Evolving regulations add to appeal of exempt market investments
Have you ever considered investing in real estate or friend’s company as a way to diversify your portfolio? As a way to lower the volatility of the public markets or to achieve potentially higher returns? Have you ever been afraid of investing because you felt it was too risky? Investments such as real estate and funding private companies are considered and can be found in the Exempt Market. The “too risky” sentiment is one commonly heard in the Exempt Market. I’m certain that anyone who has ever spoken to me for five minutes about the Exempt Market can assure you that I’m very passionate about it, and for very good reasons.
In 2010, NI 45-106 came into play to provide regulation to the Exempt Market, but as with any new idea, the rules around the Exempt Market have continued to change as the market place evolves and grows. In the nearly six years that I’ve been involved in the Exempt Market as a Dealing Representative (DR) with a national Exempt Market Dealer (EMD), I’ve found it thrilling to witness the changes that have come into play, aimed at providing greater security to investors and making it easier for a wider range of people to be able to take part in the same type of investments as have typically been only for the ultra wealthy.
Some of the key changes include:
· Investment Issuers are now required to provide audited financial statements annually.
· Lower investment limits for Eligible Investors – this is now capped at $100,000 per 12-month period as long as the investor has received advice from a registered DR and just $30,000 per 12 months if they have not.
· Investment marketing materials need to be included in the Offering Memorandum to ensure
alignment and consistency across all materials.
· Additional schedules to carefully outline potential risks are included with the Risk Acknowledgement form and require investor initials and signatures.
· Offering Memorandums may need to be filed on SEDAR www.SEDAR.com
· EMDs are working with Investment Issuers to create meaningful redemption opportunities within the offerings where these investments have traditionally been completely illiquid.
· EMDs are requiring that Investment Issuers have an Independent Board of Directors in place to provide additional oversight to the flow of funds.
· Some EMDs now have in-house legal counsel, thereby strengthening their due diligence process.
As with any investments, there will always be risks involved, and all the regulations and protective measures in the world cannot eliminate them from existing. However, issuers work very hard to mitigate risks through strong market fundamentals and experienced management teams. (#20161014D)
Andrea Kerr is a Private Market Specialist with Pinnacle Wealth Brokers and is Registered in Alberta and Saskatchewan. She can be reached at email@example.com or (306) 737-9475