aima canada handbook

AIMA CANADA Handbook

Including an Introduction to the Canadian Hedge Fund Industry,

Securities Regulation, the Investor Environment and Member Directory

http://aima-canada.org/

DISCLAIMER

TO OUR AIMA CANADA HANDBOOK SPONSORS:

Thank you to the many individuals that made this publication possible. To our committee members: Paul Patterson, Chris Pitts, James Burron, Gary Ostoich and Michael Burns.

To our article contributors: Gary Ostoich, Eamonn McConnell, James Burron, Paul Patterson, Les Marton, Alfredo D’Onofrio, Chris Pitts, Darin Renton, Michael Burns, Manjit Singh, Vinod

Ramnarine, Jennifer Wainwright, Ron Kosonic, Peter Hayes, James Loewen, Claude Robillard, Cathy Singer, Barry Segal, Michael Bunn and Katrina Rempel.

To our sponsors: Horizons ETFs, Norton Rose Canada LLP, Investment Administration Solution, SW8 Asset Management Inc., CommonWealth Fund Services, Ernst & Young LLP,

PricewaterhouseCoopers LLC, JC Clark Ltd., Niagara Capital Partners, HR Stratégies Inc., Montréal Exchange, Davies Ward Phillips & Vineberg LLP, CIBC Prime Services Group, The Investment

Partners Fund and BMO Capital Markets.

To our designer: Heather Martinez–for making the Handbook look as good as it does.

To our AIMA Canada interns from University of Waterloo who worked on the idea generation, logistics and many emails required to get it to press: Jovine Chan and Fernando Kou.

Material contained in this publication is a summary only, and is based on information believed to be reliable from sources within the market. The opinions contained in this publication are and must be construed solely as statements of opinion, and not statements of fact or

recommendations to purchase, sell or hold any securities. It is not the intention of the Canada National Group of the Alternative Investment Management Association (“AIMA Canada”), that

this publication be used as the primary source of readers’ information, but as an adjunct to their own resources and training.

No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication. AIMA

Canada will not be liable to the reader in contract or tort (including for negligence), or otherwise for any loss or damage arising as a result of the reader relying on any such information or

recommendation (except in so far as any statutory liability cannot be excluded).

This publication has been prepared for general information without regard to any particular person’s investment objective, !nancial situation or needs. Accordingly, no recommendation

(express or implied) or other information should be acted on without obtaining speci!c advice from an authorised representative. Any !gures are purely estimates and may vary with changing

circumstances. Also, past performance is not indicative of future performance.

Table of Contents5 Introduction

6 Overview of Canada’s Hedge Fund Industry

8 About AIMA Canada

9 CAIA: Education in Alternatives

11 About Canada

13 Canadian Financial Centres: Toronto, Montréal, Vancouver, Calgary

20 Canadian Banks: Prime Examples of Stability

24 Fund Administration for the Global Hedge Fund Industry

26 Regulation, Compliance & Structuring

28 Securities Registration and Compliance

32 Marketing & Sale of Foreign Domiciled Investment Funds in Canada

38 Tax Considerations for Foreign Funds

42 Commodities Futures and Derivatives

46 Structuring a Canadian Hedge Fund

53 Raising Capital

54 The Rise of Alternative Investments in Canada: The Case for Emerging Managers

58 Foreign Investors in Canadian Hedge Funds

62 The Canadian Asset Raising Landscape

66 Thank You to Our AIMA Canada Handbook Sponsors

83 Member Directory: Hedge Fund and FoHF Managers

97 Member Directory: Service Providers

Introduction

6 |

OVERVIEW OF CANADA’S HEDGE FUND INDUSTRY

The establishment of the Canada

National Group of AIMA in 2003 was

an important event for the industry in

terms of bringing Canadian alternative

investment managers, service providers

and investors together to represent

the industry with a common voice.

AIMA Canada’s mandate includes

policy development, promoting sound

practices, investor education and liaising

with regulatory bodies.

What happened in Canada in 2008,

was for the most part, a microcosm of

what happened globally – a number of

funds in the Canadian market were hit

hard and especially highly levered funds

or those focused exclusively on long-

biased equity strategies.

However, there were a number of

strategies and managers that did

very well and provided outstanding

benefits to their investors in the most

challenging of times. Although some

managers closed down, the industry has

emerged stronger than ever.

Today, Canadian hedge fund managers

continue to perform very well

compared to equity markets and the

majority of funds have exceeded pre-

2008 high-water marks.

KCS Fund Management and Simon

Fraser University in British Columbia

published a paper in 2009 entitled

“Risk and Return in the Canadian

Hedge Fund Industry” (an AIMA

Canada-Hillsdale Research Award

INTRODUCTION

Gary OstoichChair, AIMA CanadaPresident, Spartan Fund Management

The Canadian hedge fund industry has come a long way from its inception in the late 80s/early 90s. AUM continues to grow rapidly, reflecting the quality of managers, which has never been higher, the confidence of institutional investors, and the respect that the Canadian financial industry has earned in the international arena.

http://aima-canada.org/docs.pl?rm=send_file&record_id=391

http://aima-canada.org/docs.pl?rm=send_file&record_id=391

2012 AIMA CANADA HANDBOOK | 7

winner) about the benefits of investing

with Canadian hedge fund managers.

The paper examined a broad range

of strategies and compared Canadian

performance with hedge funds located

in other jurisdictions – concluding

that Canadian hedge fund managers

provide very attractive opportunities to

Canadian and non-Canadian investors.

From a regulatory perspective, Canada

has had a comprehensive framework

for money managers, including hedge

IXQGV��IRU�GHFDGHV��6RPH�UHÀQHPHQWV�and additional registration requirements

have been implemented; however,

while the additional regulatory burden

continues to be a challenge for new

managers, it has not hampered growth in

our business. On the positive side, there

is a better understanding by Canadian

regulators about hedge funds and their

EHQHÀFLDO�UROH�ZLWKLQ�FDSLWDO�PDUNHWV��which is a good thing for the industry.

In recent years, there has been

significant progress in terms of the

institutionalization of Canadian hedge

fund managers. Better businesses are

being built – focusing on operations,

governance, risk management,

separation of duties and transparency.

As a result, a number of Canadian

managers are ranked on a global basis

as top quality managers – from both

an infrastructure point of view and a

return/risk point of view.

Another positive sign for the industry is

increasing allocations from institutional

investors inside and outside Canada

who are attracted to the performance

and institutionalization of Canadian

fund managers and who wish to access

Canadian funds, whether through

Canadian based fund of funds or

accessing Canadian managers directly.

There is no doubt that the shape of the

Canadian industry has changed over

the years, and will continue to change.

High-caliber managers continue to

enter the industry – typically from

large financial institutions – creating

additional choice and opportunity for

Canadian and international investors.

As well, we have seen the number of

strategies being traded within Canada

expand and some Canadian-based

managers focused on international

markets. This has resulted in a dramatic

shift and growth in the AUM of the

industry, which is estimated, to have

grown from $12 billion five years

ago to over $30 billion today. It is

interesting to note a record number of

Canadian based hedge funds have “hard

closed” over the past 12 months.

All of these factors bode very well

for the future of the Canadian hedge

fund industry.

8 |

ABOUT AIMA CANADA

AIMA was established in 1990 as a

direct result of the growing importance

of alternative investments in global

investment management. AIMA is a

not-for-profit international educational

and research body that represents

practitioners in hedge fund, futures

fund and currency fund management –

whether managing money or providing

a service such as prime brokerage,

administration, legal or accounting.

AIMA’s global membership comprises

over 1,300 corporate members, in

over 40 countries and AIMA Canada

now has over 80 corporate members

including approximately 48 hedge fund

and FoHF managers.

The objectives of AIMA and AIMA

Canada are to provide an interactive and

professional forum for our membership

and act as a catalyst for the industry’s

future development; to provide

leadership to the industry and be its

pre-eminent voice; to develop sound

practices, enhance industry transparency

and education; and to liaise with the

ZLGHU�ÀQDQFLDO�FRPPXQLW\��LQVWLWXWLRQDO�investors, the media, regulators,

governments and other policy makers.

In addition to working with regulators,

holding luncheons and information

sessions, AIMA Canada has developed

several publications focused on Canadian

hedge funds. My fellow AIMA Canada

executives include:

�� Chairman – Gary Ostoich, President of Spartan Fund Management

�� Secretary – Andrew Doman, COO of Man Investments Canada Corp.

�� Treasurer – Christopher Pitts, Partner at PricewaterhouseCoopers LLP

�� Legal Counsel – Michael Burns, Partner at McMillan LLP

�� COO – James Burron, AIMA Canada

Eamonn McConnellDeputy Chair, AIMA Canada Portfolio Manager, Kensington Capital Partners

AIMA Canada, a National Group of the Alternative Investment Management Association (AIMA), was formed in March 2003 to act as the voice of the alternative investment industry in Canada.

INTRODUCTION

http://aima-canada.org/

http://www.aima.org/



CAIA: EDUCATION IN ALTERNATIVES

James Burron, CAIAChief Operating OfficerAIMA Canada

The progeny of AIMA and the Center for International Securities and Derivatives Management (CISDM) - represented by Florence Lombard and Thomas Schneeweis, respectively - the Chartered Alternative Investment Analyst (CAIA) designation has become the global mark of alternative investment accreditation.

Since the program was officially

launched in 2002, over 5,400 people

worldwide have attained the CAIA

designation (including over 300 in

Canada). CAIA Charterholders hold

membership in the CAIA Association,

which is run out of its world

headquarters in Amherst, Massachusetts

with over a dozen chapters worldwide,

including three active Canadian

sub-chapters in Toronto, Montréal

and Vancouver.

The CurriculumThe curriculum, tested bi-annually with

a 2-level exam format, includes hedge

funds/funds of hedge funds and related

strategies, commodities, derivatives

(including options, futures and various

credit-linked instruments) topics as well

as private equity, public and private real

estate investment (direct and indirect)

and even newer (so-called “alt-alt”)

topics such as cat(astrophe) bonds and

weather derivatives. It is assumed that

candidates have a fairly broad and deep

knowledge of traditional investments

and a pre-test is recommended to

ensure the recommended base of

understanding is present.

CAIA candidates gain in-depth

knowledge on virtually every alternative

investment area of study from both

academics and practitioners who lead

their respective spheres in experience

and ability to make the subjects clear

and relevant.

Bene!t of MembershipAs a founding association, all

employees of members of AIMA

(including those of AIMA Canada) are

eligible to receive a 25% discount on

first-time exam fees. (A savings of over

USD 625 per employee.)


http://www.isenberg.umass.edu/cisdm/

http://www.isenberg.umass.edu/cisdm/

http://caia.org/

About Canada

12 | ABOUT CANADA


TORONTO: CANADA’S BUSINESS AND FINANCIAL CAPITAL

Situated only a short travel distance

from the aforementioned cities – gate-

to-gate flight time is approximately

90 minutes from New York, an hour

from Chicago – Toronto makes an ideal

adjunct stop for international investors

making their regular North America due

diligence rounds.

Toronto is home to well over 80 hedge

fund managers and has spawned a

growing and exceptionally dynamic

hedge fund and alternative investment

“ecosystem” with new players constantly

entering the market as spinoffs from

local trading desks, traditional investment

managers and other hedge funds.

With an impressive international

reputation for safety, soundness and

stability, Toronto is also recognized as a

OHDGLQJ�JOREDO�ÀQDQFLDO�VHUYLFHV�FHQWUH��,W�is home to the Toronto Stock Exchange

(the “TSX”) – the third largest exchange

in North America and the seventh largest

in the world by market capitalization

– as well the vast majority of Canada’s

ODUJHVW�EDQNV�DQG�ÀQDQFLDO�VHUYLFHV�ÀUPV��including at last count, ten domestic

banks, eighteen foreign bank subsidiaries,

twenty-one branches of foreign banks,

over a hundred and twenty securities

ÀUPV�DQG�VL[W\�OLIH�LQVXUHUV��

7RURQWR·V�YDVW�ÀQDQFLDO�VHUYLFHV�VHFWRU�makes one of the largest contributions

to the local economy and sustains many

other related industries as a leading

consumer of resources, including law,

accounting, information technology,

education/training, and business

services. It also hosts a growing list of

ÀQDQFLDO�VHUYLFHV�WHFKQRORJ\�SURYLGHUV��seven of the top ten hedge fund

DGPLQLVWUDWRUV�KDYH�VLJQLÀFDQW�RIÀFHV�located in Toronto.

International investment managers

planning a visit would do well to know

that Toronto has over thirty >$1 billion

dollar pension plans – three of Toronto’s

public pension plans rank among the

top sixty in the world – that manage an

aggregate of close to US$500 billion.

Canadian pension plans are well-known

for embracing alternative investments,

including hedge funds (both managed

domestically and by foreign managers).

With a population of close to 2.5 million, Toronto is the business and financial capital of Canada and represents the third-largest North American financial services centre after New York and Chicago. The bulk of Canadian hedge fund managers are situated here.

http://www.toronto.ca/

14 | ABOUT CANADA


MONTRÉAL: CANADA’S INTERNATIONAL FINANCIAL CENTRE

Although just a short distance – less than DQ�KRXU·V�ÁLJKW�WLPH�²�IURP�1HZ�<RUN�DQG�%RVWRQ��RU�RQH�KRXU�ÁLJKW�IURP�Toronto), what makes Montréal unique is its bilingualism (French and English) making it an ideal gateway between the economies of Europe and America. :KLOH�)UHQFK�LV�WKH�RIÀFLDO�ODQJXDJH�RI �Québec (the Canadian province where Montréal is situated), it has the ability to operate seamlessly in English and other ODQJXDJHV��ÀIW\�SHUFHQW�RI �0RQWUpDO�residents are bilingual while another 18% are trilingual.

This diversity has made Montréal an attractive place for international business. As witness, Montréal is home to more than sixty international organizations, more than 1,250 foreign subsidiaries and corporations and has the highest number of consulates in North America outside of New York.

In addition, over one hundred Montréal-EDVHG�ÀQDQFLDO�ÀUPV�KDYH�EHHQ�awarded the International Financial Centre (“IFC”) accreditation by the International Financial Centre of

Montréal – a local body formed by Québec provincial government in collaboration with the Montréal Exchange and the City of Montréal to promote Montréal as an international ÀQDQFLDO�FHQWUH�²�ZKLFK�DOORZV�WKHP�WR�TXDOLI\�IRU�WD[�EHQHÀWV�RQ�WKHLU�international transactions.

Several of Canada’s chartered banks have WKHLU�KHDG�RIÀFHV�LQ�0RQWUpDO��DV�ZHOO�DV�the management of some of Canada’s largest public pension plans such as the Caisse de dépôt et placement du Québec (the Caisse), the Public Sector Pension Investment Board and several large corporate plans.

Indeed, the Caisse ranks among the largest portfolio managers in North America and is widely considered one of the leading public fund managers in Canada. It has furthermore been on the forefront internationally in the acceptance of alternative investments and, anchored by the Caisse’s tutelage DQG�LQÁXHQFH��0RQWUpDO�KDV�GHYHORSHG�its own hedge fund and alternative investment expertise.

Montréal is Canada’s second largest city with a population of over 1.6 million and North America’s 7th largest, and has a long history of leadership in financial services and pension plan management as well as being home to the Montréal Exchange, the centre of derivatives trading in Canada. Five distinguished finance universities and over 2,000 CFA charterholders reside in and around the city.

http://www.ville.montreal.qc.ca

16 | ABOUT CANADA


VANCOUVER: CANADA’S GATEWAY TO THE PACIFIC

Financial services employ more than

55,000 people in the greater Vancouver

area (which consists of over 1.2 million

people). And while Vancouver’s financial

services industry initially started

to support the mining and forestry

industries – for many years the key

drivers of the city phenomenal growth

– now local financial services companies

operate in global markets, leveraging

and facilitating Vancouver’s position as a

global commercial gateway.

Shared language and customs and

proximity with the United States –

Vancouver is only one hour from

Seattle, two hours from San Francisco

and three hours from Los Angeles by

air – are critical assets, as are strong

cultural connections to emerging

Asian economies. Regarding the

latter, Vancouver has in recent years

successfully established itself as a

prominent international centre for

businesspeople and investors from the

Asia-Pacific region looking to establish

a North American beachhead, and is

home to one of the world’s largest and

vibrant Asian immigrant/expatriate

communities.

All five of Canada’s largest banks have

significant operations in Vancouver

as well as several international banks,

including the Canadian headquarters of

London’s HSBC – one of the world’s

largest banks.

In addition, the International Financial

Activity Act (IFAA) promulgated by

the province of British Columbia

(or BC, the Canadian province

where Vancouver is situated) allows

corporations carrying out specified

international financial activities in

British Columbia, where one part of

the transaction is with a non-resident,

to recoup up to 100% of provincial

corporate income taxes. Thus,

Vancouver is developing an important

niche in international treasury and

financial functions, including factoring,

import/export financing, foreign

exchange, and back-office support.

Vancouver repeatedly ranks as one of the world’s most livable cities. Featuring a dynamic internationally-focussed business community – many with strong ties to the rapidly-growing Asia-Pacific region – not to mention modern urban amenities situated just minutes away from world-class ski resorts, pristine beaches and spectacular old-growth forests.

http://vancouver.ca/

18 | ABOUT CANADA


CALGARY: WESTERN CANADA’S FINANCIAL CENTRE

Although the energy sector drives

Calgary – the province of Alberta

produces about 70% of Canada’s crude

oil and 80% of its natural gas – the

rapid growth of this sector has fuelled

a whole host of ancillary industries

catering not to just the financing

required by the energy industry but

also to managing and diversifying

the great wealth created by it and its

participants. Indeed, since the early

1990s, Calgary’s financial services

sector has become a major contributor

to the strong economic growth in

Alberta, which is considered among

the fastest growing economies in

North America.

Calgary’s financial services sector

includes all six of Canada’s major

chartered banks, strong regional

banks, international investment banks

and numerous financial investment

firms. This concentration of business

and financial talent has spawned

several strong Calgary-based hedge

funds, many of which have leveraged

their homegrown expertise in the

energy markets.

Given its strong entrepreneurial

culture, Calgary is also the

headquarters for the TSX Venture

Exchange, an exclusively micro-

cap and small-cap stock exchange

(affiliated with Toronto’s TMX

Group) that provides much-needed

access to capital for early-stage

companies in all industry sectors

across Canada.

Calgary – a city of over 1 million people situated in the southern part of the province of Alberta – is Western Canada’s business centre and has more head offices per capita than any other Canadian city. While Toronto has traditionally been viewed as Canada’s financial centre, the growth in Calgary – largely but not exclusively due to its strength in the energy sector – means that the city has been gaining a reputation as a global financial centre.

http://www.calgary.ca

20 |

CANADIAN BANKS: PRIME EXAMPLES OF STABILITY

Why Canada’s Banks Survived the Crisis

The Canadian Bankers Association points to four key factors for the success of the V\VWHP�DQG�WKH�&DQDGLDQ�EDQNV·�DELOLW\�WR�ZLWKVWDQG�WKH�VKRFN�RI �WKH�ÀQDQFLDO�FULVLV�1

��%DQNLQJ�V\VWHP�GLYHUVLÀHG�ZLWK�ZHOO�PDQDJHG�LQVWLWXWLRQV�

a. The major investment banks are anchored by solid deposit-taking institutions

E��'LYHUVLÀFDWLRQ�RI �UHJLRQDO�ULVN

c. Lending decisions are on a case-by-case basis, extending credit to borrowers that can repay their loans

2. Canada’s strong regulatory system:

D�� &DQDGD�KDV�WZR�RQO\�SULPDU\�UHJXODWRUV��WKH�2IÀFH�RI �WKH�6XSHULQWHQGHQW�RI �Financial Institutions (OSFI) for regulation and the Financial Consumer Agency of Canada (FCAC) for consumer affairs

3. Strong capitalization of the national banks:

a. As some of the best capitalized in the world, Canadian banks greatly exceed the guidelines set by the Bank for International Settlements

Les MartonHead of Capital Introduction & Hedge Fund Consulting ServicesScotiabank

Alfredo D’OnofrioDirector, Prime Services Scotiabank

Crises, what Crises? The credit crisis of 2008 and the near collapse of certain !nancial institutions previously thought “unassailable” has been well-reported, but little has been said of how Canadian banks remained solvent during the many recent global banking crises.

1 March 2009 remarks by Nancy Hughes, President & CEO of the Canadian Bankers Association to the House of Commons Standing Committee on Finance http://www.cba.ca/contents/files/presentations/pre_20090309_01_en.pdf

ABOUT CANADA

http://www.cba.ca/contents/files/presentations/pre_20090309_01_en.pdf

http://www.cba.ca/contents/files/presentations/pre_20090309_01_en.pdf


b. Strategically raising equity in the marketplace when appropriate

4. Prudent mortgage lending:

a. The vast majority of mortgages are prime and only 20% are securitised

b. Mortgages with less than 20% down must be insured

c. Mortgage arrears are very low (0.33% for the seven largest Canadian banks)

Impact of the Global Financial Crisis and Hedge Funds’ Response

Canadian banks have capabilities that dovetail nicely with some of the post-2008 needs of hedge fund managers.

Hedge funds by virtue of their strategies are poised to capitalize on the ensuing market opportunities. However these same developments have caused prudent fund managers WR�UHÀQH�WKHLU�DSSURDFK�WR�FRXQWHUSDUW\�ULVN�

Six key trends have emerged to help shape industry thinking:

1. Vastly different macro environments, both from an economic and regulatory � SHUVSHFWLYH��KDYH�LQFUHDVHG�WKH�LPSRUWDQFH�RI �GLYHUVLI\LQJ�ÀQDQFLQJ�� relationships jurisdictionally.

2. Investors are demanding more transparency of a hedge fund’s infrastructure, counterparty relationships, portfolio structures and risk management.

3. Hedge funds require a greater legal understanding of asset segregation and re- hypothecation rules, and how they apply to their accounts.

4. The multiple-prime broker scenario has increasingly become the standard structure for all hedge funds with a critical asset base.

5. Hedge funds need advanced operations platforms to manage these multiple counterparty relationships.

6. Many large hedge funds have entered into multi-prime relationships in order to manage counterparty risk.

Multiple-Primes and the Case for Jurisdictional Diversi!cation7KH�PXOWLSOH�SULPH�EURNHU�DUUDQJHPHQW�RIIHUV�D�QXPEHU�RI �LPSRUWDQW�EHQHÀWV�WR�hedge funds:

�� &RXQWHUSDUW\�ULVN�GLYHUVLÀFDWLRQ

�� Access to a larger pool of securities lending and hard to borrow securities

�� 5HVHDUFK�DFURVV�ÀUPV�DQG�DFFHVV�WR�PRUH�FRPSDQLHV

�� Multiple capital introduction sources

22 |

StableAA-AA-Toronto-Dominion Bank 3

StableAA-AA-Bank of Nova ScoƟa1

Rank Name Today Dec, ‘07 Credit Watch

2 Royal Bank of Canada AA- AA- Stable

4 BNP Paribas AA- AA+ NegaƟve

5 Bank of Montreal A+ A+ Stable

6 CIBC A+ A+ Stable

7 Wells Fargo & Co. A+ AA+ NegaƟve

8 Deutsche Bank A+ AA- NegaƟve

9 US Bancorp A AA Stable

10 JPMorgan Chase A+ AA- NegaƟve

11 Barclays Capital A+ AA- NegaƟve

12 Credit Suisse Group A+ A+ NegaƟve

13 Société Générale A AA- Stable

14 UBS A AA NegaƟve

15 Goldman Sachs A- AA- NegaƟve

16 Bank of America A- AA NegaƟve

17 CiƟgroup A- AA NegaƟve

18 Morgan Stanley A- AA- NegaƟve

StableAA-AA-Toronto-Dominion Bank 3

StableAA-AA-Bank of Nova ScoƟa1

Rank Name Today Dec, ‘07 Credit Watch

2 Royal Bank of Canada AA- AA- Stable

4 BNP Paribas AA- AA+ NegaƟve

5 Bank of Montreal A+ A+ Stable

6 CIBC A+ A+ Stable

7 Wells Fargo & Co. A+ AA+ NegaƟve

8 Deutsche Bank A+ AA- NegaƟve

9 US Bancorp A AA Stable

10 JPMorgan Chase A+ AA- NegaƟve

11 Barclays Capital A+ AA- NegaƟve

12 Credit Suisse Group A+ A+ NegaƟve

13 Société Générale A AA- Stable

14 UBS A AA NegaƟve

15 Goldman Sachs A- AA- NegaƟve

16 Bank of America A- AA NegaƟve

17 CiƟgroup A- AA NegaƟve

18 Morgan Stanley A- AA- NegaƟve

S&P Credit Ratings*

* Long Term Local debt rating as at February 3, 2012

ABOUT CANADA

Of course, simply having multiple prime brokers is not a panacea for all hedge fund FRXQWHUSDUW\�LOOV��7R�FRPSOHPHQW�WKH�GLYHUVLÀFDWLRQ�DFKLHYHG�E\�KDYLQJ�D�PXOWLSOH�prime arrangement, a thorough analysis of each counterparty is required. Having the right counterparties is clearly critical and encompasses other factors such as service DQG�SULFLQJ�DV�ZHOO�DV�ÀQDQFLDO�YLDELOLW\��FDSLWDO�UDWLRV��TXDOLW\�RI �FDSLWDO�DQG�OHYHUDJH��The lessons of 2008 are all-too fresh and the strength of the prime broker and its bank parent need to be carefully considered. Fortunately for Canadian banks, they have HPHUJHG�RXW�RI �WKH�GHWULWXV�RI �WKH�JOREDO�ÀQDQFLDO�PHOWGRZQ�ZLWK�WRS�FUHGLW�UDWLQJV�and are extremely well-regarded internationally as the following chart from Standard & Poor’s indicates.


1 Basel III: Now the hard part for European banks http://www.mckinseyquarterly.com/Basel_III_Now_the_hard_part_for_European_banks_2704

The global economic landscape is, in some respects, as fluid as it has been in some time and concerns about counterparty risk are heightened. The implications of the 2011 U.S. downgrade and the ever-looming European debt crisis, combined with pending regulatory changes have been themes that put into question the strength of many of the world’s largest global investment banks.

�� While continuing questions around Greek default or restructuring may not necessarily cause European banks to become insolvent (outside of Greece), contagion fears and risk aversion could no doubt lead to further downgrades of some banks.

�� Basel III and the Dodd-Frank legislation are expected to exert additional pressure to banks’ business and services. According to a November 2010 McKinsey study, Basel III1�ZLOO�KDYH�D�VLJQLÀFDQW�LPSDFW�RQ�WKH�(XURSHDQ�EDQNLQJ�VHFWRU�DV�E\�2019 the European banking industry will require approximately $1.1 trillion of additional Tier 1 capital, $1.3 trillion of short-term liquidity and $1.3 trillion of short-term funding. The capital need is roughly equivalent to almost 60% of European and U.S. Tier 1 capital outstanding.

�� The Dodd-Frank legislation in the U.S. looks to force banks to reduce business activities deemed outside the scope of traditional banking norms. The long-term impact is difficult to assess, however U.S. banks are rethinking business models to accommodate the new regulations, including the winding down/spinning out of proprietary trading desks.

The Road Ahead

While the global economy had, until quite recently, rebounded from the tumult of late 2008, the path of recovery has shown itself to be uneven and fragile. Between the sovereign debt crisis in Europe, the introduction of new banking rules through Basel III and Dodd-Frank legislation and the continuing concern over rising debt levels, the challenges that face hedge funds have certainly grown in number and complexity. Within the global topography of the banking industry, there are few players that have proven themselves based on their ability to successfully navigate through the financial crisis – Canadian banks are among them.

http://www.mckinseyquarterly.com/Basel_III_Now_the_hard_part_for_European_banks_2704%20

http://www.mckinseyquarterly.com/Basel_III_Now_the_hard_part_for_European_banks_2704%20

24 |

FUND ADMINISTRATION FOR THE GLOBAL HEDGE FUND INDUSTRY

History of an IndustryThe fund administration industry in Canada first experienced substantial growth in the 1990s in lock-step with the growth of the largely U.S.-driven hedge fund industry. At that time, this level of growth, combined with increasing complexity of fund vehicles and investment strategies, as well as certain U.S. tax rules impacting offshore funds, resulted in many offshore centres being constrained from an infrastructure and resource perspective. These factors were critical in driving fund administrators to look to alternative locations for their operations around the world. Toronto thus emerged as a key centre, with a number of global administrators establishing operations to take advantage of some key attributes:

�� Time Zone/Location – an advantageous Eastern Time Zone and convenience of being only an hour or so away from New York and Boston;

�� Qualified Personnel – Canada has established financial centres with an abundance of qualified professionals and support staff familiar with the capital markets. These human resources also have a similar training and work ethic as found in most U.S. cities, together with cost-effective wages compared to their U.S. counterparts;

�� Communications – strong telecommunications infrastructure at comparably cheaper costs to Europe and the Caribbean; and,

Chris PittsPartner, Audit and Assurance GroupPricewaterhouseCoopers LLP

The fund administration industry in Canada is a thriving part of the Canadian !nancial services economy, with participants across the spectrum from the Canadian boutique administrators to multi-faceted global service providers. In addition, Canadian administrators play a signi!cant role in the global hedge fund industry and Canada’s broad reach in this area has historically not been well-known or fully appreciated.

ABOUT CANADA


�� Tax considerations – free trade agreements, particularly with the U.S., as well as Canadian safe harbour tax rules supporting the provision of administration services to offshore funds.

A Thriving IndustryIn the last decade, the growth of the global fund administration industry in Canada has continued, driven by a variety of factors including a clear and distinct advantage over hurricane-prone offshore centres, the impact of increasing competition in the administration industry that has led organizations to set up key centres of excellence, focused tax incentives by certain levels of government in different parts of the country, and the positive afterglow that Canada has experienced in managing its financial system through the global economic crisis. As a result, while the most significant concentration of operations remains in Toronto, there are centres across the country in Halifax, Montréal and Vancouver, and the number of global administrators operating in the country has grown significantly.

Going ForwardIn this current environment of additional regulation and increased pressure from investors for transparency and robust operational infrastructure, fund administrators continue to expand their service offerings to enable managers to outsource more processes than ever before. Changes in regulatory

and tax regimes are also increasing the complexity of information reporting requirements, from anti-money laundering regulatory requirements to the impact of the Dodd-Frank reforms, the U.S. Foreign Account Tax Compliance Act (FATCA) and Europe’s Alternative Investment Fund Manager Directive (AIFMD). The move to outsourcing has never been more compelling, and the strength of the infrastructure capabilities that are available in Canada never better.

Members of AIMA Canada cover the spectrum from the locally-focused administrator to the global player with operations in numerous countries that service the entire gamut of the hedge fund industry, retail and/or listed vehicles through to privately offered funds.

Regulation, Compliance &

Structuring

28 |

SECURITIES REGISTRATION AND COMPLIANCE

Hedge fund managers in Canada, like

other asset managers, may be subject

to several types of registration. The

registration requirements and ongoing

registrant obligations are stringent and

comprehensive, demanding that hedge

fund managers focus on compliance.

National Instrument 31-103 Registration

Requirements, Exemptions and Ongoing

Registrant Obligations (“NI 31-103”)

establishes registration requirements

and exemptions and generally regulates

registrants’ activities in all Canadian

jurisdictions. Under Canadian securities

laws, firms generally must register if

they are in the business of trading,

in the business of advising, holding

themselves out as being in the business

of trading or advising, or acting as an

investment fund manager. If a firm

engages in more than one of these

registerable activities, then (unless it

is otherwise exempt) the firm must

register in all applicable categories.

1. Registration RequirementsFor hedge funds operating in Canada,

the dealer, adviser and investment

fund manager registration categories

are relevant:

Darin R. RentonPartnerStikeman Elliott LLP

In Canada, securities regulation is a matter of provincial and territorial jurisdiction. Each of the thirteen jurisdictions has its own securities laws, policies and rules that are administered by a securities regulatory authority or regulator. However, the registration rules have been harmonized, streamlined and modernized, so that compliance with the harmonized national rules will generally result in compliance with the rules in all provinces and territories, with the largest jurisdiction, Ontario, typically acting as lead regulator.

REGULATION, COMPLIANCE & STRUCTURING


(a) Dealer RegistrationPersons who are in the “business of

trading” in securities are required to be

registered as a dealer in each Canadian

jurisdiction where purchasers reside.

Hedge fund managers typically address

the dealer registration requirement

by registering as an exempt market

dealer (“EMD”) or retaining a third

party dealer to facilitate their offerings.

An EMD is permitted to trade in

the exempt market (a) in securities

being distributed under a prospectus

exemption or (b) with persons or

companies to whom a security may

be distributed under a prospectus

exemption (for example, trading with

an accredited investor). “Trading”

is broadly defined under Canadian

securities laws to include not only the

sale or disposition of a security for

valuable consideration, but also any

act, solicitation or conduct which is

directly or indirectly in furtherance of

the sale or disposition of a security.

Accordingly, a hedge fund manager

that is not registered as a dealer is not

permitted to contact and deal directly

with prospective clients. Any such

contact would generally be considered

an act in furtherance of a trade and

would accordingly trigger the dealer

registration requirement.

A second dealer category is that of

an investment dealer which, unlike

an EMD, may trade in virtually any

security with any client (subject to

“know your client” criteria and the

appropriateness of each trade).

(b) Adviser RegistrationCanadian securities laws require a

person or company providing portfolio

management services for a Canadian

hedge fund to be registered as an

adviser in the local jurisdiction where

the hedge fund receives the advice

(typically, the jurisdiction in which the

fund is managed). Adviser registration

exemptions are available to international

advisers and, in certain jurisdictions, to

non-resident sub-advisers.

(c) Investment Fund Manager RegistrationCanadian securities laws require a

person that directs the business,

operations or affairs of an investment

fund to be registered as an investment

fund manager (“IFM”) in the province

or territory in which its head office

is located. A Canadian IFM is also

required to register in other provinces

or territories if the fund it manages has

security holders that are local residents

and the IFM or the fund has “actively

solicited” local residents to purchase

securities of the fund. An exemption

from the requirement for Canadian

investment fund managers to register

in jurisdictions other than the one in

which their head office is located has

been extended to September 28, 2012.

30 |

2. Ongoing Compliance Requirements

(a) RegistrationNI 31-103 regulates the registration of

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compliance requirements for registrants.

These include requirements with respect

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of assets, recordkeeping, account activity

reporting, complaint handling, soft-

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(b) FeesFees payable by registrants vary

depending on the jurisdiction of

registration. In some jurisdictions

fees are fixed for the firm and for the

individuals registered under the firm,

while in others fees are based on the

revenues earned by the firm in the

jurisdiction. For example, in Ontario

registered and exempt firms are

required to pay an annual capital market

participation fee based on revenues

earned in Ontario.

(c) Anti-Money Laundering and Anti-Terrorist Financing LegislationFirms are subject to Canadian anti-

money laundering and anti-terrorist

financing legislation. Under this

legislation, registrants face certain

reporting, filing, record-keeping,

client identification and compliance

regime requirements, as well as certain

other monitoring requirements and

restrictions on dealing with designated

individuals and groups. Firms must

comply with the monthly reporting

requirements under federal anti-

terrorist financing and UN sanction

regulations. Generally, firms are

required to complete a monthly

prescribed reporting form and submit

the form to their principal regulator on

the fourteenth day of each month.

(d) Privacy LegislationPrivacy legislation, enacted in Canada

at both the federal and provincial

levels, applies to the collection, use and

disclosure of “personal information”

of an individual by an organization in

the course of commercial activities.

As part of its obligations, a registered

firm is accountable for the information

it collects, may only collect personal

information that is necessary for the

purposes identified to the subject

individual, and must obtain consent

of the individual to collect, store and

disclose personal information.

3. Other Ongoing Filing RequirementsHedge funds that distribute their

securities pursuant to certain private

placement exemptions (including the

Minimum Amount and Accredited

Investor exemptions as detailed in NI



45-106) must file a report of exempt

distribution in the required form,

together with the prescribed fees, with

the securities regulatory authority in the

province or territory in which the trade

occurs. A hedge fund manager may elect

to file such reports within ten calendar

days of each trade (the usual deadline)

or, for convenience, not later than 30

days after the financial year-end of the

fund. Depending on the jurisdiction,

the filing fees are either fixed or equal

to a percentage of the gross proceeds

realized from the sale of securities in

such jurisdiction. Such reports disclose

personal information such as the

purchaser’s name, address, telephone

number and the number and value of

any securities purchased.

There are generally no requirements

to provide an offering memorandum

to investors and limited prescribed

disclosure for an offering memorandum

(unless the fund is being offered under

offering memorandum exemption). If

an offering memorandum is delivered

in connection with a distribution of

securities in reliance on certain private

placement exemptions, it will typically

need to be filed with the appropriate

securities regulator. If the hedge fund

is conducting multiple closings, the

offering memorandum must be filed

on or before the tenth day after the

first closing, otherwise it must be filed

on or before the tenth day after the

distribution is completed.

Most hedge funds are also required

to file annual and semi-annual

financial statements with the securities

regulatory authorities. However,

a hedge fund is exempt from this

requirement if the applicable financial

statements are prepared and delivered

to its securityholders in accordance

with applicable securities law and

certain other conditions are met.

ConclusionAs noted, Canada has a well-developed

system of fund manager registration

and regulatory oversight over all asset

managers—both long-only and hedge

fund management companies.

AIMA Canada has an active dialogue

with its members and regulatory

bodies in order to maintain a soundly

regulated and successful asset

management industry built on the long-

standing foundations of registration,

compliance and operational controls.

32 |

MARKETING & SALE OF FOREIGN DOMICILED INVESTMENT FUNDS IN CANADA

Registration Requirements Any person proposing to engage in

the business of a dealer or investment

adviser in Canada or who acts as

investment fund manager may be

required to register (the “Registration

Requirement”) with one or more

provincial/territorial securities

regulatory authorities under the

aforementioned National Instrument

31-103. There are only a limited

number of exemptions available from

the Registration Requirement. Failing

to properly register in an appropriate

category (or take the necessary steps

in order to rely on an exemption from

registration) or engaging in activities

beyond the scope of an entity’s

registration (or exemption from

registration) is a contravention of

Canadian securities laws and may

result in the assessment of sanctions

and penalties.

What Triggers the Requirement to Register? Generally speaking, entities will be

required to register if they are: (i) in

the business of, or holding themselves

out as being in the business of, trading

securities (the dealer category); (ii) in

the business of, or holding themselves

out as being in the business of, advising

in respect of the buying and selling of

securities (the adviser category); or (iv)

Michael BurnsPartnerMcMillan LLP

This article provides an overview of the securities law requirements in Canada relating to the marketing and sale of foreign domiciled investment funds (“Foreign Funds”) on a private placement basis, with a specific focus on the registration, offering document and filing requirements which the manager of a Foreign Fund will need to consider.



acting as an investment fund manager.

Dealers and Advisers In determining if registration as a

dealer or adviser is required, Canadian

regulators consider the type of activity

and whether it is carried out for a

business purpose. This “business

purpose” criterion is referred to as

the “business trigger” for registration.

Canadian securities regulatory

authorities may consider a variety

of factors in determining whether

the business trigger has been met

including but not limited to: (i) whether

a specified activity is carried out with

repetition, regularity or continuity; (ii)

whether the activity includes promoting

securities or offering advice to solicit

securities transactions; (iii) whether a

person acts as an intermediary between

a seller and buyer of a security; and

(iv) whether a person expects to be

compensated for the activity.

Investment Fund ManagersInvestment fund managers are not

subject to a business trigger test under

NI 31-103. This generally means that

if a firm carries on the activities of an

investment fund manager (i.e., managing

the day to day business and affairs of an

investment fund), it must register.

Categories of RegistrationAs detailed in the preceding article

Securities Regulation and Compliance,

the registration categories that would

typically be required to engage in the

marketing and sale of Foreign Funds

under NI 31-103 are as Investment

Dealer, Exempt Market Dealer and

Investment Fund Manager.

Canadian securities regulatory

authorities do not apply a “look

through” test in relation to investment

funds as it relates to the adviser

registration requirement. The

investment advice is considered to

be provided to the investment fund

itself rather than to “flow through”

to the investors in that investment

fund. While registration as an adviser

is required for Canadian domiciled

investment advisers or for the provision

of investment advice to investment

funds which are established under

the laws of a jurisdiction of Canada,

a foreign domiciled adviser would

generally not be required to register

as an adviser in Canada if its activities

are restricted solely to providing

investment advice to Foreign Funds

(even if Canadian residents invest in

such Foreign Funds).

Each category of registration under

NI 31-103 contains a detailed set

of proficiency, minimum capital,

insurance, record keeping, financial

reporting, conflict of interest,

annual fee and other compliance

requirements. These requirements must

be met in order to obtain and maintain

34 |

registration as a dealer, adviser or

investment fund manager. Registration

in more than one category and

province/territory may be necessary,

depending on the scope of activities

being conducted in Canada.

Exemptions From the Dealer and Investment Fund Manager Registration Requirement

International Dealer ExemptionThe international dealer exemption

allows non-Canadian dealers who

are registered to deal in securities in

the jurisdiction where their principal

place of business is located to provide

restricted services to permitted clients

without having to register under NI 31-

103. Generally speaking, this exemption

restricts the international dealer’s

activities to contracting only with

permitted clients1 in relation to trades in

foreign securities2.

An international dealer must satisfy

each of the following conditions in

order to rely on the international dealer

exemption:

�� the head office or principal place of

business of the dealer is in a foreign

jurisdiction;

�� the dealer is registered under

the securities legislation of the

foreign jurisdiction in which its

head office or principal place of

business is located in a category of

registration that permits it to carry

on the activities in that jurisdiction

that registration as a dealer would

permit it to carry on in the local

jurisdiction;

�� the dealer engages in the business of

a dealer in the foreign jurisdiction

in which its head office or principal

place of business is located;

�� the dealer is acting as principal

or as agent for the issuer of the

securities, for a permitted client, or

for a person or company that is not

a resident of Canada;

�� the dealer has submitted to the

securities regulatory authority

a completed Form 31-103F2

Submission to Jurisdiction and

Appointment of Agent for Service;

and

�� the dealer complies with the annual

filing/fee requirements as long as it

continues to rely on the exemption.


1 Generally speaking, for the purposes of the international dealer exemption the permitted client category includes large institutional investors such as banks, pension funds, trust companies, registered advisers and dealers and very high net worth (over $5,000,000) individuals.

2 For the purposes of the international dealer exemption, foreign securities include securities issued by an issuer formed under the laws of a foreign (non-Canadian) jurisdiction or issued by a foreign government


In addition, in order to rely on the

international dealer exemption in

respect of a trade with a permitted

client the international dealer must

provide the client with prescribed

disclosure relating to the dealer’s non-

resident status, unless the client is a

person registered under the applicable

Canadian securities legislation.

The international dealer exemption may

be of assistance to foreign managers

wishing to market Foreign Funds in

Canada. However, if the manager is not

able to rely on the exemption or if it

wishes to market the Foreign Fund to a

broader group of potential investors in

Canada, it may be necessary to engage

either an entity which is able to rely

on the international dealer exemption

(in respect of trades with permitted

clients) or a locally registered dealer

to intermediate the investment by

Canadian residents in the Foreign Fund.

Temporary exemption for foreign Investment Fund ManagersUnder the current provisions of NI

31-103, the investment fund manager

registration requirement does not apply

to a person or company that is acting as

an investment fund manager if its head

office is not in a jurisdiction of Canada.

However, this temporary exemption is

currently set to expire on September 28,

2012. The exemption is expected to be

repealed once multilateral instrument

32-102 – Registration Exemptions

for Non-Resident Investment Fund

Managers and multilateral policy,

31-202 – Registration Requirement for

Investment Fund Managers detailing

the circumstances under which a

foreign domiciled manager would

have to register as an investment fund

manager are adopted (following a

period of public consultation) by the

securities regulatory authorities in

the applicable provinces and territories

of Canada.

If Multilateral Instrument 32-102,

Registration Exemptions for Non-

Resident Investment Fund Managers is

brought into force in its current form,

foreign domiciled investment fund

managers may be required to register

in the Province of Ontario, Québec,

New Brunswick or Newfoundland and

Labrador if the manager has engaged

in active solicitation of investors in

such jurisdiction, subject to certain

limited exemptions.

If Multilateral Policy 31-202,

Registration Requirement for

Investment Fund Managers is

brought into force in its current

form, foreign domiciled investment

fund managers would be required to

36 |

register in the remaining jurisdictions

in Canada (British Columbia, Alberta,

Saskatchewan, Manitoba, Prince Edward

Island or Nova Scotia, Nunavut, the

Yukon Territory or the Northwest

Territories) if the manager (i) carries

on the functions and activities of

an investment fund manager in that

jurisdiction; or (ii) has its head office

or principal place of business in the

jurisdiction or conducts the activities

of an investment fund manager

from a physical place of business in

such jurisdiction.

Use of O"ering DocumentsThe distribution of materials to

prospective purchasers in Canada

describing the business of the Foreign

Fund in the context of an offering of

securities of the Foreign Fund which

are designed to assist the prospective

purchaser make an investment

decision in relation to the securities

of the Foreign Fund may result in

such materials being considered as

an “offering memorandum” under

applicable Canadian securities legislation.

Care should be exercised in relation to

marketing materials which are provided

to potential purchasers in Canada to

ensure that they would not be considered

to be an offering memorandum under

Canadian securities laws.

Securities legislation in several

provinces and territories of Canada

provide for statutory rights of action

for purchasers to sue for damages or

rescission in the event that an offering

memorandum is found to contain a

misrepresentation.3 A description of

these statutory rights is required to be

included in any offering memorandum

provided to potential purchasers. In

addition, there may be Canadian-

specific disclosure (e.g., additional

Canadian specific risk factors or

tax considerations) in relation to an

investment in a Foreign Fund which

may need to be included in a offering

memorandum for a Foreign Fund

in order to prevent that document

from containing a misrepresentation

for Canadian purposes. As a result,

it is advisable for managers of

Foreign Funds to prepare a Canadian

“wrapper” for the offering documents

of the Foreign Fund which contains

Canadian specific disclosure.

The subscription materials for an

investment in a Foreign Fund will also

need to be customized (usually through

the use of a schedule or addendum to

be completed by Canadian purchasers)

to ensure that the distribution of the


3 A “misrepresentation” is generally defined as (i) an untrue statement of a material fact, or (ii) an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in the light of the circumstances in which it is made.


securities of the Foreign Fund may

occur in Canada on a basis which

is exempt from the requirement for

the Foreign Fund to file and clear a

prospectus in Canada.

Filing RequirementsAs mentioned in the previous article,

Securities Regulation and Compliance, the distribution of securities of a

Foreign Fund in Canada in reliance

on an exemption from the prospectus

requirement will necessitate the filing

of a prescribed form of report of the

exempt distribution with the securities

regulatory authority in each province

or territory where purchasers of

securities are located. In addition, a

copy of any offering memorandum

(and any amendment thereto) used in

connection with the distribution of

securities may be required to be filed

with the securities regulatory authority

in the jurisdictions where purchasers

of securities of the Foreign Fund are

located.

Conclusion Canada features a comprehensive

securities regulatory system to maintain

integrity in its capital markets. Managers

of Foreign Funds should consult

with Canadian legal counsel prior to

engaging in any marketing activities in

relation to Foreign Funds in Canada.

38 |

TAX CONSIDERATIONS FOR FOREIGN FUNDS

Tax considerations often influence

how these opportunities are pursued.

From this perspective, foreign fund

managers should be focused on how

to structure Canadian investments to

minimize Canadian withholding and

income tax on investment returns as

well as structuring funds, including

feeder funds, in a tax-efficient manner

to raise capital from Canadian taxable

and non-taxable investors. In addition,

an offshore foreign fund that engages

Canadian service providers will need to

comply with the Canadian safe harbour

rules in order to minimize the fund’s

Canadian tax exposure.

Foreign Hedge Funds Engaging Canadian Service ProvidersNo matter what opportunity a foreign fund may pursue in Canada, it is prudent for the fund to do so without risking carrying on business in Canada. If a foreign fund was considered to carry on business in Canada, profits from that business (including interest, dividends, fees, and trading gains) would be subject to Canadian income tax. The phrase “carrying on business” in Canada is broadly defined and the concern is that foreign funds risk carrying on business in Canada by virtue of receiving services from Canadian-resident service providers

Manjit SinghAssociateWilson & Partners LLP*

Vinod RamnarineManager, Financial Services Corporate Tax GroupPricewaterhouseCoopers LLP

Opportunities & Tax Considerations There are extensive opportunities in Canada for foreign hedge funds. Canada offers opportunities not only for investment, but also for raising capital and engaging Canadian service providers in Canada’s vast talent pool that supports the fund industry’s outsourcing needs.

*a law firm affiliated with PricewaterhouseCoopers LLP



(such as investment advisors, managers, dealers) or exerting influence over such Canadian-resident service providers. Fortunately, the Canadian safe harbour rules specifically address this tax risk.

Safe Harbour Rules The Canadian safe harbour tax rules apply to foreign funds structured as corporations or trusts, and to foreign partners of funds structured as partnerships. The safe harbour rules are particularly beneficial for funds resident in countries with which Canada does not have a tax treaty. If all of the necessary requirements are met, the safe harbour rules will deem a foreign fund, (or, in the case of a partnership, the foreign partner) not to carry on business in Canada solely by virtue of engaging Canadian service providers.

Safe Harbour Requirements Specifically, the Canadian safe harbour rules apply to “designated investment services” provided to a foreign fund in respect of the fund’s investments. The term “designated investment services” generally includes the provision of investment management and advice, brokerage services, investment administration services, back-office functions, custodian services and marketing services in respect of the marketing of fund units to non-resident investors. However, in some cases, the services to which the safe harbour rules apply must be in respect of only “qualified investments.”

Although the term “qualified investments” is quite broad and includes most types of investments, such as, debt securities, annuities, commodities, currencies, options and other types of derivative, there is one important limitation in respect of equity securities. An equity security of an entity (i.e., a corporation, partnership, trust, entity, fund or organization) that derives more than half its value from Canadian real and resource properties will generally not be a “qualified investment” if either (a) the security is not listed on a stock exchange, or (b) if it is listed, the foreign fund, either alone or together with non-arm’s length persons, owns greater than 25% of equity securities (of any class) of the entity. Consequently, a foreign fund that is intending to invest in securities of Canadian real property or resource companies will need to undertake additional tax planning to mitigate their tax risks associated with engaging Canadian service providers.

To be eligible for the protection

offered by the safe harbour rules, a foreign fund must satisfy a number of other conditions. These conditions generally impose some restrictions on a foreign fund’s ability to own equity interests in a Canadian service provider and, perhaps more importantly, a foreign fund’s ability to raise capital from Canadian investors. If a foreign fund is intending to raise capital from

40 |

Canadian investors, additional planning involving the use of feeder funds or partnerships can be undertaken to ensure the safe harbour rules still apply.

Foreign Hedge Funds Raising Capital from Canadian Investors

To raise capital from Canadian investors, a foreign fund manager may consider establishing a Canadian domiciled fund either to serve as a feeder fund to an offshore master fund, or as a fund that parallels a foreign fund. In Canada, a number of different investment vehicles may be used, including trusts, limited partnerships and corporations. The relevant tax considerations in respect of each such type of vehicle are reviewed in the following article entitled Structuring a Canadian Hedge Fund.

There are some tax risks associated with foreign hedge funds permitting direct investment by Canadians. Regardless of whether the safe harbour rules are a relevant consideration or not, foreign hedge funds that permit direct investment into their funds by Canadian investors should be aware that taxable Canadian investors will need to consider whether the “offshore investment property” and “non-resident trust” rules in the Income Tax Act (Canada) are applicable to them, given their particular facts and circumstances. If these rules are applicable to a Canadian investor, a foreign hedge fund may have to deal with additional information requirements that will need to be

fulfilled in order to facilitate Canadian tax compliance by Canadian investors. In addition and as discussed above, foreign hedge funds that engage Canadian service providers face restrictions under the safe harbour rules which effectively restrict their ability to raise capital directly from Canadian investors unless the fund is structured as a partnership.

Foreign Hedge Funds Investing in Canada Foreign hedge funds wishing to pursue investment opportunities in Canada will be interested in minimizing withholding tax levied on Canadian sources of income earned either by the fund directly or, if the fund is a flow-through entity, by its non- Canadian investors.

Canadian income tax rules generally require that withholding tax at a rate of 25% be withheld from certain types of income paid to non-residents. Generally, corporate dividends and income distributions from a trust are subject to withholding tax; however, residents of countries with which Canada has a tax treaty may be entitled to a reduced rate of withholding tax as provided for in the treaty. Canadian income tax rules have eliminated withholding tax on certain interest payments paid to arm’s length parties, and thus non-resident investors generally no longer need to rely on a tax treaty to obtain a favourable withholding tax rate on interest.



Where a foreign hedge fund is resident in a country with which Canada has a tax treaty, the legal status of the foreign hedge fund in the country of formation may be an important consideration for determining whether the fund itself would be eligible for treaty benefits in respect of Canadian source income.

Generally, Canada seeks to tax gains arising on the disposition of “taxable Canadian property” (TCP), subject to any relief that may be available to a non-resident investor through a tax treaty. Recent amendments to the definition of TCP have significantly narrowed the types of securities that are TCP. Publicly listed shares and units of a mutual fund trust generally would not qualify as TCP unless the non-resident along with non-arm’s length person holds a significant holding in the corporation or trust and greater than 50 per cent of the fair market value of the shares or units is derived from Canadian real property or resource property.

Canadian Hedge Fund Managers Establishing a Foreign Hedge FundA Canadian hedge fund manager that is considering establishing a foreign hedge fund to raise capital from non-Canadian investors must also consider the tax issues outlined above. In particular, a foreign fund managed by a Canadian manager will need to satisfy the safe harbour rules to ensure that the foreign fund is not, by virtue of receiving investment advice from the Canadian fund manager, considered to be carrying

on business in Canada.

In addition, consideration needs to be given to corporate governance of entities within the foreign hedge fund structure. In particular, where an entity within the foreign hedge fund structure has a board of directors or trustees that includes some Canadian-based directors or trustees, care must be taken to ensure that such entity is not, inadvertently, considered to be resident in Canada by virtue of having its “central management and control” located in Canada. Generally, the “central management and control” of an entity resides in the jurisdiction where the effective decision-making relating to high-level matters of the entity occurs. A certain degree of care and diligence is necessary to ensure that an offshore entity with Canadian based directors and/or trustees establishes, documents and continuously maintains an effective decision making process to ensure that the central mind and management of the entity is located in the desired jurisdiction at all relevant times.

ConclusionThere has been increased interest in Canada recently by foreign hedge funds, particularly in light of the perceived strength of its financial system and its resource-rich economy. Whether looking to invest, raise capital or take advantage of the country’s burgeoning hedge fund service industry, foreign hedge funds can do this in a tax efficient manner.

42 |

COMMODITIES FUTURES AND DERIVATIVES

Jennifer WainwrightPartnerAird Berlis LLP

Background of Derivatives Regulation in Canada Hedge funds whose investment strategies utilize derivatives will be subject to securities, commodities futures and/or derivatives legislation in Canada. The legislation applicable to hedge funds and their managers generally regulates dealing in and advising with respect to derivatives. While securities legislation has been streamlined across the Canadian provinces, commodities futures and derivatives legislation has not. As a consequence, such legislation differs between the provinces and territories of Canada. The province or territory in which the hedge fund is formed and in which the hedge fund manager operates will dictate which provincial legislation is applicable.

Canadian legislation has historically

distinguished between exchange traded

derivatives, which are traded through

exchanges based on standardized

exchange contracts, and which settle

with the exchange as counterparty, and

over-the-counter or OTC derivatives.

OTC derivatives are privately negotiated

contracts between two parties, often

using standardized documentation such

as those developed by the International

Swaps and Derivatives Association, Inc.

Three general approaches to the

regulation of derivatives have

developed in Canada.

Exchange Traded Derivatives – Securities RegulationIn the first approach, exchanged

traded derivatives are regulated under

securities legislation. In the provinces

who have adopted the first approach,

securities legislation extends to cover

“exchange contracts”. “Exchange

contracts” are futures contracts



or options whose performance is

guaranteed by a clearing agency and

which are traded on an exchange

pursuant to standardized terms and

conditions set out in that exchange’s

by-laws, rules or regulatory instruments,

at a price agreed on when the futures

contract or option is entered into on

the exchange.

In these Canadian provinces, the

definition of security in securities

legislation includes OTC derivatives,

and as a consequence, OTC derivatives

technically are governed by securities

legislation. However, securities

regulators in these jurisdictions have

exempted the application of their

securities legislation to some OTC

derivatives but not others, to capture

only the OTC derivatives they wish to

regulate (generally those involving the

retail market).

Exchange Traded Derivatives – Commodities Futures LegislationIn the second approach, exchange

traded derivatives are regulated by

commodities futures legislation

which stands separate and apart from

securities legislation. In the provinces

which have adopted the second

approach, any person or company

engaging in or holding himself, herself

or itself out as engaging in the business

of advising others, including a hedge

fund, as to trading in commodity futures

contracts and commodity futures

options where the contract is entered

into on a commodity futures exchange

pursuant to standardized terms and

conditions must be registered under

commodities futures legislation.

In these Canadian provinces, a

commodity futures contract or option

that is not traded on a commodity

futures exchange registered with or

recognized by the applicable securities

regulator or the form of which is

not accepted under the applicable

legislation, such as an OTC derivative,

is considered to be a security. Dealing

and advising in these instruments

is regulated by securities legislation.

Historically, there has been some

uncertainty about the application

of securities legislation to OTC

derivatives, depending on whether they

are cash settled or physically settled.

In one of the Canadian provinces

which has adopted this approach, the

provincial legislative body recently

amended their securities legislation

to contemplate the regulation of

derivatives, although the legislation

is not yet in force. Derivatives are

defined to include options, swaps,

futures contracts, forward contracts or

other financial or commodity contracts

or instruments whose market price,

value, delivery obligations, payment

obligations or settlement obligations

44 |

are derived from, referenced to or

based on an underlying interest

(including a value, price, rate, variable,

index, event, probability or thing),

but do not include commodity futures

contracts, commodity futures options,

and specific contracts or instruments

that are designated as not being

derivatives. The legislation is platform

legislation, meaning that the details

of the legislation, including categories

of registration, requirements for

registration and ongoing compliance

requirements will be contained in

instruments enacted by the security

regulator pursuant to its rule making

authority in securities legislation.

The platform derivatives legislation

contemplates registration as a dealer

or adviser for entities which deal in or

advise with respect to derivatives. It is

expected that detailed instruments will

be published for comment in the future

by the securities regulator outlining the

material requirements related to market

participants involved in derivative

transactions in the subject province.

Exchange Traded and OTC Derivatives – Derivatives LegislationIn the third approach, derivatives

legislation was enacted that applies

to both exchange traded derivatives

and OTC derivatives. The legislation

imposes requirements on intermediaries

of exchange traded derivatives as well

as registration requirements on dealers

and advisers; however, the securities

regulator in this province has exempted

the application of the legislation where

“accredited counter-parties” are involved.

All three legislative approaches impose

capital, insurance and/or proficiency

prerequisites to registration as a dealer

or adviser and an ongoing compliance

regime. The ongoing requirements

are not dissimilar to the ongoing

requirements imposed under securities

legislation as outlined in other articles

in this section (especially Securities

Regulation and Compliance).

ConclusionExchange traded derivatives in Canada

may fall under securities legislation or

commodities futures legislation and,

in some cases (particularly concerning

the counter-parties involved in a

trade) both exchange traded and

OTC derivatives may be eligible for

exemptive relief. It is prudent to

receive advice related to any derivatives

trade with a Canadian counter-party

to ensure compliance with legislation

and, as appropriate, correct filing for

exemptions that might apply.


46 |

STRUCTURING A CANADIAN HEDGE FUND

Hedge fund products are designed for

accredited investors and other exempt

purchasers, as publicly offered mutual

funds are precluded from using many

hedge fund strategies. Attempts to

access the broader retail market, for

example by wrapping hedge fund

strategies in a bank note product, have

met with mixed results over the years.

Legal Structure - CorporationHedge funds are not typically structured

as corporations in Canada. Federal

income tax is imposed at the corporate

level and therefore, depending on the

type of income or capital gains earned

by the fund, a corporation can be less

tax efficient than other structures

that are able to flow profits and/or

losses through to investors. There are,

however, advantages to the corporate

structure including investor familiarity,

certainty of limited liability, and certain

tax advantages for funds that qualify as

‘mutual fund corporations’ or are set

up as ‘switch corporations’.

Ronald M. Kosonic PartnerBorden Ladner Gervais LLP

Peter HayesPartner, National Director, Alternative InvestmentsKPMG LLP

James LoewenPartner, National Director, Asset Management KPMG LLP

The legal structure and terms of offering of a Canadian hedge fund are driven by many factors. Target market, investment strategy, investment risk, manager compensation, fairness and investor liability, liquidity and transparency must be considered in the context of Canadian tax, securities and commercial laws.



Legal Structure - Limited PartnershipHedge funds in Canada are often structured as limited partnerships. Limited partnerships are either ‘unitized’ (meaning that a limited partner’s interest is described in terms of a number of distinct units, which may be issued in different classes and series) or use more traditional capital accounting, depending on the number of investors, the terms of offering and back-office systems. Either way, a limited partnership allows fees to be charged at the series or investor level, and allows income or losses to be allocated most fairly.

A limited partnership is similar to a corporation in that it can offer limited liability to passive investors, but it has the added advantage of being a pure tax flow-through. Income and losses are allocated directly to individual investors, who can tax plan according to their own circumstances, subject to certain restrictions.

The limited partnership structure may enable key individuals to participate in revenues (both income and capital gains) through ownership of the general partner, rather than by earning a performance fee through a third-party investment manager. Both tax and securities law considerations impact this type of revenue participation structure.

There are some drawbacks. Limited partnerships are generally not eligible

investments for registered retirement plans, a potentially significant source of investment capital. And foundations will not typically invest in a limited partnership. Limited partnerships must allocate taxable income and gains to investors, but typically do not distribute cash (rather, profits are reinvested).

Legal Structure – TrustAnother common form of hedge fund vehicle in Canada is the commercial investment trust (or unit trust). A privately offered trust cannot offer the same degree of certainty of limited liability for investors as a corporation or limited partnership - this issue is not settled at common law and must be considered by hedge funds that employ leverage, short sales or aggressive investment techniques that increase the risk that the liabilities of the fund could exceed its assets at a given time.

To avoid taxation at the trust level (at the top marginal rate for individuals), a commercial trust must distribute taxable income and capital gains to unitholders, to be taxed in their hands. It is common practice for distributed income to be automatically reinvested in the trust by the issuance of additional units. As with a limited partnership, this could result in investors being taxable on income or capital gains without actually receiving a cash distribution. Unlike a limited partnership, a trust cannot flow losses out to its unitholders (but can carry

48 |

them forward in accordance with the normal income tax rules).

The unit trust is the preferred structure for hedge fund managers who wish to offer the fund to foundations, pension plans, registered retirement savings plans and other non-taxable investors. Trust units can be qualified for investment by registered plans if they are redeemable on demand at their net asset value and the fund is a ‘mutual fund trust’ or the fund applies under the Income Tax Act (Canada) to become a registered investment. The drawback of registering a fund as a registered investment is that the fund manager is then limited as to the types of instruments the fund may invest in, and many popular hedging techniques would not be permitted. A unit trust that can qualify as a mutual fund trust (the trust must have more than 150 unitholders, each holding a block of units having a net asset value of at least $500) has the added advantage of being able to make an election that effectively treats certain income from Canadian-source investments as capital gains, a benefit for taxable investors.

Other Structuring Considerations - Classes and SeriesIt is common practice for hedge funds to issue units in separate classes and separate series that provide for different fees, profit-sharing arrangements, lock-up periods and other redemption terms. Separate series or sub-series may be created with each new issue of

units (using ‘series accounting’) so that performance can be separately tracked for the purpose of calculating fees and fairly distributing income, gains and losses. There are practical constraints and potential tax consequences in Canada that warrant caution when issuing hedge fund securities in classes and series, depending on the legal structure of the fund, the fee calculation methodology used and the desired tax consequences to investors. Equalization accounting presents similar challenges in Canada.

Other Structuring Considerations - Jurisdictional ConsiderationsAs mentioned earlier, Canada is made up of 10 provinces and 3 territories, each with their own securities and commercial legislation. Where the Fund is created and/or domiciled in Canada can impact taxation, securities law requirements (including the nature and extent of financial reporting) and commercial business registrations.

Other Structuring Considerations - LayeringLayering of funds in one or more legal structures can help achieve multiple objectives. The advantages of a trust (e.g., access to registered plan money) can be grafted onto the advantages of a limited partnership (flexibility and certainty of limited liability) by creating a ‘top trust’ that invests in an underlying limited partnership where the portfolio is managed. However,



there are challenges and potential drawbacks to such a structure.

Funds of funds are quite common in

Canada. Funds of funds that are subject

to reporting requirements imposed by

Canadian securities legislation typically

require relief from strict compliance

because of mismatches in areas such as

fiscal year ends and financial reporting

by underlying funds.

Master-feeder funds within Canada are

not typical, and the use of Canadian

feeder funds to invest in an international

master fund structure is hampered

by the size of the market and by

detrimental Canadian federal tax laws.

Derivative instruments are sometimes

used to give a Canadian fund exposure

to a reference fund’s returns without

requiring a direct investment.

Offering MemorandumCanadian hedge funds sold to the

exempt market generally do not

require the use of an offering

memorandum, but most do use some

form of marketing document, term

sheet or information memorandum

that would be treated by Canadian

securities legislation as an ‘offering

memorandum’. There is no mandated

content (except in very narrow

circumstances), but investors are

given statutory rights of action

or rescission if the offering

document contains a material

misrepresentation, which can include

the omission of a material fact.

Certain provinces in Canada require

these rights to be described in the

offering document.

Redemption TermsHedge funds in Canada typically

offer monthly redemptions, with

notice periods ranging from a few

days to a few months, depending

on the liquidity of the investment

portfolio. Funds that have less

liquidity or that wish to minimize

portfolio disruption and cash-drag

may only offer quarterly or even

yearly redemptions. Many funds

give the fund manager broad powers

to suspend or delay redemptions

during market crises. Alternatively

they may impose redemption gates

(e.g., no more than 10% of units

will be redeemed in any month) in

order to protect investors who wish

to stay in the Fund. Some funds,

typically those holding illiquid or

restricted securities (e.g., securities

of private companies), may impose

a holdback (e.g., 5% of redemption

proceeds) pending completion of

the year-end audit. Funds may also

pass on to the redeeming investor

the costs associated with the

redemption, including brokerage

costs of liquidating positions, but

50 |

will typically cap the deduction at 2%

of proceeds.

Management and Performance FeesFees charged to hedge funds in Canada

continue to follow the traditional

“2+20” model: a management fee,

which is typically between 1% and

2% per annum of the net asset value

(NAV) of the fund, paid monthly; and

a performance fee of between 10% and

20% of the appreciation in the NAV of

the fund or the units of the fund held

by an investor, paid quarterly or yearly.

Performance fees are usually subject

to a “high water mark”, but it is less

common in Canada to have a “hurdle

rate” over which the fund or unit must

perform (above the high water mark)

before the performance fee is paid.

In a limited partnership structure, it

is possible to have the general partner

receive a share of revenues, rather than

pay a performance fee to the

fund manager, subject to tax and

regulatory considerations.

Hedge fund managers may also charge

an early redemption fee of between 3%

and 5% of the redeemed units’ NAV,

which fees are typically payable if the

units are redeemed within the first

year of their issue (“early redemption”

might be as short as 90 days or as long

as three years). Some or all of early

redemption deductions may be retained

in the fund.

Side Letters and Investor RightsSide letters have come under

considerable scrutiny by Canadian

regulators and are generally not

considered in a positive light. The

potential conflicts of interest that they

create can be a litigation minefield

for investment managers. Many of

the benefits sought by an investor

in a side letter can be given through

the issue of a separate class of fund

securities, provided the constating

documents provide the flexibility to

do so. Nonetheless, granting greater

transparency and greater liquidity

to certain investors, however given,

is discouraged, as those preferred

investors could learn of a problem

and redeem out of the fund before

other investors might be offered the

opportunity to redeem.

Side pocketsSide pockets are sometimes used in

Canada as a useful tool for dealing

with illiquid investments within a

relatively liquid portfolio; however

Canadian taxation can make the use of

separate classes or pools to side-pocket

the illiquid investments problematic.

Funds may have to use other means to

delay payment of the value of illiquid

holdings, creating a legal grey area as

regards the rights of investors after



redemption of all their units.

Accounting and ReportingPrivate investment funds in Canada

must prepare financial statements in

accordance with Canadian Generally

Acceptable Accounting Principles

(GAAP). In addition, national securities

regulation requires additional financial

statement disclosures for most private

investment funds domiciled in Ontario

(being those subject to National

Instrument 81-106). These requirements

include:

�� Annual audited financial statements

must be provided to investors and

securities regulators within 90 days

of year-end (although an exemption

from filing with the regulators is

available).

�� Semi-annual unaudited financial

statements must be provided to

investors within 60 days of the semi-

annual period-end.

�� Financial statements must include a

statement of investment portfolio

for the current period and statements

of net assets, operations and

changes in equity for the current and

comparative periods, as well as notes.

Investment funds will likely be required

to switch to International Financial

Reporting Standards (IFRS) from

Canadian GAAP effective January

1, 2014. Current Canadian GAAP

for investment funds is similar in

principle to IFRS, with some potential

differences related to investee

consolidation, presentation of investor

equity and various disclosures.

ConclusionCanadian securities laws and practices

offer many options for structuring

funds in accordance with manager

requirements and investor interests.

Raising Capital

54 |

THE RISE OF ALTERNATIVE INVESTMENTS IN CANADA: THE CASE FOR EMERGING MANAGERS

Appetite for all things Canadian, from

both a domestic and international

perspective, has been steadily on the

rise, and has correspondingly rippled

into Canada’s alternative investment

landscape. Then it should come as

no surprise to the reader that a new

“emerging” class is rising, that of

the emerging manager in alternative

investments. While investors have

long benefitted from the return

profile of traditional asset classes

within the Canadian investment

landscape, a confluence of events

has led to substantial growth in the

alternative sector: a compressed

yield environment in long-only credit

instruments, generally rangebound

global equity markets, and the desire

to buttress a portfolio with non-

correlated sources of return, to name

but a few. These factors, coupled with

Canadian allocations to alternatives

historically lagging our international

peers, has helped to set the stage for

further growth. Within the backdrop

of roughly $70 trillion in investable

assets, the $2 trillion global hedge fund

industry has now matched pre-crisis

allocation levels. Meanwhile, only 15%

of the roughly 250 Canadian alternative

funds post assets under management

in excess of $100 million. Canadian

emerging managers remain relatively

Claude RobillardExecutive DirectorCIBC Prime Services Group

2nd Mover Advantage: Canadian Emerging ManagersCanada has often been described as the emerging market play without the emerging market risk – we find ourselves, fortunately, at the intersection of global interests with a strong commodities sector and robust financial architecture on offer.

RAISING CAPITAL


early entrants in a well-established

industry at a potentially auspicious

time. And while Canadian managers

were not immune to the crisis of 2008,

the number of hedge funds in Canada

is, in lockstep with global peers, also

approaching pre-crisis levels.1

Greater Breadth of Strategies, Deeper Pool of InvestorsAnd therein lies the opportunity.

Industry polls suggest that allocations

will continue along a positive

trajectory. The thesis that has proven

successful in the majority of global

financial centres – that of a deep and

broad pool of alternative investment

strategies available to a growing field

of institutional and HNW investors –

bodes well for continued growth in the

domestic market. The fact that roughly

40% of the alternative universe in

Canada is represented by equity long/

short strategies – that number was

estimated at 50% roughly five years ago

–supports the premise that new entrants

have different approaches on offer.

Long-biased equity managers once

represented the majority in Canada,

and now have given up some territory

to market neutral or market-cycle

agnostic managers, allowing investors

the opportunity to tactically invest

across an array of market themes. A

greater variety of strategies is at the

ready while the amount of capital that

can be deployed is growing steadily, in

an increasingly global and fluid capital

market. As The Economist pointed out

not long ago , the world now has more

millionaires than Australians, and over

1,000 billionaires – roughly 5 times

more than just 15 years ago.2

Right Place, Right Time, Right-Sized?Meanwhile emerging managers have,

arguably, competitive advantages over

“incumbents”. An ability to “adapt to

changing market conditions and exploit

new opportunities”3 or, put differently,

a degree of agility, supported by

evidence of statistically higher returns,

has been presented by numerous

research outlets. As there is no free

OXQFK��WKH�KLJKHU�UHWXUQ�SURÀOH�PD\�EH�associated with a higher degree of risk;

risk that may be offset by a lack

of cross-correlation to an investor’s

other allocations.

Many strategies are, arguably, right-

sized for the Canadian market, and

not infinitely scalable, though one

can argue that the majority have

not yet brushed up against capacity

constraints – a potential marriage of

1 AIMA: AIMA Canada Hedge Fund Primer, June 2010 2 The Economist: More millionaires than Australians – January 20, 20113 HFR Asset Manager: Emerging Manager Outperformance

http://aima-canada.org/doc_bin/AIMA_Primer.pdf

http://www.economist.com/node/17929057

http://www.mannaam.com/sites/default/files/HFR%20Emerging%20Manager%20Outperformance.pdf

56 |

timing and opportunity for Canada’s

Emerging Manager set. Canadian

managers, meanwhile, are not subjected

to a crowded market, as proprietary

trading activity has been significantly

pared down in the domestic market,

and waning in international markets.

Correspondingly, former traders and

analysts with strong pedigrees whose

experience has often been framed

within the construct of institutional-

calibre risk management and

governance, find themselves leading

rapidly-growing independent asset

management firms.

Emerging Managers, Established InfrastructureMeanwhile, as managers grow, they

are supported by a strong network

of service providers and business

partners, and a well-established

regulatory framework. World-class

administrators, consultants, advisors

and prime brokers with local expertise

and global reach are on hand to help

facilitate business operations and

expansion. While the majority of

Canada’s alternative asset managers

are at an earlier stage of their life

cycle – often with tenures under five

years – they can draw from a deep

well of agents, advisors and investors.

And Canada, with 0.5% of the

world’s population contains three of

the world’s largest pension funds4,

two of the world’s largest insurance

companies5 and a 1st place ranking on

the World Economic Forum’s list of

the world’s soundest banking systems.

Incidentally, many Canadian Prime

Brokers are wholly-owned by Canada’s

banks, further helping to bolster a

sense of stability as local and global

investors consider allocations to

alternative managers.

Performance and Capital PreservationEmerging managers in Canada, and

their “well-established” confrères,

have a bright future ahead. Headwinds

in global markets and a challenging

environment for traditional asset

classes have investors on the hunt

for new sources of return. As long

as emerging managers focus on

performance, continue to evidence

replicable investment theses, and

generate returns delineated from

beta, they will continue to command

attention. Couple that with a judicious

approach to risk management, best

practices in reporting, corporate

governance, and transparency and

they will retain a loyal following.

RAISING CAPITAL

4 P&I / Towers Watson Top 300 Pension Funds: Analysis as at 2010 year end5 Forbes Global 2000 list6 World Economic Forum: The Global Competitiveness Report 2011 – 2012

http://www.towerswatson.com/assets/pdf/5351/TW-PI-300.pdf

http://www.forbes.com/lists/2010/18/global-2000-10_The-Global-2000_IndName_12.html

http://www3.weforum.org/docs/WEF_GCR_Report_2011-12.pdf


And when assessing the emerging

manager landscape, the investor may

wish to focus on manager talent

and pedigree, and de-emphasize the

importance of a limited track record.

As Einstein once stated: “Everything

that can be counted does not

necessarily count; and everything that

counts cannot necessarily be counted.”

This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change. CIBC and CIBC World Markets Inc., their affiliates, directors, officers and employees may provide financial advisory services, investment banking or other services for or have lending or other credit relationships with hedge fund managers. © CIBC World Markets Inc. 2012.

58 |

FOREIGN INVESTORS IN CANADIAN HEDGE FUNDS

Investors should note that Canadian securities law is individually regulated by the thirteen Canadian provinces and territories. Although there is harmonization among the various jurisdictions with respect to certain matters, there is no centralized securities administrator in Canada along the lines of the Securities and Exchange Commission in the United States. As such, in this article we will focus on hedge funds that are domiciled in the province of Ontario, which is home to the majority of Canadian hedge fund

managers - not to detract from the many funds in other provinces and territories.

While the term “hedge fund” is not a defined term under Ontario law, it generally references a redeemable investment fund (defined as a “mutual fund” under Canadian securities law) whose securities are privately placed to sophisticated investors. Unlike mutual funds that are offered to the general public by way of prospectus and that are required to abide by more

Cathy SingerPartnerNorton Rose Canada LLP

Michael BunnAssociateNorton Rose Canada LLP

Barry SegalPartnerNorton Rose Canada LLP

As the number and size of hedge funds operated by Canadian fund managers continues to grow we have seen increased interest in these products from non-Canadian investors. In this article, we will provide a brief overview of issues that a non-Canadian investor should be aware of when considering an investment in a Canadian domiciled hedge fund.

RAISING CAPITAL


conservative investment objectives, strategies and restrictions, hedge funds are permitted unlimited latitude in their investment choices, constrained only by certain conflict of interest provisions outlined below and restrictions imposed by contract between the hedge fund and its investors.

Investor QualificationsIf an Ontario hedge fund is placing securities with an investor that is domiciled or resident outside of Ontario WKHQ�2QWDULR�LQYHVWRU�TXDOLÀFDWLRQ�requirements will not apply provided that reasonable precautions are taken by the Ontario hedge fund to ensure that the securities will not be redistributed into Ontario.

However, the Ontario hedge fund will want to ensure that any investor TXDOLÀFDWLRQ�UHTXLUHPHQWV�LQ�WKH�investor’s home jurisdiction have been met and that the securities law requirements in the investor’s home jurisdiction do not require the hedge IXQG�WR�SUHSDUH�DQG�ÀOH�D�SURVSHFWXV�or similar document. The Ontario hedge fund will also want to determine whether the placement of securities with the investor will result in the hedge fund or its manager having to make any ÀOLQJV�RU�VHHN�DQ\�DSSURYDOV�IURP�DQ\�regulatory authority in the investor’s home jurisdiction. The Ontario hedge fund may have to obtain comfort with respect to these matters by engaging the services of local counsel in the investor’s home jurisdiction and by having the investor make representations regarding these matters in the subscription agreement that it completes.

Offering DocumentAlthough not legally required, Ontario hedge funds will generally provide investors with an offering document prior to their investment in the hedge fund. The offering document will detail, among other things, the investment objectives, investment strategies and investment restrictions of the hedge fund. The offering document is a contract between the investor and the hedge fund and the investor can sue the hedge fund should they suffer a loss as a result of the hedge fund unilaterally breaking the terms of the contract (for example, by violating an investment restriction contained in the offering PHPRUDQGXP�ZLWKRXW�ÀUVW�REWDLQLQJ�the consent of investors). Note that although Ontario law provides investors with certain “statutory” rights of action against the hedge fund should there be a misrepresentation in the hedge fund’s offering document, these statutory rights do not apply to non-Ontario investors (who instead have to sue under common law). Nevertheless, as Ontario and non-Ontario residents generally receive identical offering documents from a hedge fund, the existence of the statutory rights of action for Ontario residents will likely result in the hedge fund manager paying particular attention to the accuracy of disclosure in the offering memorandum �ZKLFK�LV�RI �EHQHÀW�WR�DOO�LQYHVWRUV��

Statutory ProtectionsOntario domiciled hedge funds offer investors certain statutory protections. Set out below are a number of these protections.

60 |

Manager Registration The manager of an Ontario hedge fund is required to register with the Ontario Securities Commission in one or more categories depending on the functions that it performs for the hedge fund. As part of the registration process, the manager must establish that it meets minimum capital and insurance requirements and that certain of its HPSOR\HHV�PHHW�VSHFLÀHG�SURÀFLHQF\�requirements. The fact that all managers of Ontario hedge funds must undergo a rigorous registration process should provide investors with a level of comfort regarding the entity that manages the Ontario hedge fund in which they are investing. For more details on registration issues, please see the article entitled Securities Registration and Compliance.

Financial StatementsEach Ontario hedge fund is required WR�SUHSDUH�DXGLWHG�DQQXDO�ÀQDQFLDO�statements for its most recently completed ÀQDQFLDO�\HDU�WKDW�LQFOXGH��DPRQJ�RWKHU�things, (i) a statement of changes in QHW�DVVHWV�IRU�HDFK�RI �WKDW�ÀQDQFLDO�year and the immediately preceding ÀQDQFLDO�\HDU�DQG��LL��D�VWDWHPHQW�RI �investment portfolio as at the end of that ÀQDQFLDO�\HDU��6LPLODU�XQDXGLWHG�ÀQDQFLDO�statements are required for each interim six month period.

7KH�DXGLWHG�DQQXDO�ÀQDQFLDO�VWDWHPHQWV�must be sent to investors on or before the ��WK�GD\�DIWHU�WKH�KHGJH�IXQG·V�ÀQDQFLDO�year end, with the deadline for interim statements being the 60th day after the six month interim period for the hedge fund. The auditor’s report accompanying WKH�DQQXDO�ÀQDQFLDO�VWDWHPHQWV�PXVW�EH�

signed by a person or company that is authorized to sign an auditor’s report by the laws of a jurisdiction in Canada and must meet the professional standards of that jurisdiction. The preparation RI �DXGLWHG�DQQXDO�ÀQDQFLDO�VWDWHPHQWV�provides investors with an impartial third SDUW\�UHYLHZ�RI �WKH�ÀQDQFLDO�FRQGLWLRQ�and performance of the Ontario hedge fund in which they are investing.

TaxationThe Canadian tax implications of an investment are important for a non-Canadian investor to consider when deciding whether to invest in an Ontario hedge fund. The following is a general RXWOLQH�DQG�LV�QRW�VSHFLÀF�WD[�DGYLFH��$Q�investor should always consult its own Canadian tax advisor prior to making an investment in an Ontario hedge fund.

The Canadian tax consequences to a non-Canadian of investing in an Ontario hedge fund will depend on the structure of the fund as well as the other investors in the fund. Many funds are structured as partnerships, although trust structures are also common.

A non-Canadian investor in an Ontario hedge fund that is a partnership will be taxable in Canada on its share of the fund’s income (whether or not distributed) to the extent that the investor is considered to carry on business in Canada. This will be determined by reference to a host of factors including the nature and the location of assets held by the fund and the type and frequency of trading activity in the fund. The investor may also be taxable in Canada if the fund realizes capital gains from

RAISING CAPITAL


the disposition of “taxable Canadian property” which includes certain direct or indirect interests in Canadian real property and resource property. The applicability of relief from Canadian tax under a relevant tax treaty between the investor’s country of residence and Canada should also be considered.

An Ontario partnership that has non-Canadian investors will be treated as a non-resident of Canada for tax purposes which may result in adverse tax consequences to the fund and its investors. This is particularly the case for funds which expect to earn Canadian source interest or dividends from investments. Such partnerships may not permit direct investment by non-Canadians. In that case, a Canadian corporation is often used by non-Canadian investors to make the investment. The Canadian corporation will be taxable in Canada on its share of partnership income and capital gains (whether or not distributed). Distributions from the Canadian corporation to the non-Canadian investor will generally be subject to Canadian withholding tax at a rate of 25%, or less (generally either 5% or 15%) under the terms of an applicable tax treaty.

A non-Canadian investor in an Ontario hedge fund that is formed as a trust is not directly taxable on the income or capital gains earned by the trust, but may be subject to Canadian withholding tax on amounts distributed from the trust. The rate of withholding tax on trust distributions is 25% unless a treaty-reduced rate applies (generally 15%). ,I �WKH�IXQG�TXDOLÀHV�DV�D�´PXWXDO�IXQG�

trust” for tax purposes (i.e., having over 150 unitholders and meeting certain other criteria), the 25% withholding tax will not apply to distributions of capital gains of the fund (other than gains arising from dispositions of “taxable Canadian property”) provided the fund makes the appropriate designation in its tax return for the year. If the fund is not a mutual fund trust and it has non-resident investors, the fund may be subject to an additional 36% tax on its income from dispositions of “taxable Canadian property” and businesses carried on in Canada.

Non-Canadians may also be taxable in Canada if they realize a gain on the sale or other disposition of their investment in an Ontario hedge fund and their interest in the fund constitutes “taxable Canadian property”. An interest in an Ontario trust (other than a mutual fund trust) or partnership may be “taxable Canadian property” if, at any time during the prior 5-year period, more than 50% of the fair market value of the interest was derived directly or indirectly from Canadian real property, resource properties and certain other properties. If a hedge fund is a mutual fund trust, certain ownership thresholds must be VDWLVÀHG�LQ�DGGLWLRQ�WR�WKH�WHVW�DERYH�before an interest in the fund will be considered “taxable Canadian property”.

Foreign investors might be pleased to know that, given the tax considerations detailed above, many Canadian hedge fund managers operate parallel investment vehicles domiciled in tax neutral jurisdictions.

62 |

THE CANADIAN ASSET RAISING LANDSCAPE

There are compelling reasons to invest

with a Canadian manager and Canadian

funds have been highly successful

gathering assets from high net worth

individuals and family offices, both

domestically and globally. Canadian

investors value the diverse strategies

and expertise that Canadian managers

provide while global investors are

attracted to many additional advantages

of Canadian hedge funds:

�� The view of Canada as a safe haven has increased the attractiveness of Canadian alternative investment managers to global investors.

�� Canada’s financial industry is well regulated.

�� Canada is home to world-class service providers including prime brokers, administrators and law firms.

�� The smaller size of many Canadian funds enables the managers to be nimble and quickly capitalize on opportunities in the market that might elude larger funds.

�� Far from being purely a commodity play, Canadian fund managers have expertise in executing a variety of sophisticated Canadian and global strategies.

The Canadian Investor LandscapeThe primary allocators to alternative

investments in Canada fall into two

broad categories: institutional and high

Katrina RempelVice President, Prime Brokerage Services – Capital IntroductionBMO Capital Markets

The Canadian alternative investment space is coming of age. Canadian investors from large institutions to high net worth individuals are embracing hedge fund investments. Difficult and volatile markets have left investors searching for higher returns and protection from downside risk.

RAISING CAPITAL


net worth which includes family offices,

multi-family offices and High Net

Worth Individuals (HNWIs).

InstitutionsThe largest Canadian institutions

and pension plans have been active

hedge fund participants for many

years, executing sophisticated global

investment programs. In recent

years, mid-tier institutions have

been increasingly likely to consider

allocations to hedge funds as a means

to achieve their investment goals.

Many institutions that do not currently

allocate to hedge funds are on an

educational learning curve. It is likely

that this process will bear fruit for the

hedge fund industry in the near future,

both for Canadian and global managers.

Institutions that, in the past, have

invested in Funds of Hedge Funds

are more likely to invest directly with

single managers as their familiarity

with hedge funds and their knowledge

level increases. Many organizations are

willing to hire external expertise

to assist with investment decisions.

Many large Canadian institutional

investors hire a consultant to source

alternatives while the remainder have

in-house departments that focus on

alternative investments.

Although many Canadian institutions

have been historically reluctant to

allocate to funds that have assets under

management of less than $1 billion

(which has historically precluded many

Canadian hedge fund managers), this

is now changing as more and more

investors have come to appreciate the

outperformance of smaller, newer

and niche hedge funds. This has led to

success for several Canadian funds in

raising institutional assets domestically.

High Net Worth – Family Offices and HNWIsCanadian family offices are

knowledgeable and sophisticated

investors. Many family offices are

established organizations with

experienced investment teams that

do extensive in-house research. Their

smaller size and flexible investment

mandates enable them to allocate

to managers of all sizes. Along with

HNWIs they have been the largest

purchasers of Canadian hedge funds

to date.

Canada is the world’s seventh-largest

market for high net worth and ultra

high net worth individuals: they

numbered approximately 300,000 at

the end of 2010 which is an increase

of about 12% as compared to 2009.1

Canada’s population of HNWI is

1 Merrill Lynch Global Wealth Report

http://www.ml.com/media/114235.pdf

64 |

defined as individuals with investable

assets of $1 million or more. This

group represents more than 60% of the

assets under management in Canada.2

While many HNWI have the knowledge

and skills to execute their own

investment programs, others work

with a multi-family office (MFO) for

assistance in the deployment of both

traditional and alternative assets. An

MFO is an independent organization

that provides a variety of services to

multiple families for the purpose of

supporting their wealth. In addition to

allocating to hedge funds on behalf of

their clients, some MFOs may build

a proprietary alternative investment

vehicle for their clients.

HNWI Advice at Canadian Broker-DealersCanada has a large number of wealth

advisors who target HNWI through the

broker-dealer retail networks that are

associated with the six largest banks

in Canada. Many of these advisors are

seeking additional ways to add value to

their client’s portfolios and will allocate

to increasingly sophisticated investment

vehicles, such as hedge funds, on behalf

of their clients. The benefits include

diversification, higher returns and an

improved risk-return profile.

Managers that want to sell their funds

through the bank-owned brokerage

firms’ retail networks must meet some

stringent requirements before they are

approved by the various distribution

channels. Their criteria vary among

organizations but at a minimum, the

fund must be available for sale on

FundSERV (a third-party investment

fund processing system) and the

managers must have an established

track record (usually three years). Many

funds that have been approved for

sale in the retail networks have seen

material allocations.

Growth Going ForwardIt is a sign of continuing optimism that

the Canadian alternative investment

industry shows growth in all areas

including fund managers, investors

and service providers. Canadian

managers continue to receive inflows

into a broadening array of strategies

from both Canadian and overseas

institutional and HNWI investors.

RAISING CAPITAL

2 Globe and Mail, Are You Ready For a Wealth Manager, January 8, 2010

http://www.theglobeandmail.com/globe-investor/personal-finance/home-cents/are-you-ready-for-a-wealth-manager/article1423789/

66 |

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The Horizons BetaPro Bear Plus exchange traded funds (“HBP Bear Plus ETFs”) use leveraged investment techniques that magnify gains and losses and result in greater volatility in value. HBP Bear Plus ETFs are subject to leverage risk. HBP Bear Plus ETFs along with the Horizons BetaPro Inverse exchange traded funds (“HBP Inverse ETFs”) are subject to aggressive investment risk and price volatility risk, which are described in their respective prospectus. Each HBP Bear Plus ETF seeks a return that is 200% and each HBP Inverse ETF seeks a return that is 100% of the inverse performance of a speci!ed underlying index, commodity or benchmark (the “Target”) for a single day. Due to the compounding of daily returns, an HBP Bear Plus ETF’s and an HBP Inverse ETF’s returns over periods other than one day will likely di"er in amount and possibly direction from the performance of it’s respective Target for the same period. Investors should monitor their holdings, as frequently as daily, to ensure that they remain consistent with their investment strategies.Commissions, management fees and expenses all may be associated with an investment in exchange traded products managed by Horizons ETFs Management (Canada) Inc. The exchange traded products managed by Horizons ETFs Management (Canada) Inc. are not guaranteed, their values change frequently and past performance may not be repeated. Please read the prospectus before investing.

(Please see also page 96)

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70 |

COMMONWEALTHF U N D S E R V I C E S

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For more information, please contact:Mackenzie Crawford, Vice PresidentCommonWealth Fund Services Ltd.

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Independent fund

administration services.





When you’re looking to get clarity from

complexity, it helps to have experience

on your side.

L`]�_dgZYd�ÕfYf[aYd�k]jna[]k�eYjc]lhdY[]�`Yk�Z][ge]�kg�[gehd]p$�najlmYddq�fg�gf]�[Yf�fYna_Yl]�al�Ydgf]&�9k�Y�d]Y\af_�Y\nakgj�lg�ÕfYf[aYd�afklalmlagfk$�o]�Z]da]n]�af�k][mjaf_�l`]�hj]k]fl�Yf\�Zmad\af_�jgZmkl�kljYl]_a]k�lg�`]dh�qgm�hdYf�^gj�l`]�^mlmj]&�>af\�gml�`go�gmj�ÕfYf[aYd�k]jna[]k�l]Yek�[Yf�`]dh�qgm�Yl�]q&[ge'[Y&

See More | Perspectives

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72 |

As the investment industry continues to deal with market challenges, investors, regulators and tax authorities are demanding greater transparency, stronger infrastructure and improved governace. For those that rise to these challenges, there is potential reward.

PwC has a well established team of experts based locally and networked globally, offering a wide range of experience in tax, assurance, risk, governance and controls.

Who to call:

Raj Kothari, FCANational Asset Management Leader416 869 [email protected]

Chris PittsNational Alternatives Leader

416 947 8964

[email protected]

Advice into action

© 2012 PricewaterhouseCoopers LLP. All rights reserved. “PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. 2042-11-0312

2042-11 Asset Management Ad_4.5x6.0.indd 1 14/03/12 11:06 AM





Stay Wealthy. Be Hedged.

For investment information contact Sean Wynn at 416.361.4533

or visit www.jcclark.com



74 |

Man Investments Canada Corp.

Dedicated to alternative investments

1 877 [email protected]





��

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76 |





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Member DirectoryHedge Fund and FoHF Managers

84 |

Aberdeen Asset Management Inc. Global Fund Of Hedge Fund Provider

Member since: 2012

Renee Arnold [email protected] | +1 416 777 5570 Toronto, ON

www.aberdeen-asset.ca

Acorn Global Investments Inc. Systematic Global Macro

Member since: 2010

Gordon Corbett [email protected] | +1 905 257 0773 ext 102 Oakville, ON

www.acorn.ca

Arrow Capital Management Inc. Funds of Hedge Funds and Canadian Hedge Fund Managers

Member since: 2001

Rob Parsons [email protected] | +1 416 323 3199 Toronto, ON

www.arrow-capital.com

Aurion Capital Management Inc.

Member since: 2010

Grant Bunker [email protected] | +1 416 866 2445 Toronto, ON

www.aurion.ca

MEMBER DIRECTORY HEDGE FUND AND FoHF MANAGERS

MEMBER DIRECTORY: HEDGE FUND AND FoHF MANAGERS


Blackheath Fund Management Inc. Managed Futures – Sentiment and Volatility Arbitrage

Member since: 2009

Christopher Foster [email protected] | +1 416 363 2962 Toronto, ON

www.blackheath.ca

BluMont Capital Corporation Long-Short Equity

Member since: 2003

James Wanstall [email protected] | 1 416 202 6695 Toronto, ON

www.blumontcapital.com

Clairwood Capital Management Inc. Long-Short Equity

Member since: 2011

Glenn Paradis [email protected] | +1 647 404 8145 Toronto, ON

www.clairwoodcapital.com

Crystalline Management Inc. Canada Relative Value and Arbitrage

Member since: 2009

Claude Perron [email protected] | +1 514 284 0248 ext 222 Montréal, QC

www.arbitrage-canada.com

86 |

Dexia Asset Management – Canadian Representative Office FoHF and 15 single strategies

Member since: 2012

Christophe Vandewiele [email protected] | +1 416 974 9055 Toronto, ONwww.dexia-am.com

Di Tomasso Group Inc. Long-Short Commodity Trading Advisor

Member since: 2011

John Di Tomasso [email protected] | +1 250 744 1650 Victoria, BC

www.ditomassogroup.com

Fiera Capital Inc. Global Macro, Market Neutral, Long-Short Equity, Fixed Income Funds

Member since: 2004

Jim Craven [email protected] | +1 416 955 4898 Toronto, ON

www.fierasceptre.com

Front Street Capital Long-Short Equity and Income

Member since: 2006

Chris Fontana [email protected] | +1 416 915 2439 Toronto, ON

www.frontstreetcapital.com




Fiera Capital Inc. Global Macro, Market Neutral, Long-Short Equity, Fixed Income Funds

Member since: 2004

Jim Craven [email protected] | +1 416 955 4898 Toronto, ON

www.fierasceptre.com

Galileo Funds Inc. Long-Short Canadian Equity

Member since: 2012

Evelyn Foo [email protected] | +1 416 594 3633 Toronto, ON

www.galileofunds.com

Garrison Hill Capital Management Inc.Fundamentally-driven Global Macro

Member since: 2008

Michael Yhip [email protected] | +1 416 203 2212 Toronto, ON

www.ghcm.ca

GCIC Ltd. Long-Short Equity

Member since: 2006

Christian Postance [email protected] | +1416 365 5661 Toronto, ON

www.dundeewealth.com

Goodwood Inc. Equity Long-Short, Activist

Member since: 2002

Curt Cumming [email protected] | +1 416 203 2522 Toronto, ON

www.goodwoodfunds.com

88 |

Groundlayer Capital Inc. Long-Short North American Equity (Long Bias)

Member since: 2007

Robert Grundleger [email protected] | +1 416 365 2301 Toronto, ON

Hillsdale Investment Management Inc. Quantitative Long-Short Global Equity

Member since: 2002

Ian Pember [email protected] | +1416 913 3920 Toronto, ON

www.hillsdaleinv.com

HR Stratégies Inc. Funds of Hedge Funds

Member since: 2004

Claude Godon [email protected] | +1 514 393 3515 Montréal, QC

www.hrstrategiesinc.com

Integrated Managed Futures Corp. Commodity Trading Advisor

Member since: 2003

Paul Patterson [email protected] | +1 416 363 6526 Toronto, ON

www.iamgroup.ca/managedfutures




JC Clark Ltd. Long-Short US & Canadian Equity

Member since: 2003

Sean Wynn [email protected] | +1 416 361 4533 Toronto, ON

www.jcclark.com

JDM Investment Partners Ltd. Concentrated North American Equity

Member since: 2012

James Maxwell [email protected] | +1 416 996 1113 Ottawa, ON

www.ipfund.ca

Kensington Capital Partners Ltd. Funds of Hedge Funds

Member since: 2008

Eamonn McConnell [email protected] | +1 416 362 9030 Toronto, ON

www.kcpl.com

Landry Morin Inc. Long-Short Equity

Member since: 2010

Richard Morin [email protected] | +1 514 985 5225 Montréal, QC

www.landrymorin.com

Groundlayer Capital Inc. Long-Short North American Equity (Long Bias)

Member since: 2007

Robert Grundleger [email protected] | +1 416 365 2301 Toronto, ON

Hillsdale Investment Management Inc. Quantitative Long-Short Global Equity

Member since: 2002

Ian Pember [email protected] | +1416 913 3920 Toronto, ON

www.hillsdaleinv.com

HR Stratégies Inc. Funds of Hedge Funds

Member since: 2004

Claude Godon [email protected] | +1 514 393 3515 Montréal, QC

www.hrstrategiesinc.com

Integrated Managed Futures Corp. Commodity Trading Advisor

Member since: 2003

Paul Patterson [email protected] | +1 416 363 6526 Toronto, ON

www.iamgroup.ca/managedfutures

KENSINGTONsmart alternatives TM

90 |

Lawrence Park Capital Partners Ltd. Fixed Income

Member since: 2011

David Fry [email protected] | +1 416 646 2180 Toronto, ON

www.lpcapitalpartners.com

Man Investments Canada Corp. Alternative Investments Manager

Member since: 2006

Toreigh Stuart [email protected] | +1 416 775 3600 Toronto, ON

www.maninvestments.com

Mapleridge Capital Corporation Managed Futures

Member since: 2008

Cheryl Davidson [email protected] | +1 416 733 9818 ext 241 Toronto, ON

www.mapleridgecapital.com

Marret Asset Management Inc. Fixed Income Arbitrage

Member since: 2006

Denise Dillon [email protected] | +1 416 306 3895 Toronto, ON

www.marret.ca




Niagara Capital Partners Ltd. Macro / Managed Futures

Member since: 2004

David Rothberg [email protected] | +1 416 350 2911 Toronto, ON

www.niagaracapital.ca

Northwater Capital Management Inc. Intellectual Property Funds and Risk Parity Portfolios

Member since: 2007

Neil Simons [email protected] | +1 416 360 5435 Toronto, ON

www.northwatercapital.com

Polar Securities Inc. US Long-Short Equity and Canadian Multi-Strategy

Member since: 2003

Tom Sabourin [email protected] | +1 416 369 4459 Toronto, ON

www.polarsecurities.com

RDA Capital Inc. Multi-Strategy

Member since: 2010

François Magny [email protected] | +1 514 985 2107 Montréal, QC

www.rdacap.com

92 |

Ross Smith Asset Management Inc. Capital Structure Arbitrage

Member since: 2011

Weston Pring [email protected] | +1 403 294 6893 Calgary, AB

www.rsam.ca

Rosseau Asset Management Ltd Event Driven / Special Situations

Member since: 2003

Jow Lee [email protected] | +1 416 777 0712 Toronto, ON

www.rosseau.com

RP Investment Advisors Investment Grade Fixed Income Long-Short

Member since: 2011

Dannielle Ullrich [email protected] | +1 647 776 1777 Toronto, ON

www.rpia.ca

Salida Capital LP Long-Short Equity - Natural Resources

Member since: 2005

Dejan Knezevic [email protected] | +1 416 849 2564 Toronto, ON

www.salidacapital.com




Ross Smith Asset Management Inc. Capital Structure Arbitrage

Member since: 2011

Weston Pring [email protected] | +1 403 294 6893 Calgary, AB

www.rsam.ca

Rosseau Asset Management Ltd Event Driven / Special Situations

Member since: 2003

Jow Lee [email protected] | +1 416 777 0712 Toronto, ON

www.rosseau.com

RP Investment Advisors Investment Grade Fixed Income Long-Short

Member since: 2011

Dannielle Ullrich [email protected] | +1 647 776 1777 Toronto, ON

www.rpia.ca

Salida Capital LP Long-Short Equity - Natural Resources

Member since: 2005

Dejan Knezevic [email protected] | +1 416 849 2564 Toronto, ON

www.salidacapital.com

Shoreline West Asset Management Multi-Strategy

Member since: 2011

Greg Sullivan [email protected] | +1 604 737 1445 Vancouver, BC

Sigma Analysis & Management Ltd Managed Account Operator

Member since: 2009

Luis Seco [email protected] | +1 416 907 0716 Toronto, ON

www.sigmanalysis.com

Silvercreek Management Inc. Short-equity biased, Special situations-value-based

Member since: 2003

Bryn Joynt [email protected] | +1 416 485 3953 Toronto, ON

www.silvercreekmanagement.com

Spartan Fund Management Inc. Multi-Strategy

Member since: 2009

Gary Ostoich [email protected] | +1 416 601 3171 Toronto, ON

www.spartanfunds.ca

94 |

Sprott Asset Management Long-Short Equity, Fixed Income/Currency & Asset-Based Lending

Member since: 2004

James R. Fox [email protected] | +1 416 943 6718 Toronto, ONwww.sprott.com

Summerwood Capital Corp. Currency - Quantitative, Directional and Exotic Alpha

Member since: 2006

Phil Schmitt [email protected] | +1 416 628 8400 Toronto, ON

www.summerwoodgroup.com

SW8 Asset Management, Inc. Multi-Strategy, North American Equity Long-Short focus

Member since: 2011

Danielle Skipp [email protected] | +1 647 340 6272 Toronto, ON

www.sw8.ca

Third Eye Capital Management Inc. Credit

Member since: 2008

Arif N. Bhalwani [email protected] | +1 416 601 9824 Toronto, ON

www.thirdeyecapital.com




Vertex One Asset Management, Inc. Multi-Strategy/Event-driven

Member since: 2002

Jeff McCord [email protected] | +1 604 681 5787 Vancouver, BC

www.vertexone.com

Vision Capital Corporation Long-Short REIT/Real Estate Focused

Member since: 2011

Jeffrey Olin [email protected] | +1 416 362 6546 Toronto, ON

www.visioncap.ca

Waratah Advisors Long-Short US & Canadian Equity

Member since: 2011

Daniel Dorenbush [email protected] | +1 416 687 6598 Toronto, ON

www.waratahadvisors.com

West Face Capital Inc. Opportunistic

Member since: 2011

Alana Johnston [email protected] | +1 647 288 0344 Toronto, ON

www.westfacecapital.com

SW8 Asset Management, Inc. Multi-Strategy, North American Equity Long-Short focus

Member since: 2011

Danielle Skipp [email protected] | +1 647 340 6272 Toronto, ON

www.sw8.ca

96 |

MEMBER DIRECTORYHEDGE FUND AND FoHF MANAGERS

OTHER ASSET MANAGERS

Westcourt Capital Corporation Income and Real Estate-linked Securities

Member since: 2011

David Kaufman [email protected] | +1 416 671 1941 Toronto, ON

www.westcourtcapital.com

BlackRock Asset Management Canada Limited Asset Manager – ETFs Member since: 2011

Eric Leveille [email protected] | +1 416 643 4050 Toronto, ON

www.blackrock.com

Bullion Marketing Services Inc. Precious Metals Fund Manager Member since: 2005

Paul de Sousa [email protected] | +1 905 415 2933 Toronto, ON

www.bmgbullion.com

Horizons ETFs Asset Manager – ETFs Member since: 2003

Jaime Purvis [email protected] | +1 416 601 2495 Toronto, ON

www.horizonsetfs.com


Member DirectoryService Providers

98 |

BMO Capital Markets Prime Brokerage Services

Member since: 2002

Katrina Rempel [email protected] | +1 416 359 7524 Toronto, ON

www.bmo.com

CIBC Prime Services Group Prime Brokerage Services

Member since: 2010

Claude Robillard [email protected] | +1 416 594 8534 Toronto, ON

www.cibc.com

Deutsche Bank AG, Canada Branch Prime Brokerage Services

Member since: 2012

Jeff Knupp [email protected] | +1 416 682 8000 Toronto, ON

www.db.com

RBC Capital Markets Prime Brokerage Services

Member since: 2003

Andrew Thornhill [email protected] | +1 416 842 6440 Toronto, ON

www.rbccm.com

MEMBER DIRECTORYPRIME BROKERS

MEMBER DIRECTORY: SERVICE PROVIDERS


Scotia Capital Prime Finance Prime Brokerage Services

Member since: 2005

Kripa Kapadia [email protected] | +1 416 863 7305 Toronto, ON

www.scotiaprimefinance.com

100 |

Deloitte & Touche Canada Audit, Tax and Advisory Services

Member since: 2003

George Kosmas [email protected] | +1 416 601 6084 Toronto, ON

www.deloitte.ca

Ernst & Young LLP Audit, Tax and Advisory Services

Member since: 2003

Joseph Micallef [email protected] | +1 416 943 3494 Toronto, ON

www.ey.com/ca

KPMG LLP Audit, Tax and Advisory Services

Member since: 2007

Peter Hayes [email protected] | +1 416 777 3939 Toronto, ON

www.kpmg.ca

PricewaterhouseCoopers LLP Audit, Tax and Advisory Services

Member since: 2002

Chris Pitts [email protected] | +1 416 947 8964 Toronto, ON

www.pwc.com/ca/en

MEMBER DIRECTORYACCOUNTING FIRMS



Deloitte & Touche Canada Audit, Tax and Advisory Services

Member since: 2003

George Kosmas [email protected] | +1 416 601 6084 Toronto, ON

www.deloitte.ca

Ernst & Young LLP Audit, Tax and Advisory Services

Member since: 2003

Joseph Micallef [email protected] | +1 416 943 3494 Toronto, ON

www.ey.com/ca

KPMG LLP Audit, Tax and Advisory Services

Member since: 2007

Peter Hayes [email protected] | +1 416 777 3939 Toronto, ON

www.kpmg.ca

PricewaterhouseCoopers LLP Audit, Tax and Advisory Services

Member since: 2002

Chris Pitts [email protected] | +1 416 947 8964 Toronto, ON

www.pwc.com/ca/en

Aird & Berlis LLP Member since: 2003

Jennifer Wainwright [email protected] | +1 416 865 4632 Toronto, ON

www.airdberlis.com

Borden Ladner Gervais LLP Member since: 2004

Ron Kosonic [email protected] | +1 416 367 6621 Toronto, ON

www.blg.com

Davies Ward Phillips & Vineberg LLP Member since: 2010

Tim Baron [email protected] | +1 416 863 5539 Toronto, ON

www.dwpv.com

Heenan Blaikie LLP Member since: 2010

Tom Cotter [email protected] | +1 403 261 3451 Calgary, AB

www.heenanblaikie.com

LAW FIRMS

102 |

McMillan LLP

Member since: 2002

Michael Burns [email protected] | +1 416 865 7261 Toronto, ON

www.mcmillan.ca

Norton Rose Canada LLP

Member since: 2011

Michael Bunn [email protected] | +1 416 216 4095 Toronto, ON

www.nortonrose.com

Stikeman Elliott LLP

Member since: 2009

Darin Renton [email protected] | +1 416 869 5635 Toronto, ON

www.stikeman.com

Torys LLP

Member since: 2002

Marlene Davidge [email protected] | +1 416 865 7322 Toronto, ON

www.torys.com

MEMBER DIRECTORYLAW FIRMS



CIBC Mellon Fund Administration

Member since: 2009

Charbel Cheaib [email protected] | +1 416 643 6352 Toronto, ON

www.cibcmellon.com

CITCO (Canada) Inc. Fund Administration

Member since: 2008

Kieran Conroy [email protected] | +1 416 966 9200 Toronto, ON

www.citco.com

Citigroup Fund Services Ltd. Fund Administration

Member since: 2010

Donald King [email protected] | +1 905 212 8988 Toronto, ON

www.citi.com

CommonWealth Fund Services Ltd. Fund Administration

Member since: 2008

Mackenzie Crawford [email protected] | +1 416 687 6654 Toronto, ON

www.commonwealthfundservices.com

FUND ADMINISTRATORS

104 |

Harmonic Fund Services Canada Inc. Fund Administration

Member since: 2006

Allen Bernardo [email protected] | +1 416 507 4700 Toronto, ON

www.harmonic.ky

RBC Dexia Investor Services Fund Administration

Member since: 2006

Brad Taylor [email protected] | +1 416 955 2022 Toronto, ON

www.rbcdexia.com

The Investment Administration Solution Inc. Fund Administration

Member since: 2003

David Chan [email protected] | +1 416 368 9569 ext 288 Toronto, ON

www.TheSolutionPeople.com

UBS Fund Services, Canada Fund Administration

Member since: 2007

Heather Budd [email protected] | +1 416 971 4702 Toronto, ON

www.ubs.com

MEMBER DIRECTORYFUND ADMINISTRATORS



Canada Pension Plan Investment Board Plan Sponsor – Public Pension

Member since: 2012

Marco Vetrone [email protected] | +1 416 874 5221 Toronto, ON

www.cppib.ca

Ontario Teachers’ Pension Plan Institutional Investor

Member since: 2004

Jonathan Hausman [email protected] | +1 416 730 5388 Toronto, ON

www.otpp.com

INSTITUTIONAL INVESTORS

106 |

Cidel Financial Group Private Wealth Management - Private Bank

Member since: 2003

Matt Maldoff [email protected] | +1 416 925 7585 Toronto, ON

www.cidel.com

Montréal Exchange Canadian Derivatives Exchange

Member since: 2003

Brian Gelfand [email protected] | +1 514 871 7884 Montréal, QCwww.m-x.ca

MEMBER DIRECTORYOTHER


Certain institutional investor members are anonymous by request and this listing is current as of April 24, 2012. For an updated list of all public members, please go to http://aima-canada.org/aima_canada_member_directory.html

Castle Hall Alternatives Inc. Due Diligence Consultant

Member since: 2011

Chris Addy [email protected] | +1 450 465 8880 Montréal, QC

www.castlehallalternatives.com

CIBC Wood Gundy Retail Brokerage

Member since: 2004

Troy Killick [email protected] | +1 416 956 3456 Toronto, ON

www.woodgundy.com

http://aima-canada.org/aima_canada_member_directory.html

Cidel Financial Group Private Wealth Management - Private Bank

Member since: 2003

Matt Maldoff [email protected] | +1 416 925 7585 Toronto, ON

www.cidel.com

Montréal Exchange Canadian Derivatives Exchange

Member since: 2003

Brian Gelfand [email protected] | +1 514 871 7884 Montréal, QCwww.m-x.ca

Castle Hall Alternatives Inc. Due Diligence Consultant

Member since: 2011

Chris Addy [email protected] | +1 450 465 8880 Montréal, QC

www.castlehallalternatives.com

CIBC Wood Gundy Retail Brokerage

Member since: 2004

Troy Killick [email protected] | +1 416 956 3456 Toronto, ON

www.woodgundy.com

FOR MORE INFORMATION ON AIMA CANADA, PLEASE CONTACT:

James Burron, CAIA Chief Operating O!cer, AIMA Canada

Suite 504 – 80 Richmond Street WestToronto, OntarioM5H 2A4

[email protected] +1 416 453 0111

www.aima-canada.org

mailto:jburron%40aima-canada.org?subject=

http://www.aima-canada.org

http://eepurl.com/fgbcs