The challenges of getting a new fund to market

It was difficult to know how regulators would react when a Canadian firm wanted to launch its first-of-a-kind fund

The challenges of getting a new fund to market

As the first Canadian fund manager to launch a bitcoin investment fund, First Block Capital is certainly breaking new ground. The Vancouver-based firm secured its final approvals from the British Columbia Securities Commission earlier this month enabling it to operate as an investment fund manager and exempt market dealer in Ontario and BC, but it’s not been all smooth sailing to get to this point.

As with so many things in life, being the first to try something new meant that First Block had to encounter certain challenges and stumbling blocks along the way.

“As a threshold issue, it was not even clear whether an investment vehicle of this type would be considered to be an investment fund under securities laws,” says Jason Brooks, Partner at Borden Ladner Gervais, the firm that represented First Block Capital. “That was significant because if it could not be classified as a fund, the manager of that vehicle would not even have to be required to be registered.”

“But, even if it did require registration, it was unclear whether regulators would even register a firm with that type of investment focus.”

The First Block fund - FBC Bitcoin Trust (FBT) - will invest exclusively in bitcoin and was designed to track the market price of the cryptocurrency.

Registering the fund was not a decision taken lightly by the BCSC. Working in conjunction with the Ontario Securities Commission, the regulator followed a painstakingly stringent process. There was, however, an openness about the protracted discussions and, from the outset, regulators showed a desire to be flexible and help get the fund to market.

“Some of the main challenges with the application related to the custody of bitcoin and its valuation, and how that is established in the fund,” says Brooks. “The regulators were very demanding in terms of the information they required and First Block had to respond in detail to many questions that were asked. They also had to make available the service providers they were using to maintain custody of the bitcoin.”

Brooks believes that the BCSC’s decision to register the fund places Canada as a leader in the cryptocurrency space from a regulatory standpoint. It remains to be seen how this type of investment vehicle performs over the long-term, but the fund’s leaders are expecting Canada’s growing appetite for bitcoin to be reflected in investments made into the new fund.

“Many accredited investors have been watching bitcoin appreciate in value, but until now they haven’t been able to invest in it through a managed fund as they would with a commodity like gold or silver,” added Marc van der Chijs, Co-Founder of First Block. “FBC Bitcoin Trust removes the complicated barriers to investing in bitcoin, making it more accessible to the mainstream investment community.”

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