“The OSC believes that there’s a need and a demand for access to alternative funds, which based on a theory they’re quoting come with an illiquidity premium, meaning that if you’re willing and able to wait long enough — usually around ten years — there is an illiquidity premium,” says Ken Kivenko, president and CEO of investor advocacy group Kenmar Associates. “They didn’t refer to any academic studies or give any numbers, but they say on that basis these should be made available and there should be access. They came up with this device that would allow retail investors access to securities limited to accredited investors.”
Kivenko says that he and his colleagues were unhappy with the proposed framework, which he says has unresolved issues around the proposed limits to liquidity. They include how far in advance an investor would have to give notice to withdraw their limited amount, or what would happen should there be a run on the fund. Kivenko noted that the proposal came with a long list of questions, with several sub-questions.
“It looks like they didn’t do their homework,” Kivenko says. “They were asking so many questions they should have known the answer to.”
Fair Canada was one of the early respondents to the proposed paper. The investor rights advocate said they were, “concerned the proposal will cause more harm than good to investors.” They noted that most evidence suggests retail demand for these strategies would remain low. They also questioned the necessity of such a complex investment product that would be difficult for even many investment professionals to fully understand.
“While the Proposal is touted as an attempt to “democratize” the private markets, it can also be viewed as an attempt to facilitate the ability of private market ventures to raise capital from the public,” Fair’s commentary reads. “From this perspective, we question why the OSC would facilitate private market ventures’ ability to raise capital from everyday Ontarians while avoiding the transparency required by their public company competitors.”
