Don’t count Jerome Hass, a portfolio manager at Toronto-based Lightwater Partners Ltd., among the supporters of the new exempt market rules that entered effect in Ontario this week.
One of the key changes is an offering memorandum (OM) exemption that will allow investors to sign up in private capital investment opportunities previously only accessible for top net worth investors.
The new rules C they include exemptions for capital raisings through crowdfunding and through friends, family and business associates C will even harmonize the guidelines across the nation.
Hass will follow the decision to open up the exempt market with the offering memorandum exemption, which because of the low income thresholds will allow more investors to sign up. But he doesn’t like the second part of that call, namely the exclusion of investment funds from the new rules.
New exempt market rules work in Ontario with harmony across most of the country
That sector is the largest issuer in the exempt market: In 2014, the sector was responsible for two-thirds of the $121 billion raised through prospectus-exempt distributions. The overall market is big with issues ranging from under $250,000 to more than $500 million, using more than half the issues being above $100 million.
In Hass’ view excluding funds won’t achieve the goals set for the new rules. In other words they won’t facilitate capital raising for small , medium-sized enterprises (SMEs) to the extent desired; and, they won’t permit the average punter to “invest such as the rich.”
The Ontario Securities Commission believed to permit investment funds to market to retail investors under the OM exemption without the benefit of the disclosure and product regulation that pertains to retail investment funds “would be inconsistent using the principles underlying these existing rules with three ongoing investment fund policy initiatives: modernization of investment fund regulation; point of sale disclosure for mutual funds; and also the review of the price of ownership of mutual funds.”
Maybe, but Hass, whose firm manages two hedge funds that focus on mid-cap stocks, argues investment money is one of the main suppliers of capital to SMEs. “By excluding investment funds from the liberalization from the exempt market, the goal of making capital available to SMEs will be severely impaired.”
Indeed, instead of spending taxpayer dollars “on policy programs to subsidize productivity and innovation, this is a cost-free alternative: remove the barriers to limit the private sector’s ability to provide capital to SMEs,” he said.
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Victory for Hopkins
While Hass has reservations, another industry participant has the opposite feelings.
Darrin Hopkins, an investment adviser with Richardson GMP in Calgary, saw his efforts rewarded now when regulators in five provinces approved a prospectus exemption that will permit listed issuers “to more easily raise money by distributing securities without resorting to a prescribed offering document.”
Provided the issuer can be date with filings, and provided the investor receives assistance with the investment’s suitability, the purchase can be made. The exemption that follows on from the Hopkins-inspired initiative granting existing shareholders those rights now pertains to all shareholders.
Hopkins, who spent 3.Five years around the latest endeavour, said you need “patience and persistence.”
“I put down all the arguments to the regulators, the exchanges, the numerous committees and kept stressing the situation that this change was needed. The main city markets will be better off because the change creates a low cost and efficient method for public companies to boost capital.”