry,
Securities Regulation, the Investor Environment and Member Directory
DISCLAIMER
TO OUR AIMA CANADA HANDBOOK SPONSORS:
Thank you to the many individuals that made this publication possible. To our committee members: Paul Patterson, Chris Pitts, James Burron, Gary Ostoich and Michael Burns.
To our article contributors: Gary Ostoich, Eamonn McConnell, James Burron, Paul Patterson, Les Marton, Alfredo D’Onofrio, Chris Pitts, Darin Renton, Michael Burns, Manjit Singh, Vinod
Ramnarine, Jennifer Wainwright, Ron Kosonic, Peter Hayes, James Loewen, Claude Robillard, Cathy Singer, Barry Segal, Michael Bunn and Katrina Rempel.
To our sponsors: Horizons ETFs, Norton Rose Canada LLP, Investment Administration Solution, SW8 Asset Management Inc., CommonWealth Fund Services, Ernst & Young LLP,
PricewaterhouseCoopers LLC, JC Clark Ltd., Niagara Capital Partners, HR Stratégies Inc., Montréal Exchange, Davies Ward Phillips & Vineberg LLP, CIBC Prime Services Group, The Investment
Partners Fund and BMO Capital Markets.
To our designer: Heather Martinez–for making the Handbook look as good as it does.
To our AIMA Canada interns from University of Waterloo who worked on the idea generation, logistics and many emails required to get it to press: Jovine Chan and Fernando Kou.
Material contained in this publication is a summary only, and is based on information believed to be reliable from sources within the market. The opinions contained in this publication are and must be construed solely as statements of opinion, and not statements of fact or
recommendations to purchase, sell or hold any securities. It is not the intention of the Canada National Group of the Alternative Investment Management Association (“AIMA Canada”), that
this publication be used as the primary source of readers’ information, but as an adjunct to their own resources and training.
No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication. AIMA
Canada will not be liable to the reader in contract or tort (including for negligence), or otherwise for any loss or damage arising as a result of the reader relying on any such information or
recommendation (except in so far as any statutory liability cannot be excluded).
This publication has been prepared for general information without regard to any particular person’s investment objective, !nancial situation or needs. Accordingly, no recommendation
(express or implied) or other information should be acted on without obtaining speci!c advice from an authorised representative. Any !gures are purely estimates and may vary with changing
circumstances. Also, past performance is not indicative of future performance.
Table of Contents5 Introduction
6 Overview of Canada’s Hedge Fund Industry
8 About AIMA Canada
9 CAIA: Education in Alternatives
11 About Canada
13 Canadian Financial Centres: Toronto, Montréal, Vancouver, Calgary
20 Canadian Banks: Prime Examples of Stability
24 Fund Administration for the Global Hedge Fund Industry
26 Regulation, Compliance & Structuring
28 Securities Registration and Compliance
32 Marketing & Sale of Foreign Domiciled Investment Funds in Canada
38 Tax Considerations for Foreign Funds
42 Commodities Futures and Derivatives
46 Structuring a Canadian Hedge Fund
53 Raising Capital
54 The Rise of Alternative Investments in Canada: The Case for Emerging Managers
58 Foreign Investors in Canadian Hedge Funds
62 The Canadian Asset Raising Landscape
66 Thank You to Our AIMA Canada Handbook Sponsors
83 Member Directory: Hedge Fund and FoHF Managers
97 Member Directory: Service Providers
Introduction
6 |
OVERVIEW OF CANADA’S HEDGE FUND INDUSTRY
The establishment of the Canada
National Group of AIMA in 2003 was
an important event for the industry in
terms of bringing Canadian alternative
investment managers, service providers
and investors together to represent
the industry with a common voice.
AIMA Canada’s mandate includes
policy development, promoting sound
practices, investor education and liaising
with regulatory bodies.
What happened in Canada in 2008,
was for the most part, a microcosm of
what happened globally – a number of
funds in the Canadian market were hit
hard and especially highly levered funds
or those focused exclusively on long-
biased equity strategies.
However, there were a number of
strategies and managers that did
very well and provided outstanding
benefits to their investors in the most
challenging of times. Although some
managers closed down, the industry has
emerged stronger than ever.
Today, Canadian hedge fund managers
continue to perform very well
compared to equity markets and the
majority of funds have exceeded pre-
2008 high-water marks.
KCS Fund Management and Simon
Fraser University in British Columbia
published a paper in 2009 entitled
“Risk and Return in the Canadian
Hedge Fund Industry” (an AIMA
Canada-Hillsdale Research Award
INTRODUCTION
Gary OstoichChair, AIMA CanadaPresident, Spartan Fund Management
The Canadian hedge fund industry has come a long way from its inception in the late 80s/early 90s. AUM continues to grow rapidly, reflecting the quality of managers, which has never been higher, the confidence of institutional investors, and the respect that the Canadian financial industry has earned in the international arena.
2012 AIMA CANADA HANDBOOK | 7
winner) about the benefits of investing
with Canadian hedge fund managers.
The paper examined a broad range
of strategies and compared Canadian
performance with hedge funds located
in other jurisdictions – concluding
that Canadian hedge fund managers
provide very attractive opportunities to
Canadian and non-Canadian investors.
From a regulatory perspective, Canada
has had a comprehensive framework
for money managers, including hedge
IXQGV��IRU�GHFDGHV��6RPH�UHÀQHPHQWV�and additional registration requirements
have been implemented; however,
while the additional regulatory burden
continues to be a challenge for new
managers, it has not hampered growth in
our business. On the positive side, there
is a better understanding by Canadian
regulators about hedge funds and their
EHQHÀFLDO�UROH�ZLWKLQ�FDSLWDO�PDUNHWV��which is a good thing for the industry.
In recent years, there has been
significant progress in terms of the
institutionalization of Canadian hedge
fund managers. Better businesses are
being built – focusing on operations,
governance, risk management,
separation of duties and transparency.
As a result, a number of Canadian
managers are ranked on a global basis
as top quality managers – from both
an infrastructure point of view and a
return/risk point of view.
Another positive sign for the industry is
increasing allocations from institutional
investors inside and outside Canada
who are attracted to the performance
and institutionalization of Canadian
fund managers and who wish to access
Canadian funds, whether through
Canadian based fund of funds or
accessing Canadian managers directly.
There is no doubt that the shape of the
Canadian industry has changed over
the years, and will continue to change.
High-caliber managers continue to
enter the industry – typically from
large financial institutions – creating
additional choice and opportunity for
Canadian and international investors.
As well, we have seen the number of
strategies being traded within Canada
expand and some Canadian-based
managers focused on international
markets. This has resulted in a dramatic
shift and growth in the AUM of the
industry, which is estimated, to have
grown from $12 billion five years
ago to over $30 billion today. It is
interesting to note a record number of
Canadian based hedge funds have “hard
closed” over the past 12 months.
All of these factors bode very well
for the future of the Canadian hedge
fund industry.
8 |
ABOUT AIMA CANADA
AIMA was established in 1990 as a
direct result of the growing importance
of alternative investments in global
investment management. AIMA is a
not-for-profit international educational
and research body that represents
practitioners in hedge fund, futures
fund and currency fund management –
whether managing money or providing
a service such as prime brokerage,
administration, legal or accounting.
AIMA’s global membership comprises
over 1,300 corporate members, in
over 40 countries and AIMA Canada
now has over 80 corporate members
including approximately 48 hedge fund
and FoHF managers.
The objectives of AIMA and AIMA
Canada are to provide an interactive and
professional forum for our membership
and act as a catalyst for the industry’s
future development; to provide
leadership to the industry and be its
pre-eminent voice; to develop sound
practices, enhance industry transparency
and education; and to liaise with the
ZLGHU�ÀQDQFLDO�FRPPXQLW\��LQVWLWXWLRQDO�investors, the media, regulators,
governments and other policy makers.
In addition to working with regulators,
holding luncheons and information
sessions, AIMA Canada has developed
several publications focused on Canadian
hedge funds. My fellow AIMA Canada
executives include:
�� Chairman – Gary Ostoich, President of Spartan Fund Management
�� Secretary – Andrew Doman, COO of Man Investments Canada Corp.
�� Treasurer – Christopher Pitts, Partner at PricewaterhouseCoopers LLP
�� Legal Counsel – Michael Burns, Partner at McMillan LLP
�� COO – James Burron, AIMA Canada
Eamonn McConnellDeputy Chair, AIMA Canada Portfolio Manager, Kensington Capital Partners
AIMA Canada, a National Group of the Alternative Investment Management Association (AIMA), was formed in March 2003 to act as the voice of the alternative investment industry in Canada.
INTRODUCTION
2012 AIMA CANADA HANDBOOK | 9
CAIA: EDUCATION IN ALTERNATIVES
James Burron, CAIAChief Operating OfficerAIMA Canada
The progeny of AIMA and the Center for International Securities and Derivatives Management (CISDM) - represented by Florence Lombard and Thomas Schneeweis, respectively - the Chartered Alternative Investment Analyst (CAIA) designation has become the global mark of alternative investment accreditation.
Since the program was officially
launched in 2002, over 5,400 people
worldwide have attained the CAIA
designation (including over 300 in
Canada). CAIA Charterholders hold
membership in the CAIA Association,
which is run out of its world
headquarters in Amherst, Massachusetts
with over a dozen chapters worldwide,
including three active Canadian
sub-chapters in Toronto, Montréal
and Vancouver.
The CurriculumThe curriculum, tested bi-annually with
a 2-level exam format, includes hedge
funds/funds of hedge funds and related
strategies, commodities, derivatives
(including options, futures and various
credit-linked instruments) topics as well
as private equity, public and private real
estate investment (direct and indirect)
and even newer (so-called “alt-alt”)
topics such as cat(astrophe) bonds and
weather derivatives. It is assumed that
candidates have a fairly broad and deep
knowledge of traditional investments
and a pre-test is recommended to
ensure the recommended base of
understanding is present.
CAIA candidates gain in-depth
knowledge on virtually every alternative
investment area of study from both
academics and practitioners who lead
their respective spheres in experience
and ability to make the subjects clear
and relevant.
Bene!t of MembershipAs a founding association, all
employees of members of AIMA
(including those of AIMA Canada) are
eligible to receive a 25% discount on
first-time exam fees. (A savings of over
USD 625 per employee.)
About Canada
12 | ABOUT CANADA
2012 AIMA CANADA HANDBOOK | 13
TORONTO: CANADA’S BUSINESS AND FINANCIAL CAPITAL
Situated only a short travel distance
from the aforementioned cities – gate-
to-gate flight time is approximately
90 minutes from New York, an hour
from Chicago – Toronto makes an ideal
adjunct stop for international investors
making their regular North America due
diligence rounds.
Toronto is home to well over 80 hedge
fund managers and has spawned a
growing and exceptionally dynamic
hedge fund and alternative investment
“ecosystem” with new players constantly
entering the market as spinoffs from
local trading desks, traditional investment
managers and other hedge funds.
With an impressive international
reputation for safety, soundness and
stability, Toronto is also recognized as a
OHDGLQJ�JOREDO�ÀQDQFLDO�VHUYLFHV�FHQWUH��,W�is home to the Toronto Stock Exchange
(the “TSX”) – the third largest exchange
in North America and the seventh largest
in the world by market capitalization
– as well the vast majority of Canada’s
ODUJHVW�EDQNV�DQG�ÀQDQFLDO�VHUYLFHV�ÀUPV��including at last count, ten domestic
banks, eighteen foreign bank subsidiaries,
twenty-one branches of foreign banks,
over a hundred and twenty securities
ÀUPV�DQG�VL[W\�OLIH�LQVXUHUV���
7RURQWR·V�YDVW�ÀQDQFLDO�VHUYLFHV�VHFWRU�makes one of the largest contributions
to the local economy and sustains many
other related industries as a leading
consumer of resources, including law,
accounting, information technology,
education/training, and business
services. It also hosts a growing list of
ÀQDQFLDO�VHUYLFHV�WHFKQRORJ\�SURYLGHUV��seven of the top ten hedge fund
DGPLQLVWUDWRUV�KDYH�VLJQLÀFDQW�RIÀFHV�located in Toronto.
International investment managers
planning a visit would do well to know
that Toronto has over thirty >$1 billion
dollar pension plans – three of Toronto’s
public pension plans rank among the
top sixty in the world – that manage an
aggregate of close to US$500 billion.
Canadian pension plans are well-known
for embracing alternative investments,
including hedge funds (both managed
domestically and by foreign managers).
With a population of close to 2.5 million, Toronto is the business and financial capital of Canada and represents the third-largest North American financial services centre after New York and Chicago. The bulk of Canadian hedge fund managers are situated here.
14 | ABOUT CANADA
2012 AIMA CANADA HANDBOOK | 15
MONTRÉAL: CANADA’S INTERNATIONAL FINANCIAL CENTRE
Although just a short distance – less than DQ�KRXU·V�ÁLJKW�WLPH�²�IURP�1HZ�<RUN�DQG�%RVWRQ��RU�RQH�KRXU�ÁLJKW�IURP�Toronto), what makes Montréal unique is its bilingualism (French and English) making it an ideal gateway between the economies of Europe and America. :KLOH�)UHQFK�LV�WKH�RIÀFLDO�ODQJXDJH�RI �Québec (the Canadian province where Montréal is situated), it has the ability to operate seamlessly in English and other ODQJXDJHV��ÀIW\�SHUFHQW�RI �0RQWUpDO�residents are bilingual while another 18% are trilingual.
This diversity has made Montréal an attractive place for international business. As witness, Montréal is home to more than sixty international organizations, more than 1,250 foreign subsidiaries and corporations and has the highest number of consulates in North America outside of New York.
In addition, over one hundred Montréal-EDVHG�ÀQDQFLDO�ÀUPV�KDYH�EHHQ�awarded the International Financial Centre (“IFC”) accreditation by the International Financial Centre of
Montréal – a local body formed by Québec provincial government in collaboration with the Montréal Exchange and the City of Montréal to promote Montréal as an international ÀQDQFLDO�FHQWUH�²�ZKLFK�DOORZV�WKHP�WR�TXDOLI\�IRU�WD[�EHQHÀWV�RQ�WKHLU�international transactions.
Several of Canada’s chartered banks have WKHLU�KHDG�RIÀFHV�LQ�0RQWUpDO��DV�ZHOO�DV�the management of some of Canada’s largest public pension plans such as the Caisse de dépôt et placement du Québec (the Caisse), the Public Sector Pension Investment Board and several large corporate plans.
Indeed, the Caisse ranks among the largest portfolio managers in North America and is widely considered one of the leading public fund managers in Canada. It has furthermore been on the forefront internationally in the acceptance of alternative investments and, anchored by the Caisse’s tutelage DQG�LQÁXHQFH��0RQWUpDO�KDV�GHYHORSHG�its own hedge fund and alternative investment expertise.
Montréal is Canada’s second largest city with a population of over 1.6 million and North America’s 7th largest, and has a long history of leadership in financial services and pension plan management as well as being home to the Montréal Exchange, the centre of derivatives trading in Canada. Five distinguished finance universities and over 2,000 CFA charterholders reside in and around the city.
16 | ABOUT CANADA
2012 AIMA CANADA HANDBOOK | 17
VANCOUVER: CANADA’S GATEWAY TO THE PACIFIC
Financial services employ more than
55,000 people in the greater Vancouver
area (which consists of over 1.2 million
people). And while Vancouver’s financial
services industry initially started
to support the mining and forestry
industries – for many years the key
drivers of the city phenomenal growth
– now local financial services companies
operate in global markets, leveraging
and facilitating Vancouver’s position as a
global commercial gateway.
Shared language and customs and
proximity with the United States –
Vancouver is only one hour from
Seattle, two hours from San Francisco
and three hours from Los Angeles by
air – are critical assets, as are strong
cultural connections to emerging
Asian economies. Regarding the
latter, Vancouver has in recent years
successfully established itself as a
prominent international centre for
businesspeople and investors from the
Asia-Pacific region looking to establish
a North American beachhead, and is
home to one of the world’s largest and
vibrant Asian immigrant/expatriate
communities.
All five of Canada’s largest banks have
significant operations in Vancouver
as well as several international banks,
including the Canadian headquarters of
London’s HSBC – one of the world’s
largest banks.
In addition, the International Financial
Activity Act (IFAA) promulgated by
the province of British Columbia
(or BC, the Canadian province
where Vancouver is situated) allows
corporations carrying out specified
international financial activities in
British Columbia, where one part of
the transaction is with a non-resident,
to recoup up to 100% of provincial
corporate income taxes. Thus,
Vancouver is developing an important
niche in international treasury and
financial functions, including factoring,
import/export financing, foreign
exchange, and back-office support.
Vancouver repeatedly ranks as one of the world’s most livable cities. Featuring a dynamic internationally-focussed business community – many with strong ties to the rapidly-growing Asia-Pacific region – not to mention modern urban amenities situated just minutes away from world-class ski resorts, pristine beaches and spectacular old-growth forests.
18 | ABOUT CANADA
2012 AIMA CANADA HANDBOOK | 19
CALGARY: WESTERN CANADA’S FINANCIAL CENTRE
Although the energy sector drives
Calgary – the province of Alberta
produces about 70% of Canada’s crude
oil and 80% of its natural gas – the
rapid growth of this sector has fuelled
a whole host of ancillary industries
catering not to just the financing
required by the energy industry but
also to managing and diversifying
the great wealth created by it and its
participants. Indeed, since the early
1990s, Calgary’s financial services
sector has become a major contributor
to the strong economic growth in
Alberta, which is considered among
the fastest growing economies in
North America.
Calgary’s financial services sector
includes all six of Canada’s major
chartered banks, strong regional
banks, international investment banks
and numerous financial investment
firms. This concentration of business
and financial talent has spawned
several strong Calgary-based hedge
funds, many of which have leveraged
their homegrown expertise in the
energy markets.
Given its strong entrepreneurial
culture, Calgary is also the
headquarters for the TSX Venture
Exchange, an exclusively micro-
cap and small-cap stock exchange
(affiliated with Toronto’s TMX
Group) that provides much-needed
access to capital for early-stage
companies in all industry sectors
across Canada.
Calgary – a city of over 1 million people situated in the southern part of the province of Alberta – is Western Canada’s business centre and has more head offices per capita than any other Canadian city. While Toronto has traditionally been viewed as Canada’s financial centre, the growth in Calgary – largely but not exclusively due to its strength in the energy sector – means that the city has been gaining a reputation as a global financial centre.
20 |
CANADIAN BANKS: PRIME EXAMPLES OF STABILITY
Why Canada’s Banks Survived the Crisis
The Canadian Bankers Association points to four key factors for the success of the V\VWHP�DQG�WKH�&DQDGLDQ�EDQNV·�DELOLW\�WR�ZLWKVWDQG�WKH�VKRFN�RI �WKH�ÀQDQFLDO�FULVLV�1
���%DQNLQJ�V\VWHP�GLYHUVLÀHG�ZLWK�ZHOO�PDQDJHG�LQVWLWXWLRQV�
a. The major investment banks are anchored by solid deposit-taking institutions
E���'LYHUVLÀFDWLRQ�RI �UHJLRQDO�ULVN
c. Lending decisions are on a case-by-case basis, extending credit to borrowers that can repay their loans
2. Canada’s strong regulatory system:
D��� &DQDGD�KDV�WZR�RQO\�SULPDU\�UHJXODWRUV��WKH�2IÀFH�RI �WKH�6XSHULQWHQGHQW�RI �Financial Institutions (OSFI) for regulation and the Financial Consumer Agency of Canada (FCAC) for consumer affairs
3. Strong capitalization of the national banks:
a. As some of the best capitalized in the world, Canadian banks greatly exceed the guidelines set by the Bank for International Settlements
Les MartonHead of Capital Introduction & Hedge Fund Consulting ServicesScotiabank
Alfredo D’OnofrioDirector, Prime Services Scotiabank
Crises, what Crises? The credit crisis of 2008 and the near collapse of certain !nancial institutions previously thought “unassailable” has been well-reported, but little has been said of how Canadian banks remained solvent during the many recent global banking crises.
1 March 2009 remarks by Nancy Hughes, President & CEO of the Canadian Bankers Association to the House of Commons Standing Committee on Finance http://www.cba.ca/contents/files/presentations/pre_20090309_01_en.pdf
ABOUT CANADA
2012 AIMA CANADA HANDBOOK | 21
b. Strategically raising equity in the marketplace when appropriate
4. Prudent mortgage lending:
a. The vast majority of mortgages are prime and only 20% are securitised
b. Mortgages with less than 20% down must be insured
c. Mortgage arrears are very low (0.33% for the seven largest Canadian banks)
Impact of the Global Financial Crisis and Hedge Funds’ Response
Canadian banks have capabilities that dovetail nicely with some of the post-2008 needs of hedge fund managers.
Hedge funds by virtue of their strategies are poised to capitalize on the ensuing market opportunities. However these same developments have caused prudent fund managers WR�UHÀQH�WKHLU�DSSURDFK�WR�FRXQWHUSDUW\�ULVN�
Six key trends have emerged to help shape industry thinking:
1. Vastly different macro environments, both from an economic and regulatory � SHUVSHFWLYH��KDYH�LQFUHDVHG�WKH�LPSRUWDQFH�RI �GLYHUVLI\LQJ�ÀQDQFLQJ�� � � relationships jurisdictionally.
2. Investors are demanding more transparency of a hedge fund’s infrastructure, counterparty relationships, portfolio structures and risk management.
3. Hedge funds require a greater legal understanding of asset segregation and re- hypothecation rules, and how they apply to their accounts.
4. The multiple-prime broker scenario has increasingly become the standard structure for all hedge funds with a critical asset base.
5. Hedge funds need advanced operations platforms to manage these multiple counterparty relationships.
6. Many large hedge funds have entered into multi-prime relationships in order to manage counterparty risk.
Multiple-Primes and the Case for Jurisdictional Diversi!cation7KH�PXOWLSOH�SULPH�EURNHU�DUUDQJHPHQW�RIIHUV�D�QXPEHU�RI �LPSRUWDQW�EHQHÀWV�WR�hedge funds:
�� &RXQWHUSDUW\�ULVN�GLYHUVLÀFDWLRQ
�� Access to a larger pool of securities lending and hard to borrow securities
�� 5HVHDUFK�DFURVV�ÀUPV�DQG�DFFHVV�WR�PRUH�FRPSDQLHV
�� Multiple capital introduction sources
22 |
StableAA-AA-Toronto-Dominion Bank 3
StableAA-AA-Bank of Nova ScoƟa1
Rank Name Today Dec, ‘07 Credit Watch
2 Royal Bank of Canada AA- AA- Stable
4 BNP Paribas AA- AA+ NegaƟve
5 Bank of Montreal A+ A+ Stable
6 CIBC A+ A+ Stable
7 Wells Fargo & Co. A+ AA+ NegaƟve
8 Deutsche Bank A+ AA- NegaƟve
9 US Bancorp A AA Stable
10 JPMorgan Chase A+ AA- NegaƟve
11 Barclays Capital A+ AA- NegaƟve
12 Credit Suisse Group A+ A+ NegaƟve
13 Société Générale A AA- Stable
14 UBS A AA NegaƟve
15 Goldman Sachs A- AA- NegaƟve
16 Bank of America A- AA NegaƟve
17 CiƟgroup A- AA NegaƟve
18 Morgan Stanley A- AA- NegaƟve
StableAA-AA-Toronto-Dominion Bank 3
StableAA-AA-Bank of Nova ScoƟa1
Rank Name Today Dec, ‘07 Credit Watch
2 Royal Bank of Canada AA- AA- Stable
4 BNP Paribas AA- AA+ NegaƟve
5 Bank of Montreal A+ A+ Stable
6 CIBC A+ A+ Stable
7 Wells Fargo & Co. A+ AA+ NegaƟve
8 Deutsche Bank A+ AA- NegaƟve
9 US Bancorp A AA Stable
10 JPMorgan Chase A+ AA- NegaƟve
11 Barclays Capital A+ AA- NegaƟve
12 Credit Suisse Group A+ A+ NegaƟve
13 Société Générale A AA- Stable
14 UBS A AA NegaƟve
15 Goldman Sachs A- AA- NegaƟve
16 Bank of America A- AA NegaƟve
17 CiƟgroup A- AA NegaƟve
18 Morgan Stanley A- AA- NegaƟve
S&P Credit Ratings*
* Long Term Local debt rating as at February 3, 2012
ABOUT CANADA
Of course, simply having multiple prime brokers is not a panacea for all hedge fund FRXQWHUSDUW\�LOOV��7R�FRPSOHPHQW�WKH�GLYHUVLÀFDWLRQ�DFKLHYHG�E\�KDYLQJ�D�PXOWLSOH�prime arrangement, a thorough analysis of each counterparty is required. Having the right counterparties is clearly critical and encompasses other factors such as service DQG�SULFLQJ�DV�ZHOO�DV�ÀQDQFLDO�YLDELOLW\��FDSLWDO�UDWLRV��TXDOLW\�RI �FDSLWDO�DQG�OHYHUDJH��The lessons of 2008 are all-too fresh and the strength of the prime broker and its bank parent need to be carefully considered. Fortunately for Canadian banks, they have HPHUJHG�RXW�RI �WKH�GHWULWXV�RI �WKH�JOREDO�ÀQDQFLDO�PHOWGRZQ�ZLWK�WRS�FUHGLW�UDWLQJV�and are extremely well-regarded internationally as the following chart from Standard & Poor’s indicates.
2012 AIMA CANADA HANDBOOK | 23
1 Basel III: Now the hard part for European banks http://www.mckinseyquarterly.com/Basel_III_Now_the_hard_part_for_European_banks_2704
The global economic landscape is, in some respects, as fluid as it has been in some time and concerns about counterparty risk are heightened. The implications of the 2011 U.S. downgrade and the ever-looming European debt crisis, combined with pending regulatory changes have been themes that put into question the strength of many of the world’s largest global investment banks.
�� While continuing questions around Greek default or restructuring may not necessarily cause European banks to become insolvent (outside of Greece), contagion fears and risk aversion could no doubt lead to further downgrades of some banks.
�� Basel III and the Dodd-Frank legislation are expected to exert additional pressure to banks’ business and services. According to a November 2010 McKinsey study, Basel III1�ZLOO�KDYH�D�VLJQLÀFDQW�LPSDFW�RQ�WKH�(XURSHDQ�EDQNLQJ�VHFWRU�DV�E\�2019 the European banking industry will require approximately $1.1 trillion of additional Tier 1 capital, $1.3 trillion of short-term liquidity and $1.3 trillion of short-term funding. The capital need is roughly equivalent to almost 60% of European and U.S. Tier 1 capital outstanding.
�� The Dodd-Frank legislation in the U.S. looks to force banks to reduce business activities deemed outside the scope of traditional banking norms. The long-term impact is difficult to assess, however U.S. banks are rethinking business models to accommodate the new regulations, including the winding down/spinning out of proprietary trading desks.
The Road Ahead
While the global economy had, until quite recently, rebounded from the tumult of late 2008, the path of recovery has shown itself to be uneven and fragile. Between the sovereign debt crisis in Europe, the introduction of new banking rules through Basel III and Dodd-Frank legislation and the continuing concern over rising debt levels, the challenges that face hedge funds have certainly grown in number and complexity. Within the global topography of the banking industry, there are few players that have proven themselves based on their ability to successfully navigate through the financial crisis – Canadian banks are among them.
24 |
FUND ADMINISTRATION FOR THE GLOBAL HEDGE FUND INDUSTRY
History of an IndustryThe fund administration industry in Canada first experienced substantial growth in the 1990s in lock-step with the growth of the largely U.S.-driven hedge fund industry. At that time, this level of growth, combined with increasing complexity of fund vehicles and investment strategies, as well as certain U.S. tax rules impacting offshore funds, resulted in many offshore centres being constrained from an infrastructure and resource perspective. These factors were critical in driving fund administrators to look to alternative locations for their operations around the world. Toronto thus emerged as a key centre, with a number of global administrators establishing operations to take advantage of some key attributes:
�� Time Zone/Location – an advantageous Eastern Time Zone and convenience of being only an hour or so away from New York and Boston;
�� Qualified Personnel – Canada has established financial centres with an abundance of qualified professionals and support staff familiar with the capital markets. These human resources also have a similar training and work ethic as found in most U.S. cities, together with cost-effective wages compared to their U.S. counterparts;
�� Communications – strong telecommunications infrastructure at comparably cheaper costs to Europe and the Caribbean; and,
Chris PittsPartner, Audit and Assurance GroupPricewaterhouseCoopers LLP
The fund administration industry in Canada is a thriving part of the Canadian !nancial services economy, with participants across the spectrum from the Canadian boutique administrators to multi-faceted global service providers. In addition, Canadian administrators play a signi!cant role in the global hedge fund industry and Canada’s broad reach in this area has historically not been well-known or fully appreciated.
ABOUT CANADA
2012 AIMA CANADA HANDBOOK | 25
�� Tax considerations – free trade agreements, particularly with the U.S., as well as Canadian safe harbour tax rules supporting the provision of administration services to offshore funds.
A Thriving IndustryIn the last decade, the growth of the global fund administration industry in Canada has continued, driven by a variety of factors including a clear and distinct advantage over hurricane-prone offshore centres, the impact of increasing competition in the administration industry that has led organizations to set up key centres of excellence, focused tax incentives by certain levels of government in different parts of the country, and the positive afterglow that Canada has experienced in managing its financial system through the global economic crisis. As a result, while the most significant concentration of operations remains in Toronto, there are centres across the country in Halifax, Montréal and Vancouver, and the number of global administrators operating in the country has grown significantly.
Going ForwardIn this current environment of additional regulation and increased pressure from investors for transparency and robust operational infrastructure, fund administrators continue to expand their service offerings to enable managers to outsource more processes than ever before. Changes in regulatory
and tax regimes are also increasing the complexity of information reporting requirements, from anti-money laundering regulatory requirements to the impact of the Dodd-Frank reforms, the U.S. Foreign Account Tax Compliance Act (FATCA) and Europe’s Alternative Investment Fund Manager Directive (AIFMD). The move to outsourcing has never been more compelling, and the strength of the infrastructure capabilities that are available in Canada never better.
Members of AIMA Canada cover the spectrum from the locally-focused administrator to the global player with operations in numerous countries that service the entire gamut of the hedge fund industry, retail and/or listed vehicles through to privately offered funds.
Regulation, Compliance &
Structuring
28 |
SECURITIES REGISTRATION AND COMPLIANCE
Hedge fund managers in Canada, like
other asset managers, may be subject
to several types of registration. The
registration requirements and ongoing
registrant obligations are stringent and
comprehensive, demanding that hedge
fund managers focus on compliance.
National Instrument 31-103 Registration
Requirements, Exemptions and Ongoing
Registrant Obligations (“NI 31-103”)
establishes registration requirements
and exemptions and generally regulates
registrants’ activities in all Canadian
jurisdictions. Under Canadian securities
laws, firms generally must register if
they are in the business of trading,
in the business of advising, holding
themselves out as being in the business
of trading or advising, or acting as an
investment fund manager. If a firm
engages in more than one of these
registerable activities, then (unless it
is otherwise exempt) the firm must
register in all applicable categories.
1. Registration RequirementsFor hedge funds operating in Canada,
the dealer, adviser and investment
fund manager registration categories
are relevant:
Darin R. RentonPartnerStikeman Elliott LLP
In Canada, securities regulation is a matter of provincial and territorial jurisdiction. Each of the thirteen jurisdictions has its own securities laws, policies and rules that are administered by a securities regulatory authority or regulator. However, the registration rules have been harmonized, streamlined and modernized, so that compliance with the harmonized national rules will generally result in compliance with the rules in all provinces and territories, with the largest jurisdiction, Ontario, typically acting as lead regulator.
REGULATION, COMPLIANCE & STRUCTURING
2012 AIMA CANADA HANDBOOK | 29
(a) Dealer RegistrationPersons who are in the “business of
trading” in securities are required to be
registered as a dealer in each Canadian
jurisdiction where purchasers reside.
Hedge fund managers typically address
the dealer registration requirement
by registering as an exempt market
dealer (“EMD”) or retaining a third
party dealer to facilitate their offerings.
An EMD is permitted to trade in
the exempt market (a) in securities
being distributed under a prospectus
exemption or (b) with persons or
companies to whom a security may
be distributed under a prospectus
exemption (for example, trading with
an accredited investor). “Trading”
is broadly defined under Canadian
securities laws to include not only the
sale or disposition of a security for
valuable consideration, but also any
act, solicitation or conduct which is
directly or indirectly in furtherance of
the sale or disposition of a security.
Accordingly, a hedge fund manager
that is not registered as a dealer is not
permitted to contact and deal directly
with prospective clients. Any such
contact would generally be considered
an act in furtherance of a trade and
would accordingly trigger the dealer
registration requirement.
A second dealer category is that of
an investment dealer which, unlike
an EMD, may trade in virtually any
security with any client (subject to
“know your client” criteria and the
appropriateness of each trade).
(b) Adviser RegistrationCanadian securities laws require a
person or company providing portfolio
management services for a Canadian
hedge fund to be registered as an
adviser in the local jurisdiction where
the hedge fund receives the advice
(typically, the jurisdiction in which the
fund is managed). Adviser registration
exemptions are available to international
advisers and, in certain jurisdictions, to
non-resident sub-advisers.
(c) Investment Fund Manager RegistrationCanadian securities laws require a
person that directs the business,
operations or affairs of an investment
fund to be registered as an investment
fund manager (“IFM”) in the province
or territory in which its head office
is located. A Canadian IFM is also
required to register in other provinces
or territories if the fund it manages has
security holders that are local residents
and the IFM or the fund has “actively
solicited” local residents to purchase
securities of the fund. An exemption
from the requirement for Canadian
investment fund managers to register
in jurisdictions other than the one in
which their head office is located has
been extended to September 28, 2012.
30 |
2. Ongoing Compliance Requirements
(a) RegistrationNI 31-103 regulates the registration of
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SURÀFLHQF\��VROYHQF\�DQG�LQVXUDQFH�requirements, as well as ongoing
compliance requirements for registrants.
These include requirements with respect
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(b) FeesFees payable by registrants vary
depending on the jurisdiction of
registration. In some jurisdictions
fees are fixed for the firm and for the
individuals registered under the firm,
while in others fees are based on the
revenues earned by the firm in the
jurisdiction. For example, in Ontario
registered and exempt firms are
required to pay an annual capital market
participation fee based on revenues
earned in Ontario.
(c) Anti-Money Laundering and Anti-Terrorist Financing LegislationFirms are subject to Canadian anti-
money laundering and anti-terrorist
financing legislation. Under this
legislation, registrants face certain
reporting, filing, record-keeping,
client identification and compliance
regime requirements, as well as certain
other monitoring requirements and
restrictions on dealing with designated
individuals and groups. Firms must
comply with the monthly reporting
requirements under federal anti-
terrorist financing and UN sanction
regulations. Generally, firms are
required to complete a monthly
prescribed reporting form and submit
the form to their principal regulator on
the fourteenth day of each month.
(d) Privacy LegislationPrivacy legislation, enacted in Canada
at both the federal and provincial
levels, applies to the collection, use and
disclosure of “personal information”
of an individual by an organization in
the course of commercial activities.
As part of its obligations, a registered
firm is accountable for the information
it collects, may only collect personal
information that is necessary for the
purposes identified to the subject
individual, and must obtain consent
of the individual to collect, store and
disclose personal information.
3. Other Ongoing Filing RequirementsHedge funds that distribute their
securities pursuant to certain private
placement exemptions (including the
Minimum Amount and Accredited
Investor exemptions as detailed in NI
REGULATION, COMPLIANCE & STRUCTURING
2012 AIMA CANADA HANDBOOK | 31
45-106) must file a report of exempt
distribution in the required form,
together with the prescribed fees, with
the securities regulatory authority in the
province or territory in which the trade
occurs. A hedge fund manager may elect
to file such reports within ten calendar
days of each trade (the usual deadline)
or, for convenience, not later than 30
days after the financial year-end of the
fund. Depending on the jurisdiction,
the filing fees are either fixed or equal
to a percentage of the gross proceeds
realized from the sale of securities in
such jurisdiction. Such reports disclose
personal information such as the
purchaser’s name, address, telephone
number and the number and value of
any securities purchased.
There are generally no requirements
to provide an offering memorandum
to investors and limited prescribed
disclosure for an offering memorandum
(unless the fund is being offered under
offering memorandum exemption). If
an offering memorandum is delivered
in connection with a distribution of
securities in reliance on certain private
placement exemptions, it will typically
need to be filed with the appropriate
securities regulator. If the hedge fund
is conducting multiple closings, the
offering memorandum must be filed
on or before the tenth day after the
first closing, otherwise it must be filed
on or before the tenth day after the
distribution is completed.
Most hedge funds are also required
to file annual and semi-annual
financial statements with the securities
regulatory authorities. However,
a hedge fund is exempt from this
requirement if the applicable financial
statements are prepared and delivered
to its securityholders in accordance
with applicable securities law and
certain other conditions are met.
ConclusionAs noted, Canada has a well-developed
system of fund manager registration
and regulatory oversight over all asset
managers—both long-only and hedge
fund management companies.
AIMA Canada has an active dialogue
with its members and regulatory
bodies in order to maintain a soundly
regulated and successful asset
management industry built on the long-
standing foundations of registration,
compliance and operational controls.
32 |
MARKETING & SALE OF FOREIGN DOMICILED INVESTMENT FUNDS IN CANADA
Registration Requirements Any person proposing to engage in
the business of a dealer or investment
adviser in Canada or who acts as
investment fund manager may be
required to register (the “Registration
Requirement”) with one or more
provincial/territorial securities
regulatory authorities under the
aforementioned National Instrument
31-103. There are only a limited
number of exemptions available from
the Registration Requirement. Failing
to properly register in an appropriate
category (or take the necessary steps
in order to rely on an exemption from
registration) or engaging in activities
beyond the scope of an entity’s
registration (or exemption from
registration) is a contravention of
Canadian securities laws and may
result in the assessment of sanctions
and penalties.
What Triggers the Requirement to Register? Generally speaking, entities will be
required to register if they are: (i) in
the business of, or holding themselves
out as being in the business of, trading
securities (the dealer category); (ii) in
the business of, or holding themselves
out as being in the business of, advising
in respect of the buying and selling of
securities (the adviser category); or (iv)
Michael BurnsPartnerMcMillan LLP
This article provides an overview of the securities law requirements in Canada relating to the marketing and sale of foreign domiciled investment funds (“Foreign Funds”) on a private placement basis, with a specific focus on the registration, offering document and filing requirements which the manager of a Foreign Fund will need to consider.
REGULATION, COMPLIANCE & STRUCTURING
2012 AIMA CANADA HANDBOOK | 33
acting as an investment fund manager.
Dealers and Advisers In determining if registration as a
dealer or adviser is required, Canadian
regulators consider the type of activity
and whether it is carried out for a
business purpose. This “business
purpose” criterion is referred to as
the “business trigger” for registration.
Canadian securities regulatory
authorities may consider a variety
of factors in determining whether
the business trigger has been met
including but not limited to: (i) whether
a specified activity is carried out with
repetition, regularity or continuity; (ii)
whether the activity includes promoting
securities or offering advice to solicit
securities transactions; (iii) whether a
person acts as an intermediary between
a seller and buyer of a security; and
(iv) whether a person expects to be
compensated for the activity.
Investment Fund ManagersInvestment fund managers are not
subject to a business trigger test under
NI 31-103. This generally means that
if a firm carries on the activities of an
investment fund manager (i.e., managing
the day to day business and affairs of an
investment fund), it must register.
Categories of RegistrationAs detailed in the preceding article
Securities Regulation and Compliance,
the registration categories that would
typically be required to engage in the
marketing and sale of Foreign Funds
under NI 31-103 are as Investment
Dealer, Exempt Market Dealer and
Investment Fund Manager.
Canadian securities regulatory
authorities do not apply a “look
through” test in relation to investment
funds as it relates to the adviser
registration requirement. The
investment advice is considered to
be provided to the investment fund
itself rather than to “flow through”
to the investors in that investment
fund. While registration as an adviser
is required for Canadian domiciled
investment advisers or for the provision
of investment advice to investment
funds which are established under
the laws of a jurisdiction of Canada,
a foreign domiciled adviser would
generally not be required to register
as an adviser in Canada if its activities
are restricted solely to providing
investment advice to Foreign Funds
(even if Canadian residents invest in
such Foreign Funds).
Each category of registration under
NI 31-103 contains a detailed set
of proficiency, minimum capital,
insurance, record keeping, financial
reporting, conflict of interest,
annual fee and other compliance
requirements. These requirements must
be met in order to obtain and maintain
34 |
registration as a dealer, adviser or
investment fund manager. Registration
in more than one category and
province/territory may be necessary,
depending on the scope of activities
being conducted in Canada.
Exemptions From the Dealer and Investment Fund Manager Registration Requirement
International Dealer ExemptionThe international dealer exemption
allows non-Canadian dealers who
are registered to deal in securities in
the jurisdiction where their principal
place of business is located to provide
restricted services to permitted clients
without having to register under NI 31-
103. Generally speaking, this exemption
restricts the international dealer’s
activities to contracting only with
permitted clients1 in relation to trades in
foreign securities2.
An international dealer must satisfy
each of the following conditions in
order to rely on the international dealer
exemption:
�� the head office or principal place of
business of the dealer is in a foreign
jurisdiction;
�� the dealer is registered under
the securities legislation of the
foreign jurisdiction in which its
head office or principal place of
business is located in a category of
registration that permits it to carry
on the activities in that jurisdiction
that registration as a dealer would
permit it to carry on in the local
jurisdiction;
�� the dealer engages in the business of
a dealer in the foreign jurisdiction
in which its head office or principal
place of business is located;
�� the dealer is acting as principal
or as agent for the issuer of the
securities, for a permitted client, or
for a person or company that is not
a resident of Canada;
�� the dealer has submitted to the
securities regulatory authority
a completed Form 31-103F2
Submission to Jurisdiction and
Appointment of Agent for Service;
and
�� the dealer complies with the annual
filing/fee requirements as long as it
continues to rely on the exemption.
REGULATION, COMPLIANCE & STRUCTURING
1 Generally speaking, for the purposes of the international dealer exemption the permitted client category includes large institutional investors such as banks, pension funds, trust companies, registered advisers and dealers and very high net worth (over $5,000,000) individuals.
2 For the purposes of the international dealer exemption, foreign securities include securities issued by an issuer formed under the laws of a foreign (non-Canadian) jurisdiction or issued by a foreign government
2012 AIMA CANADA HANDBOOK | 35
In addition, in order to rely on the
international dealer exemption in
respect of a trade with a permitted
client the international dealer must
provide the client with prescribed
disclosure relating to the dealer’s non-
resident status, unless the client is a
person registered under the applicable
Canadian securities legislation.
The international dealer exemption may
be of assistance to foreign managers
wishing to market Foreign Funds in
Canada. However, if the manager is not
able to rely on the exemption or if it
wishes to market the Foreign Fund to a
broader group of potential investors in
Canada, it may be necessary to engage
either an entity which is able to rely
on the international dealer exemption
(in respect of trades with permitted
clients) or a locally registered dealer
to intermediate the investment by
Canadian residents in the Foreign Fund.
Temporary exemption for foreign Investment Fund ManagersUnder the current provisions of NI
31-103, the investment fund manager
registration requirement does not apply
to a person or company that is acting as
an investment fund manager if its head
office is not in a jurisdiction of Canada.
However, this temporary exemption is
currently set to expire on September 28,
2012. The exemption is expected to be
repealed once multilateral instrument
32-102 – Registration Exemptions
for Non-Resident Investment Fund
Managers and multilateral policy,
31-202 – Registration Requirement for
Investment Fund Managers detailing
the circumstances under which a
foreign domiciled manager would
have to register as an investment fund
manager are adopted (following a
period of public consultation) by the
securities regulatory authorities in
the applicable provinces and territories
of Canada.
If Multilateral Instrument 32-102,
Registration Exemptions for Non-
Resident Investment Fund Managers is
brought into force in its current form,
foreign domiciled investment fund
managers may be required to register
in the Province of Ontario, Québec,
New Brunswick or Newfoundland and
Labrador if the manager has engaged
in active solicitation of investors in
such jurisdiction, subject to certain
limited exemptions.
If Multilateral Policy 31-202,
Registration Requirement for
Investment Fund Managers is
brought into force in its current
form, foreign domiciled investment
fund managers would be required to
36 |
register in the remaining jurisdictions
in Canada (British Columbia, Alberta,
Saskatchewan, Manitoba, Prince Edward
Island or Nova Scotia, Nunavut, the
Yukon Territory or the Northwest
Territories) if the manager (i) carries
on the functions and activities of
an investment fund manager in that
jurisdiction; or (ii) has its head office
or principal place of business in the
jurisdiction or conducts the activities
of an investment fund manager
from a physical place of business in
such jurisdiction.
Use of O"ering DocumentsThe distribution of materials to
prospective purchasers in Canada
describing the business of the Foreign
Fund in the context of an offering of
securities of the Foreign Fund which
are designed to assist the prospective
purchaser make an investment
decision in relation to the securities
of the Foreign Fund may result in
such materials being considered as
an “offering memorandum” under
applicable Canadian securities legislation.
Care should be exercised in relation to
marketing materials which are provided
to potential purchasers in Canada to
ensure that they would not be considered
to be an offering memorandum under
Canadian securities laws.
Securities legislation in several
provinces and territories of Canada
provide for statutory rights of action
for purchasers to sue for damages or
rescission in the event that an offering
memorandum is found to contain a
misrepresentation.3 A description of
these statutory rights is required to be
included in any offering memorandum
provided to potential purchasers. In
addition, there may be Canadian-
specific disclosure (e.g., additional
Canadian specific risk factors or
tax considerations) in relation to an
investment in a Foreign Fund which
may need to be included in a offering
memorandum for a Foreign Fund
in order to prevent that document
from containing a misrepresentation
for Canadian purposes. As a result,
it is advisable for managers of
Foreign Funds to prepare a Canadian
“wrapper” for the offering documents
of the Foreign Fund which contains
Canadian specific disclosure.
The subscription materials for an
investment in a Foreign Fund will also
need to be customized (usually through
the use of a schedule or addendum to
be completed by Canadian purchasers)
to ensure that the distribution of the
REGULATION, COMPLIANCE & STRUCTURING
3 A “misrepresentation” is generally defined as (i) an untrue statement of a material fact, or (ii) an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in the light of the circumstances in which it is made.
2012 AIMA CANADA HANDBOOK | 37
securities of the Foreign Fund may
occur in Canada on a basis which
is exempt from the requirement for
the Foreign Fund to file and clear a
prospectus in Canada.
Filing RequirementsAs mentioned in the previous article,
Securities Regulation and Compliance, the distribution of securities of a
Foreign Fund in Canada in reliance
on an exemption from the prospectus
requirement will necessitate the filing
of a prescribed form of report of the
exempt distribution with the securities
regulatory authority in each province
or territory where purchasers of
securities are located. In addition, a
copy of any offering memorandum
(and any amendment thereto) used in
connection with the distribution of
securities may be required to be filed
with the securities regulatory authority
in the jurisdictions where purchasers
of securities of the Foreign Fund are
located.
Conclusion Canada features a comprehensive
securities regulatory system to maintain
integrity in its capital markets. Managers
of Foreign Funds should consult
with Canadian legal counsel prior to
engaging in any marketing activities in
relation to Foreign Funds in Canada.
38 |
TAX CONSIDERATIONS FOR FOREIGN FUNDS
Tax considerations often influence
how these opportunities are pursued.
From this perspective, foreign fund
managers should be focused on how
to structure Canadian investments to
minimize Canadian withholding and
income tax on investment returns as
well as structuring funds, including
feeder funds, in a tax-efficient manner
to raise capital from Canadian taxable
and non-taxable investors. In addition,
an offshore foreign fund that engages
Canadian service providers will need to
comply with the Canadian safe harbour
rules in order to minimize the fund’s
Canadian tax exposure.
Foreign Hedge Funds Engaging Canadian Service ProvidersNo matter what opportunity a foreign fund may pursue in Canada, it is prudent for the fund to do so without risking carrying on business in Canada. If a foreign fund was considered to carry on business in Canada, profits from that business (including interest, dividends, fees, and trading gains) would be subject to Canadian income tax. The phrase “carrying on business” in Canada is broadly defined and the concern is that foreign funds risk carrying on business in Canada by virtue of receiving services from Canadian-resident service providers
Manjit SinghAssociateWilson & Partners LLP*
Vinod RamnarineManager, Financial Services Corporate Tax GroupPricewaterhouseCoopers LLP
Opportunities & Tax Considerations There are extensive opportunities in Canada for foreign hedge funds. Canada offers opportunities not only for investment, but also for raising capital and engaging Canadian service providers in Canada’s vast talent pool that supports the fund industry’s outsourcing needs.
*a law firm affiliated with PricewaterhouseCoopers LLP
REGULATION, COMPLIANCE & STRUCTURING
2012 AIMA CANADA HANDBOOK | 39
(such as investment advisors, managers, dealers) or exerting influence over such Canadian-resident service providers. Fortunately, the Canadian safe harbour rules specifically address this tax risk.
Safe Harbour Rules The Canadian safe harbour tax rules apply to foreign funds structured as corporations or trusts, and to foreign partners of funds structured as partnerships. The safe harbour rules are particularly beneficial for funds resident in countries with which Canada does not have a tax treaty. If all of the necessary requirements are met, the safe harbour rules will deem a foreign fund, (or, in the case of a partnership, the foreign partner) not to carry on business in Canada solely by virtue of engaging Canadian service providers.
Safe Harbour Requirements Specifically, the Canadian safe harbour rules apply to “designated investment services” provided to a foreign fund in respect of the fund’s investments. The term “designated investment services” generally includes the provision of investment management and advice, brokerage services, investment administration services, back-office functions, custodian services and marketing services in respect of the marketing of fund units to non-resident investors. However, in some cases, the services to which the safe harbour rules apply must be in respect of only “qualified investments.”
Although the term “qualified investments” is quite broad and includes most types of investments, such as, debt securities, annuities, commodities, currencies, options and other types of derivative, there is one important limitation in respect of equity securities. An equity security of an entity (i.e., a corporation, partnership, trust, entity, fund or organization) that derives more than half its value from Canadian real and resource properties will generally not be a “qualified investment” if either (a) the security is not listed on a stock exchange, or (b) if it is listed, the foreign fund, either alone or together with non-arm’s length persons, owns greater than 25% of equity securities (of any class) of the entity. Consequently, a foreign fund that is intending to invest in securities of Canadian real property or resource companies will need to undertake additional tax planning to mitigate their tax risks associated with engaging Canadian service providers.
To be eligible for the protection
offered by the safe harbour rules, a foreign fund must satisfy a number of other conditions. These conditions generally impose some restrictions on a foreign fund’s ability to own equity interests in a Canadian service provider and, perhaps more importantly, a foreign fund’s ability to raise capital from Canadian investors. If a foreign fund is intending to raise capital from
40 |
Canadian investors, additional planning involving the use of feeder funds or partnerships can be undertaken to ensure the safe harbour rules still apply.
Foreign Hedge Funds Raising Capital from Canadian Investors
To raise capital from Canadian investors, a foreign fund manager may consider establishing a Canadian domiciled fund either to serve as a feeder fund to an offshore master fund, or as a fund that parallels a foreign fund. In Canada, a number of different investment vehicles may be used, including trusts, limited partnerships and corporations. The relevant tax considerations in respect of each such type of vehicle are reviewed in the following article entitled Structuring a Canadian Hedge Fund.
There are some tax risks associated with foreign hedge funds permitting direct investment by Canadians. Regardless of whether the safe harbour rules are a relevant consideration or not, foreign hedge funds that permit direct investment into their funds by Canadian investors should be aware that taxable Canadian investors will need to consider whether the “offshore investment property” and “non-resident trust” rules in the Income Tax Act (Canada) are applicable to them, given their particular facts and circumstances. If these rules are applicable to a Canadian investor, a foreign hedge fund may have to deal with additional information requirements that will need to be
fulfilled in order to facilitate Canadian tax compliance by Canadian investors. In addition and as discussed above, foreign hedge funds that engage Canadian service providers face restrictions under the safe harbour rules which effectively restrict their ability to raise capital directly from Canadian investors unless the fund is structured as a partnership.
Foreign Hedge Funds Investing in Canada Foreign hedge funds wishing to pursue investment opportunities in Canada will be interested in minimizing withholding tax levied on Canadian sources of income earned either by the fund directly or, if the fund is a flow-through entity, by its non- Canadian investors.
Canadian income tax rules generally require that withholding tax at a rate of 25% be withheld from certain types of income paid to non-residents. Generally, corporate dividends and income distributions from a trust are subject to withholding tax; however, residents of countries with which Canada has a tax treaty may be entitled to a reduced rate of withholding tax as provided for in the treaty. Canadian income tax rules have eliminated withholding tax on certain interest payments paid to arm’s length parties, and thus non-resident investors generally no longer need to rely on a tax treaty to obtain a favourable withholding tax rate on interest.
REGULATION, COMPLIANCE & STRUCTURING
2012 AIMA CANADA HANDBOOK | 41
Where a foreign hedge fund is resident in a country with which Canada has a tax treaty, the legal status of the foreign hedge fund in the country of formation may be an important consideration for determining whether the fund itself would be eligible for treaty benefits in respect of Canadian source income.
Generally, Canada seeks to tax gains arising on the disposition of “taxable Canadian property” (TCP), subject to any relief that may be available to a non-resident investor through a tax treaty. Recent amendments to the definition of TCP have significantly narrowed the types of securities that are TCP. Publicly listed shares and units of a mutual fund trust generally would not qualify as TCP unless the non-resident along with non-arm’s length person holds a significant holding in the corporation or trust and greater than 50 per cent of the fair market value of the shares or units is derived from Canadian real property or resource property.
Canadian Hedge Fund Managers Establishing a Foreign Hedge FundA Canadian hedge fund manager that is considering establishing a foreign hedge fund to raise capital from non-Canadian investors must also consider the tax issues outlined above. In particular, a foreign fund managed by a Canadian manager will need to satisfy the safe harbour rules to ensure that the foreign fund is not, by virtue of receiving investment advice from the Canadian fund manager, considered to be carrying
on business in Canada.
In addition, consideration needs to be given to corporate governance of entities within the foreign hedge fund structure. In particular, where an entity within the foreign hedge fund structure has a board of directors or trustees that includes some Canadian-based directors or trustees, care must be taken to ensure that such entity is not, inadvertently, considered to be resident in Canada by virtue of having its “central management and control” located in Canada. Generally, the “central management and control” of an entity resides in the jurisdiction where the effective decision-making relating to high-level matters of the entity occurs. A certain degree of care and diligence is necessary to ensure that an offshore entity with Canadian based directors and/or trustees establishes, documents and continuously maintains an effective decision making process to ensure that the central mind and management of the entity is located in the desired jurisdiction at all relevant times.
ConclusionThere has been increased interest in Canada recently by foreign hedge funds, particularly in light of the perceived strength of its financial system and its resource-rich economy. Whether looking to invest, raise capital or take advantage of the country’s burgeoning hedge fund service industry, foreign hedge funds can do this in a tax efficient manner.
42 |
COMMODITIES FUTURES AND DERIVATIVES
Jennifer WainwrightPartnerAird Berlis LLP
Background of Derivatives Regulation in Canada Hedge funds whose investment strategies utilize derivatives will be subject to securities, commodities futures and/or derivatives legislation in Canada. The legislation applicable to hedge funds and their managers generally regulates dealing in and advising with respect to derivatives. While securities legislation has been streamlined across the Canadian provinces, commodities futures and derivatives legislation has not. As a consequence, such legislation differs between the provinces and territories of Canada. The province or territory in which the hedge fund is formed and in which the hedge fund manager operates will dictate which provincial legislation is applicable.
Canadian legislation has historically
distinguished between exchange traded
derivatives, which are traded through
exchanges based on standardized
exchange contracts, and which settle
with the exchange as counterparty, and
over-the-counter or OTC derivatives.
OTC derivatives are privately negotiated
contracts between two parties, often
using standardized documentation such
as those developed by the International
Swaps and Derivatives Association, Inc.
Three general approaches to the
regulation of derivatives have
developed in Canada.
Exchange Traded Derivatives – Securities RegulationIn the first approach, exchanged
traded derivatives are regulated under
securities legislation. In the provinces
who have adopted the first approach,
securities legislation extends to cover
“exchange contracts”. “Exchange
contracts” are futures contracts
REGULATION, COMPLIANCE & STRUCTURING
2012 AIMA CANADA HANDBOOK | 43
or options whose performance is
guaranteed by a clearing agency and
which are traded on an exchange
pursuant to standardized terms and
conditions set out in that exchange’s
by-laws, rules or regulatory instruments,
at a price agreed on when the futures
contract or option is entered into on
the exchange.
In these Canadian provinces, the
definition of security in securities
legislation includes OTC derivatives,
and as a consequence, OTC derivatives
technically are governed by securities
legislation. However, securities
regulators in these jurisdictions have
exempted the application of their
securities legislation to some OTC
derivatives but not others, to capture
only the OTC derivatives they wish to
regulate (generally those involving the
retail market).
Exchange Traded Derivatives – Commodities Futures LegislationIn the second approach, exchange
traded derivatives are regulated by
commodities futures legislation
which stands separate and apart from
securities legislation. In the provinces
which have adopted the second
approach, any person or company
engaging in or holding himself, herself
or itself out as engaging in the business
of advising others, including a hedge
fund, as to trading in commodity futures
contracts and commodity futures
options where the contract is entered
into on a commodity futures exchange
pursuant to standardized terms and
conditions must be registered under
commodities futures legislation.
In these Canadian provinces, a
commodity futures contract or option
that is not traded on a commodity
futures exchange registered with or
recognized by the applicable securities
regulator or the form of which is
not accepted under the applicable
legislation, such as an OTC derivative,
is considered to be a security. Dealing
and advising in these instruments
is regulated by securities legislation.
Historically, there has been some
uncertainty about the application
of securities legislation to OTC
derivatives, depending on whether they
are cash settled or physically settled.
In one of the Canadian provinces
which has adopted this approach, the
provincial legislative body recently
amended their securities legislation
to contemplate the regulation of
derivatives, although the legislation
is not yet in force. Derivatives are
defined to include options, swaps,
futures contracts, forward contracts or
other financial or commodity contracts
or instruments whose market price,
value, delivery obligations, payment
obligations or settlement obligations
44 |
are derived from, referenced to or
based on an underlying interest
(including a value, price, rate, variable,
index, event, probability or thing),
but do not include commodity futures
contracts, commodity futures options,
and specific contracts or instruments
that are designated as not being
derivatives. The legislation is platform
legislation, meaning that the details
of the legislation, including categories
of registration, requirements for
registration and ongoing compliance
requirements will be contained in
instruments enacted by the security
regulator pursuant to its rule making
authority in securities legislation.
The platform derivatives legislation
contemplates registration as a dealer
or adviser for entities which deal in or
advise with respect to derivatives. It is
expected that detailed instruments will
be published for comment in the future
by the securities regulator outlining the
material requirements related to market
participants involved in derivative
transactions in the subject province.
Exchange Traded and OTC Derivatives – Derivatives LegislationIn the third approach, derivatives
legislation was enacted that applies
to both exchange traded derivatives
and OTC derivatives. The legislation
imposes requirements on intermediaries
of exchange traded derivatives as well
as registration requirements on dealers
and advisers; however, the securities
regulator in this province has exempted
the application of the legislation where
“accredited counter-parties” are involved.
All three legislative approaches impose
capital, insurance and/or proficiency
prerequisites to registration as a dealer
or adviser and an ongoing compliance
regime. The ongoing requirements
are not dissimilar to the ongoing
requirements imposed under securities
legislation as outlined in other articles
in this section (especially Securities
Regulation and Compliance).
ConclusionExchange traded derivatives in Canada
may fall under securities legislation or
commodities futures legislation and,
in some cases (particularly concerning
the counter-parties involved in a
trade) both exchange traded and
OTC derivatives may be eligible for
exemptive relief. It is prudent to
receive advice related to any derivatives
trade with a Canadian counter-party
to ensure compliance with legislation
and, as appropriate, correct filing for
exemptions that might apply.
REGULATION, COMPLIANCE & STRUCTURING
2012 AIMA CANADA HANDBOOK | 45
46 |
STRUCTURING A CANADIAN HEDGE FUND
Hedge fund products are designed for
accredited investors and other exempt
purchasers, as publicly offered mutual
funds are precluded from using many
hedge fund strategies. Attempts to
access the broader retail market, for
example by wrapping hedge fund
strategies in a bank note product, have
met with mixed results over the years.
Legal Structure - CorporationHedge funds are not typically structured
as corporations in Canada. Federal
income tax is imposed at the corporate
level and therefore, depending on the
type of income or capital gains earned
by the fund, a corporation can be less
tax efficient than other structures
that are able to flow profits and/or
losses through to investors. There are,
however, advantages to the corporate
structure including investor familiarity,
certainty of limited liability, and certain
tax advantages for funds that qualify as
‘mutual fund corporations’ or are set
up as ‘switch corporations’.
Ronald M. Kosonic PartnerBorden Ladner Gervais LLP
Peter HayesPartner, National Director, Alternative InvestmentsKPMG LLP
James LoewenPartner, National Director, Asset Management KPMG LLP
The legal structure and terms of offering of a Canadian hedge fund are driven by many factors. Target market, investment strategy, investment risk, manager compensation, fairness and investor liability, liquidity and transparency must be considered in the context of Canadian tax, securities and commercial laws.
REGULATION, COMPLIANCE & STRUCTURING
2012 AIMA CANADA HANDBOOK | 47
Legal Structure - Limited PartnershipHedge funds in Canada are often structured as limited partnerships. Limited partnerships are either ‘unitized’ (meaning that a limited partner’s interest is described in terms of a number of distinct units, which may be issued in different classes and series) or use more traditional capital accounting, depending on the number of investors, the terms of offering and back-office systems. Either way, a limited partnership allows fees to be charged at the series or investor level, and allows income or losses to be allocated most fairly.
A limited partnership is similar to a corporation in that it can offer limited liability to passive investors, but it has the added advantage of being a pure tax flow-through. Income and losses are allocated directly to individual investors, who can tax plan according to their own circumstances, subject to certain restrictions.
The limited partnership structure may enable key individuals to participate in revenues (both income and capital gains) through ownership of the general partner, rather than by earning a performance fee through a third-party investment manager. Both tax and securities law considerations impact this type of revenue participation structure.
There are some drawbacks. Limited partnerships are generally not eligible
investments for registered retirement plans, a potentially significant source of investment capital. And foundations will not typically invest in a limited partnership. Limited partnerships must allocate taxable income and gains to investors, but typically do not distribute cash (rather, profits are reinvested).
Legal Structure – TrustAnother common form of hedge fund vehicle in Canada is the commercial investment trust (or unit trust). A privately offered trust cannot offer the same degree of certainty of limited liability for investors as a corporation or limited partnership - this issue is not settled at common law and must be considered by hedge funds that employ leverage, short sales or aggressive investment techniques that increase the risk that the liabilities of the fund could exceed its assets at a given time.
To avoid taxation at the trust level (at the top marginal rate for individuals), a commercial trust must distribute taxable income and capital gains to unitholders, to be taxed in their hands. It is common practice for distributed income to be automatically reinvested in the trust by the issuance of additional units. As with a limited partnership, this could result in investors being taxable on income or capital gains without actually receiving a cash distribution. Unlike a limited partnership, a trust cannot flow losses out to its unitholders (but can carry
48 |
them forward in accordance with the normal income tax rules).
The unit trust is the preferred structure for hedge fund managers who wish to offer the fund to foundations, pension plans, registered retirement savings plans and other non-taxable investors. Trust units can be qualified for investment by registered plans if they are redeemable on demand at their net asset value and the fund is a ‘mutual fund trust’ or the fund applies under the Income Tax Act (Canada) to become a registered investment. The drawback of registering a fund as a registered investment is that the fund manager is then limited as to the types of instruments the fund may invest in, and many popular hedging techniques would not be permitted. A unit trust that can qualify as a mutual fund trust (the trust must have more than 150 unitholders, each holding a block of units having a net asset value of at least $500) has the added advantage of being able to make an election that effectively treats certain income from Canadian-source investments as capital gains, a benefit for taxable investors.
Other Structuring Considerations - Classes and SeriesIt is common practice for hedge funds to issue units in separate classes and separate series that provide for different fees, profit-sharing arrangements, lock-up periods and other redemption terms. Separate series or sub-series may be created with each new issue of
units (using ‘series accounting’) so that performance can be separately tracked for the purpose of calculating fees and fairly distributing income, gains and losses. There are practical constraints and potential tax consequences in Canada that warrant caution when issuing hedge fund securities in classes and series, depending on the legal structure of the fund, the fee calculation methodology used and the desired tax consequences to investors. Equalization accounting presents similar challenges in Canada.
Other Structuring Considerations - Jurisdictional ConsiderationsAs mentioned earlier, Canada is made up of 10 provinces and 3 territories, each with their own securities and commercial legislation. Where the Fund is created and/or domiciled in Canada can impact taxation, securities law requirements (including the nature and extent of financial reporting) and commercial business registrations.
Other Structuring Considerations - LayeringLayering of funds in one or more legal structures can help achieve multiple objectives. The advantages of a trust (e.g., access to registered plan money) can be grafted onto the advantages of a limited partnership (flexibility and certainty of limited liability) by creating a ‘top trust’ that invests in an underlying limited partnership where the portfolio is managed. However,
REGULATION, COMPLIANCE & STRUCTURING
2012 AIMA CANADA HANDBOOK | 49
there are challenges and potential drawbacks to such a structure.
Funds of funds are quite common in
Canada. Funds of funds that are subject
to reporting requirements imposed by
Canadian securities legislation typically
require relief from strict compliance
because of mismatches in areas such as
fiscal year ends and financial reporting
by underlying funds.
Master-feeder funds within Canada are
not typical, and the use of Canadian
feeder funds to invest in an international
master fund structure is hampered
by the size of the market and by
detrimental Canadian federal tax laws.
Derivative instruments are sometimes
used to give a Canadian fund exposure
to a reference fund’s returns without
requiring a direct investment.
Offering MemorandumCanadian hedge funds sold to the
exempt market generally do not
require the use of an offering
memorandum, but most do use some
form of marketing document, term
sheet or information memorandum
that would be treated by Canadian
securities legislation as an ‘offering
memorandum’. There is no mandated
content (except in very narrow
circumstances), but investors are
given statutory rights of action
or rescission if the offering
document contains a material
misrepresentation, which can include
the omission of a material fact.
Certain provinces in Canada require
these rights to be described in the
offering document.
Redemption TermsHedge funds in Canada typically
offer monthly redemptions, with
notice periods ranging from a few
days to a few months, depending
on the liquidity of the investment
portfolio. Funds that have less
liquidity or that wish to minimize
portfolio disruption and cash-drag
may only offer quarterly or even
yearly redemptions. Many funds
give the fund manager broad powers
to suspend or delay redemptions
during market crises. Alternatively
they may impose redemption gates
(e.g., no more than 10% of units
will be redeemed in any month) in
order to protect investors who wish
to stay in the Fund. Some funds,
typically those holding illiquid or
restricted securities (e.g., securities
of private companies), may impose
a holdback (e.g., 5% of redemption
proceeds) pending completion of
the year-end audit. Funds may also
pass on to the redeeming investor
the costs associated with the
redemption, including brokerage
costs of liquidating positions, but
50 |
will typically cap the deduction at 2%
of proceeds.
Management and Performance FeesFees charged to hedge funds in Canada
continue to follow the traditional
“2+20” model: a management fee,
which is typically between 1% and
2% per annum of the net asset value
(NAV) of the fund, paid monthly; and
a performance fee of between 10% and
20% of the appreciation in the NAV of
the fund or the units of the fund held
by an investor, paid quarterly or yearly.
Performance fees are usually subject
to a “high water mark”, but it is less
common in Canada to have a “hurdle
rate” over which the fund or unit must
perform (above the high water mark)
before the performance fee is paid.
In a limited partnership structure, it
is possible to have the general partner
receive a share of revenues, rather than
pay a performance fee to the
fund manager, subject to tax and
regulatory considerations.
Hedge fund managers may also charge
an early redemption fee of between 3%
and 5% of the redeemed units’ NAV,
which fees are typically payable if the
units are redeemed within the first
year of their issue (“early redemption”
might be as short as 90 days or as long
as three years). Some or all of early
redemption deductions may be retained
in the fund.
Side Letters and Investor RightsSide letters have come under
considerable scrutiny by Canadian
regulators and are generally not
considered in a positive light. The
potential conflicts of interest that they
create can be a litigation minefield
for investment managers. Many of
the benefits sought by an investor
in a side letter can be given through
the issue of a separate class of fund
securities, provided the constating
documents provide the flexibility to
do so. Nonetheless, granting greater
transparency and greater liquidity
to certain investors, however given,
is discouraged, as those preferred
investors could learn of a problem
and redeem out of the fund before
other investors might be offered the
opportunity to redeem.
Side pocketsSide pockets are sometimes used in
Canada as a useful tool for dealing
with illiquid investments within a
relatively liquid portfolio; however
Canadian taxation can make the use of
separate classes or pools to side-pocket
the illiquid investments problematic.
Funds may have to use other means to
delay payment of the value of illiquid
holdings, creating a legal grey area as
regards the rights of investors after
REGULATION, COMPLIANCE & STRUCTURING
2012 AIMA CANADA HANDBOOK | 51
redemption of all their units.
Accounting and ReportingPrivate investment funds in Canada
must prepare financial statements in
accordance with Canadian Generally
Acceptable Accounting Principles
(GAAP). In addition, national securities
regulation requires additional financial
statement disclosures for most private
investment funds domiciled in Ontario
(being those subject to National
Instrument 81-106). These requirements
include:
�� Annual audited financial statements
must be provided to investors and
securities regulators within 90 days
of year-end (although an exemption
from filing with the regulators is
available).
�� Semi-annual unaudited financial
statements must be provided to
investors within 60 days of the semi-
annual period-end.
�� Financial statements must include a
statement of investment portfolio
for the current period and statements
of net assets, operations and
changes in equity for the current and
comparative periods, as well as notes.
Investment funds will likely be required
to switch to International Financial
Reporting Standards (IFRS) from
Canadian GAAP effective January
1, 2014. Current Canadian GAAP
for investment funds is similar in
principle to IFRS, with some potential
differences related to investee
consolidation, presentation of investor
equity and various disclosures.
ConclusionCanadian securities laws and practices
offer many options for structuring
funds in accordance with manager
requirements and investor interests.
Raising Capital
54 |
THE RISE OF ALTERNATIVE INVESTMENTS IN CANADA: THE CASE FOR EMERGING MANAGERS
Appetite for all things Canadian, from
both a domestic and international
perspective, has been steadily on the
rise, and has correspondingly rippled
into Canada’s alternative investment
landscape. Then it should come as
no surprise to the reader that a new
“emerging” class is rising, that of
the emerging manager in alternative
investments. While investors have
long benefitted from the return
profile of traditional asset classes
within the Canadian investment
landscape, a confluence of events
has led to substantial growth in the
alternative sector: a compressed
yield environment in long-only credit
instruments, generally rangebound
global equity markets, and the desire
to buttress a portfolio with non-
correlated sources of return, to name
but a few. These factors, coupled with
Canadian allocations to alternatives
historically lagging our international
peers, has helped to set the stage for
further growth. Within the backdrop
of roughly $70 trillion in investable
assets, the $2 trillion global hedge fund
industry has now matched pre-crisis
allocation levels. Meanwhile, only 15%
of the roughly 250 Canadian alternative
funds post assets under management
in excess of $100 million. Canadian
emerging managers remain relatively
Claude RobillardExecutive DirectorCIBC Prime Services Group
2nd Mover Advantage: Canadian Emerging ManagersCanada has often been described as the emerging market play without the emerging market risk – we find ourselves, fortunately, at the intersection of global interests with a strong commodities sector and robust financial architecture on offer.
RAISING CAPITAL
2012 AIMA CANADA HANDBOOK | 55
early entrants in a well-established
industry at a potentially auspicious
time. And while Canadian managers
were not immune to the crisis of 2008,
the number of hedge funds in Canada
is, in lockstep with global peers, also
approaching pre-crisis levels.1
Greater Breadth of Strategies, Deeper Pool of InvestorsAnd therein lies the opportunity.
Industry polls suggest that allocations
will continue along a positive
trajectory. The thesis that has proven
successful in the majority of global
financial centres – that of a deep and
broad pool of alternative investment
strategies available to a growing field
of institutional and HNW investors –
bodes well for continued growth in the
domestic market. The fact that roughly
40% of the alternative universe in
Canada is represented by equity long/
short strategies – that number was
estimated at 50% roughly five years ago
–supports the premise that new entrants
have different approaches on offer.
Long-biased equity managers once
represented the majority in Canada,
and now have given up some territory
to market neutral or market-cycle
agnostic managers, allowing investors
the opportunity to tactically invest
across an array of market themes. A
greater variety of strategies is at the
ready while the amount of capital that
can be deployed is growing steadily, in
an increasingly global and fluid capital
market. As The Economist pointed out
not long ago , the world now has more
millionaires than Australians, and over
1,000 billionaires – roughly 5 times
more than just 15 years ago.2
Right Place, Right Time, Right-Sized?Meanwhile emerging managers have,
arguably, competitive advantages over
“incumbents”. An ability to “adapt to
changing market conditions and exploit
new opportunities”3 or, put differently,
a degree of agility, supported by
evidence of statistically higher returns,
has been presented by numerous
research outlets. As there is no free
OXQFK��WKH�KLJKHU�UHWXUQ�SURÀOH�PD\�EH�associated with a higher degree of risk;
risk that may be offset by a lack
of cross-correlation to an investor’s
other allocations.
Many strategies are, arguably, right-
sized for the Canadian market, and
not infinitely scalable, though one
can argue that the majority have
not yet brushed up against capacity
constraints – a potential marriage of
1 AIMA: AIMA Canada Hedge Fund Primer, June 2010 2 The Economist: More millionaires than Australians – January 20, 20113 HFR Asset Manager: Emerging Manager Outperformance
56 |
timing and opportunity for Canada’s
Emerging Manager set. Canadian
managers, meanwhile, are not subjected
to a crowded market, as proprietary
trading activity has been significantly
pared down in the domestic market,
and waning in international markets.
Correspondingly, former traders and
analysts with strong pedigrees whose
experience has often been framed
within the construct of institutional-
calibre risk management and
governance, find themselves leading
rapidly-growing independent asset
management firms.
Emerging Managers, Established InfrastructureMeanwhile, as managers grow, they
are supported by a strong network
of service providers and business
partners, and a well-established
regulatory framework. World-class
administrators, consultants, advisors
and prime brokers with local expertise
and global reach are on hand to help
facilitate business operations and
expansion. While the majority of
Canada’s alternative asset managers
are at an earlier stage of their life
cycle – often with tenures under five
years – they can draw from a deep
well of agents, advisors and investors.
And Canada, with 0.5% of the
world’s population contains three of
the world’s largest pension funds4,
two of the world’s largest insurance
companies5 and a 1st place ranking on
the World Economic Forum’s list of
the world’s soundest banking systems.
Incidentally, many Canadian Prime
Brokers are wholly-owned by Canada’s
banks, further helping to bolster a
sense of stability as local and global
investors consider allocations to
alternative managers.
Performance and Capital PreservationEmerging managers in Canada, and
their “well-established” confrères,
have a bright future ahead. Headwinds
in global markets and a challenging
environment for traditional asset
classes have investors on the hunt
for new sources of return. As long
as emerging managers focus on
performance, continue to evidence
replicable investment theses, and
generate returns delineated from
beta, they will continue to command
attention. Couple that with a judicious
approach to risk management, best
practices in reporting, corporate
governance, and transparency and
they will retain a loyal following.
RAISING CAPITAL
4 P&I / Towers Watson Top 300 Pension Funds: Analysis as at 2010 year end5 Forbes Global 2000 list6 World Economic Forum: The Global Competitiveness Report 2011 – 2012
2012 AIMA CANADA HANDBOOK | 57
And when assessing the emerging
manager landscape, the investor may
wish to focus on manager talent
and pedigree, and de-emphasize the
importance of a limited track record.
As Einstein once stated: “Everything
that can be counted does not
necessarily count; and everything that
counts cannot necessarily be counted.”
This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change. CIBC and CIBC World Markets Inc., their affiliates, directors, officers and employees may provide financial advisory services, investment banking or other services for or have lending or other credit relationships with hedge fund managers. © CIBC World Markets Inc. 2012.
58 |
FOREIGN INVESTORS IN CANADIAN HEDGE FUNDS
Investors should note that Canadian securities law is individually regulated by the thirteen Canadian provinces and territories. Although there is harmonization among the various jurisdictions with respect to certain matters, there is no centralized securities administrator in Canada along the lines of the Securities and Exchange Commission in the United States. As such, in this article we will focus on hedge funds that are domiciled in the province of Ontario, which is home to the majority of Canadian hedge fund
managers - not to detract from the many funds in other provinces and territories.
While the term “hedge fund” is not a defined term under Ontario law, it generally references a redeemable investment fund (defined as a “mutual fund” under Canadian securities law) whose securities are privately placed to sophisticated investors. Unlike mutual funds that are offered to the general public by way of prospectus and that are required to abide by more
Cathy SingerPartnerNorton Rose Canada LLP
Michael BunnAssociateNorton Rose Canada LLP
Barry SegalPartnerNorton Rose Canada LLP
As the number and size of hedge funds operated by Canadian fund managers continues to grow we have seen increased interest in these products from non-Canadian investors. In this article, we will provide a brief overview of issues that a non-Canadian investor should be aware of when considering an investment in a Canadian domiciled hedge fund.
RAISING CAPITAL
2012 AIMA CANADA HANDBOOK | 59
conservative investment objectives, strategies and restrictions, hedge funds are permitted unlimited latitude in their investment choices, constrained only by certain conflict of interest provisions outlined below and restrictions imposed by contract between the hedge fund and its investors.
Investor QualificationsIf an Ontario hedge fund is placing securities with an investor that is domiciled or resident outside of Ontario WKHQ�2QWDULR�LQYHVWRU�TXDOLÀFDWLRQ�requirements will not apply provided that reasonable precautions are taken by the Ontario hedge fund to ensure that the securities will not be redistributed into Ontario.
However, the Ontario hedge fund will want to ensure that any investor TXDOLÀFDWLRQ�UHTXLUHPHQWV�LQ�WKH�investor’s home jurisdiction have been met and that the securities law requirements in the investor’s home jurisdiction do not require the hedge IXQG�WR�SUHSDUH�DQG�ÀOH�D�SURVSHFWXV�or similar document. The Ontario hedge fund will also want to determine whether the placement of securities with the investor will result in the hedge fund or its manager having to make any ÀOLQJV�RU�VHHN�DQ\�DSSURYDOV�IURP�DQ\�regulatory authority in the investor’s home jurisdiction. The Ontario hedge fund may have to obtain comfort with respect to these matters by engaging the services of local counsel in the investor’s home jurisdiction and by having the investor make representations regarding these matters in the subscription agreement that it completes.
Offering DocumentAlthough not legally required, Ontario hedge funds will generally provide investors with an offering document prior to their investment in the hedge fund. The offering document will detail, among other things, the investment objectives, investment strategies and investment restrictions of the hedge fund. The offering document is a contract between the investor and the hedge fund and the investor can sue the hedge fund should they suffer a loss as a result of the hedge fund unilaterally breaking the terms of the contract (for example, by violating an investment restriction contained in the offering PHPRUDQGXP�ZLWKRXW�ÀUVW�REWDLQLQJ�the consent of investors). Note that although Ontario law provides investors with certain “statutory” rights of action against the hedge fund should there be a misrepresentation in the hedge fund’s offering document, these statutory rights do not apply to non-Ontario investors (who instead have to sue under common law). Nevertheless, as Ontario and non-Ontario residents generally receive identical offering documents from a hedge fund, the existence of the statutory rights of action for Ontario residents will likely result in the hedge fund manager paying particular attention to the accuracy of disclosure in the offering memorandum �ZKLFK�LV�RI �EHQHÀW�WR�DOO�LQYHVWRUV���
Statutory ProtectionsOntario domiciled hedge funds offer investors certain statutory protections. Set out below are a number of these protections.
60 |
Manager Registration The manager of an Ontario hedge fund is required to register with the Ontario Securities Commission in one or more categories depending on the functions that it performs for the hedge fund. As part of the registration process, the manager must establish that it meets minimum capital and insurance requirements and that certain of its HPSOR\HHV�PHHW�VSHFLÀHG�SURÀFLHQF\�requirements. The fact that all managers of Ontario hedge funds must undergo a rigorous registration process should provide investors with a level of comfort regarding the entity that manages the Ontario hedge fund in which they are investing. For more details on registration issues, please see the article entitled Securities Registration and Compliance.
Financial StatementsEach Ontario hedge fund is required WR�SUHSDUH�DXGLWHG�DQQXDO�ÀQDQFLDO�statements for its most recently completed ÀQDQFLDO�\HDU�WKDW�LQFOXGH��DPRQJ�RWKHU�things, (i) a statement of changes in QHW�DVVHWV�IRU�HDFK�RI �WKDW�ÀQDQFLDO�year and the immediately preceding ÀQDQFLDO�\HDU�DQG��LL��D�VWDWHPHQW�RI �investment portfolio as at the end of that ÀQDQFLDO�\HDU��6LPLODU�XQDXGLWHG�ÀQDQFLDO�statements are required for each interim six month period.
7KH�DXGLWHG�DQQXDO�ÀQDQFLDO�VWDWHPHQWV�must be sent to investors on or before the ��WK�GD\�DIWHU�WKH�KHGJH�IXQG·V�ÀQDQFLDO�year end, with the deadline for interim statements being the 60th day after the six month interim period for the hedge fund. The auditor’s report accompanying WKH�DQQXDO�ÀQDQFLDO�VWDWHPHQWV�PXVW�EH�
signed by a person or company that is authorized to sign an auditor’s report by the laws of a jurisdiction in Canada and must meet the professional standards of that jurisdiction. The preparation RI �DXGLWHG�DQQXDO�ÀQDQFLDO�VWDWHPHQWV�provides investors with an impartial third SDUW\�UHYLHZ�RI �WKH�ÀQDQFLDO�FRQGLWLRQ�and performance of the Ontario hedge fund in which they are investing.
TaxationThe Canadian tax implications of an investment are important for a non-Canadian investor to consider when deciding whether to invest in an Ontario hedge fund. The following is a general RXWOLQH�DQG�LV�QRW�VSHFLÀF�WD[�DGYLFH��$Q�investor should always consult its own Canadian tax advisor prior to making an investment in an Ontario hedge fund.
The Canadian tax consequences to a non-Canadian of investing in an Ontario hedge fund will depend on the structure of the fund as well as the other investors in the fund. Many funds are structured as partnerships, although trust structures are also common.
A non-Canadian investor in an Ontario hedge fund that is a partnership will be taxable in Canada on its share of the fund’s income (whether or not distributed) to the extent that the investor is considered to carry on business in Canada. This will be determined by reference to a host of factors including the nature and the location of assets held by the fund and the type and frequency of trading activity in the fund. The investor may also be taxable in Canada if the fund realizes capital gains from
RAISING CAPITAL
2012 AIMA CANADA HANDBOOK | 61
the disposition of “taxable Canadian property” which includes certain direct or indirect interests in Canadian real property and resource property. The applicability of relief from Canadian tax under a relevant tax treaty between the investor’s country of residence and Canada should also be considered.
An Ontario partnership that has non-Canadian investors will be treated as a non-resident of Canada for tax purposes which may result in adverse tax consequences to the fund and its investors. This is particularly the case for funds which expect to earn Canadian source interest or dividends from investments. Such partnerships may not permit direct investment by non-Canadians. In that case, a Canadian corporation is often used by non-Canadian investors to make the investment. The Canadian corporation will be taxable in Canada on its share of partnership income and capital gains (whether or not distributed). Distributions from the Canadian corporation to the non-Canadian investor will generally be subject to Canadian withholding tax at a rate of 25%, or less (generally either 5% or 15%) under the terms of an applicable tax treaty.
A non-Canadian investor in an Ontario hedge fund that is formed as a trust is not directly taxable on the income or capital gains earned by the trust, but may be subject to Canadian withholding tax on amounts distributed from the trust. The rate of withholding tax on trust distributions is 25% unless a treaty-reduced rate applies (generally 15%). ,I �WKH�IXQG�TXDOLÀHV�DV�D�´PXWXDO�IXQG�
trust” for tax purposes (i.e., having over 150 unitholders and meeting certain other criteria), the 25% withholding tax will not apply to distributions of capital gains of the fund (other than gains arising from dispositions of “taxable Canadian property”) provided the fund makes the appropriate designation in its tax return for the year. If the fund is not a mutual fund trust and it has non-resident investors, the fund may be subject to an additional 36% tax on its income from dispositions of “taxable Canadian property” and businesses carried on in Canada.
Non-Canadians may also be taxable in Canada if they realize a gain on the sale or other disposition of their investment in an Ontario hedge fund and their interest in the fund constitutes “taxable Canadian property”. An interest in an Ontario trust (other than a mutual fund trust) or partnership may be “taxable Canadian property” if, at any time during the prior 5-year period, more than 50% of the fair market value of the interest was derived directly or indirectly from Canadian real property, resource properties and certain other properties. If a hedge fund is a mutual fund trust, certain ownership thresholds must be VDWLVÀHG�LQ�DGGLWLRQ�WR�WKH�WHVW�DERYH�before an interest in the fund will be considered “taxable Canadian property”.
Foreign investors might be pleased to know that, given the tax considerations detailed above, many Canadian hedge fund managers operate parallel investment vehicles domiciled in tax neutral jurisdictions.
62 |
THE CANADIAN ASSET RAISING LANDSCAPE
There are compelling reasons to invest
with a Canadian manager and Canadian
funds have been highly successful
gathering assets from high net worth
individuals and family offices, both
domestically and globally. Canadian
investors value the diverse strategies
and expertise that Canadian managers
provide while global investors are
attracted to many additional advantages
of Canadian hedge funds:
�� The view of Canada as a safe haven has increased the attractiveness of Canadian alternative investment managers to global investors.
�� Canada’s financial industry is well regulated.
�� Canada is home to world-class service providers including prime brokers, administrators and law firms.
�� The smaller size of many Canadian funds enables the managers to be nimble and quickly capitalize on opportunities in the market that might elude larger funds.
�� Far from being purely a commodity play, Canadian fund managers have expertise in executing a variety of sophisticated Canadian and global strategies.
The Canadian Investor LandscapeThe primary allocators to alternative
investments in Canada fall into two
broad categories: institutional and high
Katrina RempelVice President, Prime Brokerage Services – Capital IntroductionBMO Capital Markets
The Canadian alternative investment space is coming of age. Canadian investors from large institutions to high net worth individuals are embracing hedge fund investments. Difficult and volatile markets have left investors searching for higher returns and protection from downside risk.
RAISING CAPITAL
2012 AIMA CANADA HANDBOOK | 63
net worth which includes family offices,
multi-family offices and High Net
Worth Individuals (HNWIs).
InstitutionsThe largest Canadian institutions
and pension plans have been active
hedge fund participants for many
years, executing sophisticated global
investment programs. In recent
years, mid-tier institutions have
been increasingly likely to consider
allocations to hedge funds as a means
to achieve their investment goals.
Many institutions that do not currently
allocate to hedge funds are on an
educational learning curve. It is likely
that this process will bear fruit for the
hedge fund industry in the near future,
both for Canadian and global managers.
Institutions that, in the past, have
invested in Funds of Hedge Funds
are more likely to invest directly with
single managers as their familiarity
with hedge funds and their knowledge
level increases. Many organizations are
willing to hire external expertise
to assist with investment decisions.
Many large Canadian institutional
investors hire a consultant to source
alternatives while the remainder have
in-house departments that focus on
alternative investments.
Although many Canadian institutions
have been historically reluctant to
allocate to funds that have assets under
management of less than $1 billion
(which has historically precluded many
Canadian hedge fund managers), this
is now changing as more and more
investors have come to appreciate the
outperformance of smaller, newer
and niche hedge funds. This has led to
success for several Canadian funds in
raising institutional assets domestically.
High Net Worth – Family Offices and HNWIsCanadian family offices are
knowledgeable and sophisticated
investors. Many family offices are
established organizations with
experienced investment teams that
do extensive in-house research. Their
smaller size and flexible investment
mandates enable them to allocate
to managers of all sizes. Along with
HNWIs they have been the largest
purchasers of Canadian hedge funds
to date.
Canada is the world’s seventh-largest
market for high net worth and ultra
high net worth individuals: they
numbered approximately 300,000 at
the end of 2010 which is an increase
of about 12% as compared to 2009.1
Canada’s population of HNWI is
1 Merrill Lynch Global Wealth Report
64 |
defined as individuals with investable
assets of $1 million or more. This
group represents more than 60% of the
assets under management in Canada.2
While many HNWI have the knowledge
and skills to execute their own
investment programs, others work
with a multi-family office (MFO) for
assistance in the deployment of both
traditional and alternative assets. An
MFO is an independent organization
that provides a variety of services to
multiple families for the purpose of
supporting their wealth. In addition to
allocating to hedge funds on behalf of
their clients, some MFOs may build
a proprietary alternative investment
vehicle for their clients.
HNWI Advice at Canadian Broker-DealersCanada has a large number of wealth
advisors who target HNWI through the
broker-dealer retail networks that are
associated with the six largest banks
in Canada. Many of these advisors are
seeking additional ways to add value to
their client’s portfolios and will allocate
to increasingly sophisticated investment
vehicles, such as hedge funds, on behalf
of their clients. The benefits include
diversification, higher returns and an
improved risk-return profile.
Managers that want to sell their funds
through the bank-owned brokerage
firms’ retail networks must meet some
stringent requirements before they are
approved by the various distribution
channels. Their criteria vary among
organizations but at a minimum, the
fund must be available for sale on
FundSERV (a third-party investment
fund processing system) and the
managers must have an established
track record (usually three years). Many
funds that have been approved for
sale in the retail networks have seen
material allocations.
Growth Going ForwardIt is a sign of continuing optimism that
the Canadian alternative investment
industry shows growth in all areas
including fund managers, investors
and service providers. Canadian
managers continue to receive inflows
into a broadening array of strategies
from both Canadian and overseas
institutional and HNWI investors.
RAISING CAPITAL
2 Globe and Mail, Are You Ready For a Wealth Manager, January 8, 2010
2012 AIMA CANADA HANDBOOK | 65
66 |
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The Horizons BetaPro Bear Plus exchange traded funds (“HBP Bear Plus ETFs”) use leveraged investment techniques that magnify gains and losses and result in greater volatility in value. HBP Bear Plus ETFs are subject to leverage risk. HBP Bear Plus ETFs along with the Horizons BetaPro Inverse exchange traded funds (“HBP Inverse ETFs”) are subject to aggressive investment risk and price volatility risk, which are described in their respective prospectus. Each HBP Bear Plus ETF seeks a return that is 200% and each HBP Inverse ETF seeks a return that is 100% of the inverse performance of a speci!ed underlying index, commodity or benchmark (the “Target”) for a single day. Due to the compounding of daily returns, an HBP Bear Plus ETF’s and an HBP Inverse ETF’s returns over periods other than one day will likely di"er in amount and possibly direction from the performance of it’s respective Target for the same period. Investors should monitor their holdings, as frequently as daily, to ensure that they remain consistent with their investment strategies.Commissions, management fees and expenses all may be associated with an investment in exchange traded products managed by Horizons ETFs Management (Canada) Inc. The exchange traded products managed by Horizons ETFs Management (Canada) Inc. are not guaranteed, their values change frequently and past performance may not be repeated. Please read the prospectus before investing.
(Please see also page 96)
THANK YOU TO OUR SPONSORS
Thank you to our AIMA
2012 AIMA CANADA HANDBOOK | 67
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For more information please contact:
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Michael BunnT: +1 416.216.4095 [email protected]
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Canada Handbook sponsors
68 |
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2012 AIMA CANADA HANDBOOK | 69
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70 |
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2012 AIMA CANADA HANDBOOK | 71
When you’re looking to get clarity from
complexity, it helps to have experience
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L`]�_dgZYd�ÕfYf[aYd�k]jna[]k�eYjc]lhdY[]�`Yk�Z][ge]�kg�[gehd]p$�najlmYddq�fg�gf]�[Yf�fYna_Yl]�al�Ydgf]&�9k�Y�d]Y\af_�Y\nakgj�lg�ÕfYf[aYd�afklalmlagfk$�o]�Z]da]n]�af�k][mjaf_�l`]�hj]k]fl�Yf\�Zmad\af_�jgZmkl�kljYl]_a]k�lg�`]dh�qgm�hdYf�^gj�l`]�^mlmj]&�>af\�gml�`go�gmj�ÕfYf[aYd�k]jna[]k�l]Yek�[Yf�`]dh�qgm�Yl�]q&[ge'[Y&
See More | Perspectives
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(Please see also page 100)
Canada Handbook sponsors
72 |
As the investment industry continues to deal with market challenges, investors, regulators and tax authorities are demanding greater transparency, stronger infrastructure and improved governace. For those that rise to these challenges, there is potential reward.
PwC has a well established team of experts based locally and networked globally, offering a wide range of experience in tax, assurance, risk, governance and controls.
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416 947 8964
Advice into action
© 2012 PricewaterhouseCoopers LLP. All rights reserved. “PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. 2042-11-0312
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(Please see also page 100)
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2012 AIMA CANADA HANDBOOK | 73
Stay Wealthy. Be Hedged.
For investment information contact Sean Wynn at 416.361.4533
or visit www.jcclark.com
(Please see also page 89)
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74 |
Man Investments Canada Corp.
Dedicated to alternative investments
1 877 [email protected]
(Please see also page 90)
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2012 AIMA CANADA HANDBOOK | 75
��������
����0$&52���0$1$*('�)8785(6��������������
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(Please see also page 91)
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2012 AIMA CANADA HANDBOOK | 77
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(Please see also page 101)
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2012 AIMA CANADA HANDBOOK | 79
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We have the talent, technology and capital strength – for what matters.
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(Please see also page 98)
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80 |
(Please see also page 89)
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2012 AIMA CANADA HANDBOOK | 81
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SmartChoice
BMO Capital Markets is a trade name used by BMO Financial Group for the wholesale banking businesses of Bank of Montreal, BMO Harris Bank N.A. and Bank of Montreal Ireland p.l.c., and the institutional broker dealer businesses of BMO Capital Markets Corp., BMO Nesbitt Burns Trading Corp. S.A., BMO Nesbitt Burns Securities Limited and BMO Capital Markets GKST Inc. in the U.S., BMO Nesbitt Burns Inc. in Canada, Europe and Asia, BMO Nesbitt Burns Ltée/Ltd. in Canada, BMO Capital Markets Limited in Europe, Asia and Australia, BMO Advisors Private Limited in India and Bank of Montreal (China) Co. Ltd. in China.® Registered trademark of Bank of Montreal in the United States, Canada and elsewhere.
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(Please see also page 98)
Canada Handbook sponsors
Member DirectoryHedge Fund and FoHF Managers
84 |
Aberdeen Asset Management Inc. Global Fund Of Hedge Fund Provider
Member since: 2012
Renee Arnold [email protected] | +1 416 777 5570 Toronto, ON
www.aberdeen-asset.ca
Acorn Global Investments Inc. Systematic Global Macro
Member since: 2010
Gordon Corbett [email protected] | +1 905 257 0773 ext 102 Oakville, ON
www.acorn.ca
Arrow Capital Management Inc. Funds of Hedge Funds and Canadian Hedge Fund Managers
Member since: 2001
Rob Parsons [email protected] | +1 416 323 3199 Toronto, ON
www.arrow-capital.com
Aurion Capital Management Inc.
Member since: 2010
Grant Bunker [email protected] | +1 416 866 2445 Toronto, ON
www.aurion.ca
MEMBER DIRECTORY HEDGE FUND AND FoHF MANAGERS
MEMBER DIRECTORY: HEDGE FUND AND FoHF MANAGERS
2012 AIMA CANADA HANDBOOK | 85
Blackheath Fund Management Inc. Managed Futures – Sentiment and Volatility Arbitrage
Member since: 2009
Christopher Foster [email protected] | +1 416 363 2962 Toronto, ON
www.blackheath.ca
BluMont Capital Corporation Long-Short Equity
Member since: 2003
James Wanstall [email protected] | 1 416 202 6695 Toronto, ON
www.blumontcapital.com
Clairwood Capital Management Inc. Long-Short Equity
Member since: 2011
Glenn Paradis [email protected] | +1 647 404 8145 Toronto, ON
www.clairwoodcapital.com
Crystalline Management Inc. Canada Relative Value and Arbitrage
Member since: 2009
Claude Perron [email protected] | +1 514 284 0248 ext 222 Montréal, QC
www.arbitrage-canada.com
86 |
Dexia Asset Management – Canadian Representative Office FoHF and 15 single strategies
Member since: 2012
Christophe Vandewiele [email protected] | +1 416 974 9055 Toronto, ONwww.dexia-am.com
Di Tomasso Group Inc. Long-Short Commodity Trading Advisor
Member since: 2011
John Di Tomasso [email protected] | +1 250 744 1650 Victoria, BC
www.ditomassogroup.com
Fiera Capital Inc. Global Macro, Market Neutral, Long-Short Equity, Fixed Income Funds
Member since: 2004
Jim Craven [email protected] | +1 416 955 4898 Toronto, ON
www.fierasceptre.com
Front Street Capital Long-Short Equity and Income
Member since: 2006
Chris Fontana [email protected] | +1 416 915 2439 Toronto, ON
www.frontstreetcapital.com
MEMBER DIRECTORY HEDGE FUND AND FoHF MANAGERS
MEMBER DIRECTORY: HEDGE FUND AND FoHF MANAGERS
2012 AIMA CANADA HANDBOOK | 87
Fiera Capital Inc. Global Macro, Market Neutral, Long-Short Equity, Fixed Income Funds
Member since: 2004
Jim Craven [email protected] | +1 416 955 4898 Toronto, ON
www.fierasceptre.com
Galileo Funds Inc. Long-Short Canadian Equity
Member since: 2012
Evelyn Foo [email protected] | +1 416 594 3633 Toronto, ON
www.galileofunds.com
Garrison Hill Capital Management Inc.Fundamentally-driven Global Macro
Member since: 2008
Michael Yhip [email protected] | +1 416 203 2212 Toronto, ON
www.ghcm.ca
GCIC Ltd. Long-Short Equity
Member since: 2006
Christian Postance [email protected] | +1416 365 5661 Toronto, ON
www.dundeewealth.com
Goodwood Inc. Equity Long-Short, Activist
Member since: 2002
Curt Cumming [email protected] | +1 416 203 2522 Toronto, ON
www.goodwoodfunds.com
88 |
Groundlayer Capital Inc. Long-Short North American Equity (Long Bias)
Member since: 2007
Robert Grundleger [email protected] | +1 416 365 2301 Toronto, ON
Hillsdale Investment Management Inc. Quantitative Long-Short Global Equity
Member since: 2002
Ian Pember [email protected] | +1416 913 3920 Toronto, ON
www.hillsdaleinv.com
HR Stratégies Inc. Funds of Hedge Funds
Member since: 2004
Claude Godon [email protected] | +1 514 393 3515 Montréal, QC
www.hrstrategiesinc.com
Integrated Managed Futures Corp. Commodity Trading Advisor
Member since: 2003
Paul Patterson [email protected] | +1 416 363 6526 Toronto, ON
www.iamgroup.ca/managedfutures
MEMBER DIRECTORY HEDGE FUND AND FoHF MANAGERS
MEMBER DIRECTORY: HEDGE FUND AND FoHF MANAGERS
2012 AIMA CANADA HANDBOOK | 89
JC Clark Ltd. Long-Short US & Canadian Equity
Member since: 2003
Sean Wynn [email protected] | +1 416 361 4533 Toronto, ON
www.jcclark.com
JDM Investment Partners Ltd. Concentrated North American Equity
Member since: 2012
James Maxwell [email protected] | +1 416 996 1113 Ottawa, ON
www.ipfund.ca
Kensington Capital Partners Ltd. Funds of Hedge Funds
Member since: 2008
Eamonn McConnell [email protected] | +1 416 362 9030 Toronto, ON
www.kcpl.com
Landry Morin Inc. Long-Short Equity
Member since: 2010
Richard Morin [email protected] | +1 514 985 5225 Montréal, QC
www.landrymorin.com
Groundlayer Capital Inc. Long-Short North American Equity (Long Bias)
Member since: 2007
Robert Grundleger [email protected] | +1 416 365 2301 Toronto, ON
Hillsdale Investment Management Inc. Quantitative Long-Short Global Equity
Member since: 2002
Ian Pember [email protected] | +1416 913 3920 Toronto, ON
www.hillsdaleinv.com
HR Stratégies Inc. Funds of Hedge Funds
Member since: 2004
Claude Godon [email protected] | +1 514 393 3515 Montréal, QC
www.hrstrategiesinc.com
Integrated Managed Futures Corp. Commodity Trading Advisor
Member since: 2003
Paul Patterson [email protected] | +1 416 363 6526 Toronto, ON
www.iamgroup.ca/managedfutures
KENSINGTONsmart alternatives TM
90 |
Lawrence Park Capital Partners Ltd. Fixed Income
Member since: 2011
David Fry [email protected] | +1 416 646 2180 Toronto, ON
www.lpcapitalpartners.com
Man Investments Canada Corp. Alternative Investments Manager
Member since: 2006
Toreigh Stuart [email protected] | +1 416 775 3600 Toronto, ON
www.maninvestments.com
Mapleridge Capital Corporation Managed Futures
Member since: 2008
Cheryl Davidson [email protected] | +1 416 733 9818 ext 241 Toronto, ON
www.mapleridgecapital.com
Marret Asset Management Inc. Fixed Income Arbitrage
Member since: 2006
Denise Dillon [email protected] | +1 416 306 3895 Toronto, ON
www.marret.ca
MEMBER DIRECTORY HEDGE FUND AND FoHF MANAGERS
MEMBER DIRECTORY: HEDGE FUND AND FoHF MANAGERS
2012 AIMA CANADA HANDBOOK | 91
Niagara Capital Partners Ltd. Macro / Managed Futures
Member since: 2004
David Rothberg [email protected] | +1 416 350 2911 Toronto, ON
www.niagaracapital.ca
Northwater Capital Management Inc. Intellectual Property Funds and Risk Parity Portfolios
Member since: 2007
Neil Simons [email protected] | +1 416 360 5435 Toronto, ON
www.northwatercapital.com
Polar Securities Inc. US Long-Short Equity and Canadian Multi-Strategy
Member since: 2003
Tom Sabourin [email protected] | +1 416 369 4459 Toronto, ON
www.polarsecurities.com
RDA Capital Inc. Multi-Strategy
Member since: 2010
François Magny [email protected] | +1 514 985 2107 Montréal, QC
www.rdacap.com
92 |
Ross Smith Asset Management Inc. Capital Structure Arbitrage
Member since: 2011
Weston Pring [email protected] | +1 403 294 6893 Calgary, AB
www.rsam.ca
Rosseau Asset Management Ltd Event Driven / Special Situations
Member since: 2003
Jow Lee [email protected] | +1 416 777 0712 Toronto, ON
www.rosseau.com
RP Investment Advisors Investment Grade Fixed Income Long-Short
Member since: 2011
Dannielle Ullrich [email protected] | +1 647 776 1777 Toronto, ON
www.rpia.ca
Salida Capital LP Long-Short Equity - Natural Resources
Member since: 2005
Dejan Knezevic [email protected] | +1 416 849 2564 Toronto, ON
www.salidacapital.com
MEMBER DIRECTORY HEDGE FUND AND FoHF MANAGERS
MEMBER DIRECTORY: HEDGE FUND AND FoHF MANAGERS
2012 AIMA CANADA HANDBOOK | 93
Ross Smith Asset Management Inc. Capital Structure Arbitrage
Member since: 2011
Weston Pring [email protected] | +1 403 294 6893 Calgary, AB
www.rsam.ca
Rosseau Asset Management Ltd Event Driven / Special Situations
Member since: 2003
Jow Lee [email protected] | +1 416 777 0712 Toronto, ON
www.rosseau.com
RP Investment Advisors Investment Grade Fixed Income Long-Short
Member since: 2011
Dannielle Ullrich [email protected] | +1 647 776 1777 Toronto, ON
www.rpia.ca
Salida Capital LP Long-Short Equity - Natural Resources
Member since: 2005
Dejan Knezevic [email protected] | +1 416 849 2564 Toronto, ON
www.salidacapital.com
Shoreline West Asset Management Multi-Strategy
Member since: 2011
Greg Sullivan [email protected] | +1 604 737 1445 Vancouver, BC
Sigma Analysis & Management Ltd Managed Account Operator
Member since: 2009
Luis Seco [email protected] | +1 416 907 0716 Toronto, ON
www.sigmanalysis.com
Silvercreek Management Inc. Short-equity biased, Special situations-value-based
Member since: 2003
Bryn Joynt [email protected] | +1 416 485 3953 Toronto, ON
www.silvercreekmanagement.com
Spartan Fund Management Inc. Multi-Strategy
Member since: 2009
Gary Ostoich [email protected] | +1 416 601 3171 Toronto, ON
www.spartanfunds.ca
94 |
Sprott Asset Management Long-Short Equity, Fixed Income/Currency & Asset-Based Lending
Member since: 2004
James R. Fox [email protected] | +1 416 943 6718 Toronto, ONwww.sprott.com
Summerwood Capital Corp. Currency - Quantitative, Directional and Exotic Alpha
Member since: 2006
Phil Schmitt [email protected] | +1 416 628 8400 Toronto, ON
www.summerwoodgroup.com
SW8 Asset Management, Inc. Multi-Strategy, North American Equity Long-Short focus
Member since: 2011
Danielle Skipp [email protected] | +1 647 340 6272 Toronto, ON
www.sw8.ca
Third Eye Capital Management Inc. Credit
Member since: 2008
Arif N. Bhalwani [email protected] | +1 416 601 9824 Toronto, ON
www.thirdeyecapital.com
MEMBER DIRECTORY HEDGE FUND AND FoHF MANAGERS
MEMBER DIRECTORY: HEDGE FUND AND FoHF MANAGERS
2012 AIMA CANADA HANDBOOK | 95
Vertex One Asset Management, Inc. Multi-Strategy/Event-driven
Member since: 2002
Jeff McCord [email protected] | +1 604 681 5787 Vancouver, BC
www.vertexone.com
Vision Capital Corporation Long-Short REIT/Real Estate Focused
Member since: 2011
Jeffrey Olin [email protected] | +1 416 362 6546 Toronto, ON
www.visioncap.ca
Waratah Advisors Long-Short US & Canadian Equity
Member since: 2011
Daniel Dorenbush [email protected] | +1 416 687 6598 Toronto, ON
www.waratahadvisors.com
West Face Capital Inc. Opportunistic
Member since: 2011
Alana Johnston [email protected] | +1 647 288 0344 Toronto, ON
www.westfacecapital.com
SW8 Asset Management, Inc. Multi-Strategy, North American Equity Long-Short focus
Member since: 2011
Danielle Skipp [email protected] | +1 647 340 6272 Toronto, ON
www.sw8.ca
96 |
MEMBER DIRECTORYHEDGE FUND AND FoHF MANAGERS
OTHER ASSET MANAGERS
Westcourt Capital Corporation Income and Real Estate-linked Securities
Member since: 2011
David Kaufman [email protected] | +1 416 671 1941 Toronto, ON
www.westcourtcapital.com
BlackRock Asset Management Canada Limited Asset Manager – ETFs Member since: 2011
Eric Leveille [email protected] | +1 416 643 4050 Toronto, ON
www.blackrock.com
Bullion Marketing Services Inc. Precious Metals Fund Manager Member since: 2005
Paul de Sousa [email protected] | +1 905 415 2933 Toronto, ON
www.bmgbullion.com
Horizons ETFs Asset Manager – ETFs Member since: 2003
Jaime Purvis [email protected] | +1 416 601 2495 Toronto, ON
www.horizonsetfs.com
MEMBER DIRECTORY: HEDGE FUND AND FoHF MANAGERS
Member DirectoryService Providers
98 |
BMO Capital Markets Prime Brokerage Services
Member since: 2002
Katrina Rempel [email protected] | +1 416 359 7524 Toronto, ON
www.bmo.com
CIBC Prime Services Group Prime Brokerage Services
Member since: 2010
Claude Robillard [email protected] | +1 416 594 8534 Toronto, ON
www.cibc.com
Deutsche Bank AG, Canada Branch Prime Brokerage Services
Member since: 2012
Jeff Knupp [email protected] | +1 416 682 8000 Toronto, ON
www.db.com
RBC Capital Markets Prime Brokerage Services
Member since: 2003
Andrew Thornhill [email protected] | +1 416 842 6440 Toronto, ON
www.rbccm.com
MEMBER DIRECTORYPRIME BROKERS
MEMBER DIRECTORY: SERVICE PROVIDERS
2012 AIMA CANADA HANDBOOK | 99
Scotia Capital Prime Finance Prime Brokerage Services
Member since: 2005
Kripa Kapadia [email protected] | +1 416 863 7305 Toronto, ON
www.scotiaprimefinance.com
100 |
Deloitte & Touche Canada Audit, Tax and Advisory Services
Member since: 2003
George Kosmas [email protected] | +1 416 601 6084 Toronto, ON
www.deloitte.ca
Ernst & Young LLP Audit, Tax and Advisory Services
Member since: 2003
Joseph Micallef [email protected] | +1 416 943 3494 Toronto, ON
www.ey.com/ca
KPMG LLP Audit, Tax and Advisory Services
Member since: 2007
Peter Hayes [email protected] | +1 416 777 3939 Toronto, ON
www.kpmg.ca
PricewaterhouseCoopers LLP Audit, Tax and Advisory Services
Member since: 2002
Chris Pitts [email protected] | +1 416 947 8964 Toronto, ON
www.pwc.com/ca/en
MEMBER DIRECTORYACCOUNTING FIRMS
MEMBER DIRECTORY: SERVICE PROVIDERS
2012 AIMA CANADA HANDBOOK | 101
Deloitte & Touche Canada Audit, Tax and Advisory Services
Member since: 2003
George Kosmas [email protected] | +1 416 601 6084 Toronto, ON
www.deloitte.ca
Ernst & Young LLP Audit, Tax and Advisory Services
Member since: 2003
Joseph Micallef [email protected] | +1 416 943 3494 Toronto, ON
www.ey.com/ca
KPMG LLP Audit, Tax and Advisory Services
Member since: 2007
Peter Hayes [email protected] | +1 416 777 3939 Toronto, ON
www.kpmg.ca
PricewaterhouseCoopers LLP Audit, Tax and Advisory Services
Member since: 2002
Chris Pitts [email protected] | +1 416 947 8964 Toronto, ON
www.pwc.com/ca/en
Aird & Berlis LLP Member since: 2003
Jennifer Wainwright [email protected] | +1 416 865 4632 Toronto, ON
www.airdberlis.com
Borden Ladner Gervais LLP Member since: 2004
Ron Kosonic [email protected] | +1 416 367 6621 Toronto, ON
www.blg.com
Davies Ward Phillips & Vineberg LLP Member since: 2010
Tim Baron [email protected] | +1 416 863 5539 Toronto, ON
www.dwpv.com
Heenan Blaikie LLP Member since: 2010
Tom Cotter [email protected] | +1 403 261 3451 Calgary, AB
www.heenanblaikie.com
LAW FIRMS
102 |
McMillan LLP
Member since: 2002
Michael Burns [email protected] | +1 416 865 7261 Toronto, ON
www.mcmillan.ca
Norton Rose Canada LLP
Member since: 2011
Michael Bunn [email protected] | +1 416 216 4095 Toronto, ON
www.nortonrose.com
Stikeman Elliott LLP
Member since: 2009
Darin Renton [email protected] | +1 416 869 5635 Toronto, ON
www.stikeman.com
Torys LLP
Member since: 2002
Marlene Davidge [email protected] | +1 416 865 7322 Toronto, ON
www.torys.com
MEMBER DIRECTORYLAW FIRMS
MEMBER DIRECTORY: SERVICE PROVIDERS
2012 AIMA CANADA HANDBOOK | 103
CIBC Mellon Fund Administration
Member since: 2009
Charbel Cheaib [email protected] | +1 416 643 6352 Toronto, ON
www.cibcmellon.com
CITCO (Canada) Inc. Fund Administration
Member since: 2008
Kieran Conroy [email protected] | +1 416 966 9200 Toronto, ON
www.citco.com
Citigroup Fund Services Ltd. Fund Administration
Member since: 2010
Donald King [email protected] | +1 905 212 8988 Toronto, ON
www.citi.com
CommonWealth Fund Services Ltd. Fund Administration
Member since: 2008
Mackenzie Crawford [email protected] | +1 416 687 6654 Toronto, ON
www.commonwealthfundservices.com
FUND ADMINISTRATORS
104 |
Harmonic Fund Services Canada Inc. Fund Administration
Member since: 2006
Allen Bernardo [email protected] | +1 416 507 4700 Toronto, ON
www.harmonic.ky
RBC Dexia Investor Services Fund Administration
Member since: 2006
Brad Taylor [email protected] | +1 416 955 2022 Toronto, ON
www.rbcdexia.com
The Investment Administration Solution Inc. Fund Administration
Member since: 2003
David Chan [email protected] | +1 416 368 9569 ext 288 Toronto, ON
www.TheSolutionPeople.com
UBS Fund Services, Canada Fund Administration
Member since: 2007
Heather Budd [email protected] | +1 416 971 4702 Toronto, ON
www.ubs.com
MEMBER DIRECTORYFUND ADMINISTRATORS
MEMBER DIRECTORY: SERVICE PROVIDERS
2012 AIMA CANADA HANDBOOK | 105
Canada Pension Plan Investment Board Plan Sponsor – Public Pension
Member since: 2012
Marco Vetrone [email protected] | +1 416 874 5221 Toronto, ON
www.cppib.ca
Ontario Teachers’ Pension Plan Institutional Investor
Member since: 2004
Jonathan Hausman [email protected] | +1 416 730 5388 Toronto, ON
www.otpp.com
INSTITUTIONAL INVESTORS
106 |
Cidel Financial Group Private Wealth Management - Private Bank
Member since: 2003
Matt Maldoff [email protected] | +1 416 925 7585 Toronto, ON
www.cidel.com
Montréal Exchange Canadian Derivatives Exchange
Member since: 2003
Brian Gelfand [email protected] | +1 514 871 7884 Montréal, QCwww.m-x.ca
MEMBER DIRECTORYOTHER
MEMBER DIRECTORY: SERVICE PROVIDERS
Certain institutional investor members are anonymous by request and this listing is current as of April 24, 2012. For an updated list of all public members, please go to http://aima-canada.org/aima_canada_member_directory.html
Castle Hall Alternatives Inc. Due Diligence Consultant
Member since: 2011
Chris Addy [email protected] | +1 450 465 8880 Montréal, QC
www.castlehallalternatives.com
CIBC Wood Gundy Retail Brokerage
Member since: 2004
Troy Killick [email protected] | +1 416 956 3456 Toronto, ON
www.woodgundy.com
Cidel Financial Group Private Wealth Management - Private Bank
Member since: 2003
Matt Maldoff [email protected] | +1 416 925 7585 Toronto, ON
www.cidel.com
Montréal Exchange Canadian Derivatives Exchange
Member since: 2003
Brian Gelfand [email protected] | +1 514 871 7884 Montréal, QCwww.m-x.ca
Castle Hall Alternatives Inc. Due Diligence Consultant
Member since: 2011
Chris Addy [email protected] | +1 450 465 8880 Montréal, QC
www.castlehallalternatives.com
CIBC Wood Gundy Retail Brokerage
Member since: 2004
Troy Killick [email protected] | +1 416 956 3456 Toronto, ON
www.woodgundy.com
FOR MORE INFORMATION ON AIMA CANADA, PLEASE CONTACT:
James Burron, CAIA Chief Operating O!cer, AIMA Canada
Suite 504 – 80 Richmond Street WestToronto, OntarioM5H 2A4
[email protected] +1 416 453 0111
www.aima-canada.org