Q: In your opinion, what are the major challenges and
opportunities in the private capital markets?
A: There are two related challenges that immediately come to
mind. First is the perception that the private markets are largely
high-risk, under-regulated and beset by the non-compliance of
participants. The second is the regulatory environment that is
evolving in response to these perceptions.
The challenging reputation issue for the exempt markets is,
I believe, largely the result of a handful of attention-grabbing
headlines that really don’t reflect the reality of the industry as a
whole. However, undoubtedly, the headlines resonate, especially
with retail investors who are still stinging from recent years of
losses in the public markets. Retail investors represent a significant
source of available capital for alternative investments in the private
market and improving the reputation of the industry is necessary to
attract those investors and a larger share of that available capital.
The regulators continue to be highly protective of retail investors.
While the CSA repeatedly emphasize the need for a balanced
approach that provides appropriate protection to retail investors
without stifling investment and innovation in the market, policy
continues to favour conservative approaches to retail investors.
We see our clients’ policies and procedures with respect to
the retail investor clients being increasingly scrutinized by the
securities commissions, both in annual compliance examinations
and on applications for registration.
I think the rationale for this retail client scrutiny is well understood.
I was, however, hoping to see some refinement of the policy
approach to this investor subset in the recently announced
amendments to the prospectus exemptions under National
Instrument 45-106 which come into effect May 5, 2015. One
challenge is how the retail investor is currently defined. Generally,
it is a vast and diverse group encompassing anyone who doesn’t
meet the largely financial test of ‘accredited investor’, including
otherwise sophisticated, educated and financially capable people
able to make an informed investment decision. Financial resources
and ability to withstand financial loss are obviously critical factors
for determining suitability, but if you put a disclosure document in
front of this subset of retail investors they may well make a better
investment decision than certain ‘accredited investors’.
With the elimination of the $150,000 minimum amount
prospectus exemption for individuals, accessing retail investor
capital in the exempt market will now be possible only through
an offering memorandum. For opportunities, crowd-funding
immediately comes to mind.
I am also curious to see how Canada’s new private market trading
platforms, Aequitas’ EVO Connect (launching in 2015) and the
recently launched TMX Group’s TSX Private Markets platforms will
develop. Both promise increased liquidity and greater transparency
for investors. We recently assisted an oil and gas fund launch on
the TSX PM platform. The concept of the platform is to connect
dealers (both IIROC member dealers and EMDs), issuers (both
publicly traded and private) and investors over a dealer-to-dealer
voice-brokered service. Issuers seeking to raise capital in the
exempt market or to facilitate secondary trading in their securities
will post their disclosure on the platform’s website. Access to the
platform is limited to pre-approved participants (in the case of TSX
PM, being IIROC member dealers, EMDs, portfolio managers,
fund managers and institutional permitted clients).
Q: What are the benefits of being a member of the Private
Capital Markets Association of Canada?
A: The key benefits I have experienced from joining the PCMA
lie in the educational and networking opportunities that the
PCMA’s programming is focused on helping members understand
and navigate regulatory responsibilities, and the association does
a good job of providing tailored educational events to its members.
Last year I took their program aimed at Chief Compliance Officers,
which I found to be practical and informative.
I work with many clients in the private capital markets space,
including exempt market dealers, and find that my membership
with PCMA provides me with another opportunity to maintain
and enhance these relationships while also meeting new
people in this area.
I also believe that PCMA plays an important role in increasing
awareness of the exempt market, both in terms of communicating
to those within the industry as well as outlining the significant role
of Canada’s private capital markets to the wider public. I believe
that developing positive relationships with the regulators is an
important part of advising my clients, and the PCMA plays and
important role as an industry liaison with the regulators. Together
we all have an important role in facilitating the development of
good relationships within our private markets industry and to the
broader capital markets.
Become PCMA Member today and make a statement that you are
committed to your profession and highest standards of business conduct.
Join now at www.pcmacanada.com