*For informational purposes only
**Fund managers should avoid any activities which may be construed as providing or interpreting legal tax, or other advice to prospective limited partners.
Question: Does a Canadian fund manager need to register as an investment fund manager, a portfolio manager, or an exempt market dealer with the Ontario Securities Commission?
Answer: Generally speaking, if the fund being managed is considered a venture or private equity fund (and not a hedge fund), the fund manager does not need to register.
A venture or private equity fund must make primarily “active investments” (as opposed to “passive” investments made by hedge funds), typically for purposes including:
- Exercising or seeking to exercise control of an issuer in which it invests; or
- Being actively involved in the management of an issuer in which it invests.
Indicators of “active investments” can include but are not limited to the following:
- Holding securities representing more than 10% of the outstanding equity or voting securities of portfolio company;
- Having the right to appoint board or board observer seats for a portfolio company;
- Having the ability to impose restrictions on the management, or approval or veto rights over decisions made by the management of a portfolio company;
- Providing advice or mentorship to a portfolio company.
Should these criteria ever be put to the test, it will come down to a factual analysis of the circumstances – there is no “check the box” type of exercise done.
Please refer to the Ontario Securities Commission’s website for general guidance on this topic, or consult an experienced, qualified fund/securities attorney in Ontario for assistance with a specific situation.
