BACKGROUND ON PRIVATE MARKET INVESTMENTS
2. Most capital in Canada is raised in the private capital markets
under various prospectus exemptions but primarily under the
accredited investor prospectus exemption (s. 2.3 of NI 45-106).
3. Many pension funds, such as the Canada Pension Plan (CPP)
and Ontario Municipal Employees Retirement System (OMERS),
invest signi;cant amounts of capital in the private markets on
behalf of their members, since such investments provide reduced
volatility, higher levels of current income and the potential to
generate returns that are not correlated to the public markets.
4. In 2016, CPP had $278.9 Billion in assets under management
(AUM) of which $132.9 Billion (or 47.60% as set out in the chart
on next page) was invested in private assets as follows: private equity
($53.8 Billion), real estate ($36.7 Billion), infrastructure ($21.3
Billion), private debt ($17 Billion) and private real estate ($4.1
Billion). Source: 2016 Annual Report, CPP Investment Board.
5. Similarly in 2015, OMERS had $77 Billion in AUM of which
$37 Billion (or 47.6% as set out in the chart on next page) was
invested in private assets as follows: private equity ($11.3 Billion),
infrastructure ($12.6 Billion) and real estate ($13 Billion). Source:
2015 Annual Report.
6. ;e PCMA believes that private investors should be able to
bene;t from the same portfolio diversi;cation opportunity as large
pension fund investors, such as CPP and OMERS; however, the
policy of the Canadian Securities Administrators and OSC Sta;
has been to mandate all private investments be categorized as
“High Risk” investments, with corresponding pressure to limit
exposure to such investments.
7. ;e PCMA believes this blanket approach to the private capital
industry may be due to a lack of experienced portfolio management professionals within the OSC, people who understand the
use of well-established and empirically proven principles involving
the use of private capital for portfolio diversi;cation.
8. ;e PCMA respects that existing guidance on suitability, as
applied within the exempt market, has resulted in most ;nancial
advisors approaching clients with a view to developing a properly
planned and diversi;ed portfolio. ;e issues noted above can be
easily overcome with the implementation of dialogue, education
and training to which the PCMA is willing and able to contribute.
OSC’S EXEMPT MARKET ADVISORY COMMITTEE (EMAC)
9. In the Fall of 2012, the OSC established the Exempt Market
Advisory Committee (EMAC).
10. ;e purpose of EMAC is to assist the OSC in developing new
ways to raise capital in Ontario. ;e results of its deliberations
with the OSC included the introduction of new prospectus
exemptions in 2016, such as the o;ering memorandum prospec-
tus exemption in s. 2.9 of National Instrument 45-106 Prospectus
Exemptions (NI 45-106) and the crowdfunding prospectus
exemption in National Instrument 45-108 – Crowdfunding.
11. Although EMAC still exists, it has not met as a group in over a year.
ASC AND EMDAC
12. In 2016, the Alberta Securities Commission (the ASC) established the Exempt Market Dealer Advisory Committee
(EMDAC) with representation from di;erent segments of the
EMD community, in order to improve communications e;orts
with this sector.
13. EMDAC seeks to help EMDs to share information with, and
provide input and recommendations to, the ASC. It also serves as a
vehicle for discussion about compliance trends, proposed policy, new
developments, and other matters of concern to participants that trade
in, or advise on, the prospectus-exempt market in Alberta.
14. ;e PCMA believes Ontario should have an OSC committee that
exclusively focuses on private market matters and its EMD registrant
community to increase compliance, education and training.
APPOINTMENTS – LACK OF PRIVATE MARKET REPRESENTATION AT OSC
15. ;e PCMA is concerned about the lack of representation on
OSC sta; and the Commission itself with individuals who have
private markets knowledge and/or experience.
16. ;e private markets and exempt market dealers serve a critical
role in raising capital and providing investors with alternative
investment options. Without individuals in key decision-making
positions who have knowledge and/or experience in the private
markets, the PCMA believes the OSC will not achieve the right
balance between investor protection and fair and e;cient capital
markets. ;e result will be overregulation of the private capital
markets including exempt market dealers, which will directly
impact capital raising for SMEs and investor choice involving
portfolio diversi;cation and access to private market investments.
17.;e PCMA recommends that the OSC either:
a. reactivate EMAC (with a renewed composition comprising various
EMD registrants and business models) or
b. establish a new OSC Exempt Market Dealer Advisory Committee
(similar to EMDAC in Alberta), in either case, ensure that Sta; promote
expertise and hire individuals that focus exclusively on the private markets
and registration and compliance matters involving EMDs in Ontario.
18. ;e PCMA recommends that the OSC hire sta; and add
representatives to the Commission who have with greater private
markets knowledge and/or experience.
ISSUE #1: 1. ;ere is a need for increased education and training within the Ontario Securities
Commission (the OSC) about exempt market dealers (EMDs) and the private markets in
general that will aide in policy development and compliance related matters.
NEED FOR INCREASED REPRESENTATION & MORE COLLABORATION BETWEEN OSC AND EMDS IN ONTARIO
AND INCREASING FINANCIAL LITERACY OF ONTARIO INVESTORS ABOUT THE PRIVATE CAPITAL MARKETS
BRIEFING NOTE FOR THE PCMA’S PRESENTATION AT QUEEN'S PARK ON MARCH 9, 2017