On 7 February, AIMA and the ACC responded to the Ontario Securities Commission’s (OSC) consultation paper on improving retail investor access to long-term assets.  In the consultation, the OSC proposed the creation of an Ontario Long-Term Fund (OLTF).

AIMA and the ACC welcomed the initiative and argued that the success of the US Business Development Company (BDC) system, as well as the recent EU and UK ELTIF and LTAF vehicles, demonstrate the potential for vehicles that can channel retail investors into private long-term assets.

AIMA and the ACC highlighted three key issues for the OSC to address to ensure that OLTF meets its objectives:

• The requirement for OLTFs to have a cornerstone institutional investor and for this to be done via a Collective Investment Vehicle (“CIV”).  This requirement has the potential to undermine the appeal of the OLTF to managers.  Retail and institutional investors will typically have different needs and expectations on how they wish to invest in long-term assets, as well as the type of assets (risk) they are seeking.  In addition, we expect that this requirement will restrict the pool of sponsors who will be able to satisfy this requirement and therefore limit the number of funds which may be made available to the investors.  We encouraged the OSC to consider how alternative approaches which permit institutional and retail investors to be invested in similar assets might be permitted within the OLTF regime.  We would also propose that the OSC gives consideration to permitting OLTFs marketed solely to retail clients to invest in long-term assets without cornerstone investors in any form.  This would align the OLTF with the approach of BDCs, LTAFs and ELTIFs which all provide for forms of these vehicles which are marketed solely to retail investors.

• A proportionate and principles-based approach to any new rules.  While many of the proposed rules for the OLTF have merit on their own terms we believe that in aggregate they risk being disproportionate.  Similarly, many of the proposed prescriptive requirements relating to portfolio diversification, notice periods, borrowing and redemption frequencies will restrict the ability of asset managers to develop products that are suitable to their investment strategies and the needs of investors. Rather than introduce prescriptive rules, we would encourage the OSC to apply a principles-based approach to how these risks should be managed.  This could be supplemented by OSC setting out practices they might ‘typically’ expect to see but with an option for managers to apply a different approach where appropriate and with some justification to regulators.  This approach would be consistent with that adopted by the UK and EU under the LTAF and ELTIF regimes. 

• Integrating OLTFs into retail market. Our members were concerned that some of the overly prescriptive proposals relating to disclosure and distribution will have an adverse impact on perceptions of the OLTF amongst prospective retail investors and will limit distribution by dealers. While there are risks associated with investment in long-term or private assets, we believe that many of these are already dealt with through the existing distribution or disclosure requirements.  We would therefore encourage the OSC to only introduce any additional rules where there is a strong justification for doing so.  We believe that this approach will support retail investors’ ability to invest in long-term assets on familiar terms while still being appraised of the risks associated with such investments.

For further information, please contact Guillermo Pérez Molina, Private Credit Associate.