AIMA hails new CSA mutual fund rules

Association says retail investors can soon boost portfolios by adding alternative strategies

AIMA hails new CSA mutual fund rules

The Alternative Investment Management Association (AIMA) believes the new mutual fund framework will be “transformative” for the industry.

The Canadian Securities Administrators announced on Thursday the final rules to bring alternative mutual funds, previously available to only institutional and accredited investors, to Canada.

Claire Van Wyk-Allan, AIMA’s head of Canada, said: “Canadian retail investors will benefit from greater access to these alternative investment strategies, which can diversify their portfolios and protect against downside risk while providing non-correlated returns, especially as the end of the current economic cycle draws closer.”

She added that there may be growing pains, however, given that retail distribution may initially treat all alternative mutual funds as high risk. Van Wyk-Allan believes this is counter-intuitive given the asset allocation benefits these products will bring.

She added: “This is why AIMA has developed retail due diligence resources, risk rating advocacy guidelines and educational presentation for advisors to help them navigate the influx of expected product.”

The CSA’s framework, and streamlining of regulations around non-redeemable investment funds, stated that “commodity pools” be renamed “alternative mutual funds”, which include funds with the following investment objectives: to invest in physical commodities or specified derivatives; or borrow cash or engage in short-selling in a manner not typically permitted for other mutual funds.

It also moved the bulk of the regulatory framework in National Instrument 81-104 Commodity Pool into the National Instrument 81-102 Investment Funds.

In a statement, AIMA said it wanted to make public “its enthusiasm for the innovation and benefits this will bring to the Canadian market”. The association believes that with the products now being opened up to retail demand, it expects the big banks to step up to distribute these new funds.

Belle Kaura, AIMA Canada chair, said: “Having participated in ongoing discussions with the CSA regulators before the first iteration of the proposed rules were made in 2013, AIMA Canada is pleased to have played a role in crafting a retail funds framework that will be transformative for the Canadian alternative investment industry.”

AIMA highlighted important changes and additions to the 2016 proposals including:

  • Funds may borrow cash from non-Canadian lenders;
  • The leverage methodology has been amended to account for specified derivatives transactions that are for hedging (the aggregate notional value of specified derivatives positions arising from “hedging” transactions can be subtracted from the aggregate notional value of their specified derivatives positions);
  • An affiliate of a bank or trust company is not required to have “publicly available” financial statements in order to act as a fund custodian or sub custodian;
  • Alternative mutual funds and non-redeemable investment funds may deposit assets up to 25% of NAV with a single borrowing agent (other than the fund’s custodian or sub custodian) as security for short selling transactions, an increase from the 10% limit currently applicable to mutual funds;
  • The proficiency standards for mutual fund dealers under NI 81-104 are being retained and extended to apply to alternative mutual funds;
  • Commodity pools with a receipt for a final prospectus on January 2, 2019 will not have to comply with the Amendments until July 4, 2019 under a 6-month transition period;
  • Existing non-redeemable investment funds established before October 4, 2018 will be exempted from certain of the investment restrictions in the Amendments subject to certain conditions.

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