When an asset class such as liquid alternatives hits the market, you can be sure that it comes with plenty of regulatory scrutiny.
Regulators are looking to protect investors … and bring them new investment possibilities.
Liquid alternatives are an asset class that needs extra attention as the concept, players, opportunities and strategies are new to most retail investors and many advisors.
Liquid alternatives will be offered to retail investors through a Simplified Prospects framework, making them similar in structure to mutual funds and ETFs. Liquid alternatives are being brought to market largely by mutual fund managers, as well as alternative investment managers, either on their own or as a sub-advisor for a mutual fund company.
The Canadian Securities Administrators’ Modernization of Investment Fund Product Regulation – Alternative Funds notice includes new rules for alternative funds that include:
- Concentration restrictions: increase the concentration restriction from 10% to 20% of net asset value (NAV) for liquid alternative funds
- Borrowing: liquid alternative funds can borrow up to 50% of their NAV
- Short selling 1: alternative funds able to short sell securities up to 50% of their NAV, up from the current 20%
- Short selling 2: alternative funds to limit short sales of a single issuer to 10% of the fund’s NAV, up from the current 5%
- Leverage: leverage through borrowing, short selling or derivatives cannot exceed the fund’s NAV by three times
- In-depth detail on the proposal from the Ontario Securities Commission
- A thorough synopsis of the Canadian Security Administrator’s proposal
- An overview of the liquid alternatives space in Canada from Mackenzie
- A good description of liquid alternatives, liquid alts vs. traditional alternative funds and what this means for investors
- List of Canadian hedge funds, by type