As part of its recent efforts to expand retail investor access to illiquid, long-term assets through investment funds, the Ontario Securities Commission (OSC) is now seeking feedback on the added disclosure challenges the idea poses, and whether there are impediments to holding these kinds of funds in RRSPs and other retirement savings vehicles.
In a staff notice published Thursday, the OSC highlighted the results of ongoing consultations on its “long-term asset fund” (LTAF) project, which called for industry feedback on possible investment fund structures that would enable retail investors to invest in long-term assets. It’s also asked for feedback on the regulatory relief that would be needed to allow these kinds of products to be offered.
The OSC said that it has been in contact with various industry players since the project was announced in May, including fund managers, portfolio managers and industry trade groups, and that it’s continuing to work with the industry on possible approaches. Those include increasing the limit on funds’ illiquid assets, adapting novel fund structures and allowing retail investors that don’t qualify as accredited investors to hold private funds in an RRSP.
“We welcome further stakeholder engagement on these or other structures,” it said in today’s update.
The regulator also reported that its initial consultations highlighted challenges with distributing funds that have large allocations to illiquid assets.
“The illiquidity risks and redemption restrictions of long-term asset funds may be complex,” it said. “To address these challenges, investment fund managers could provide standardized disclosure,” it said.
To that end, the OSC said it wants to engage with fund managers and others “to find possible solutions to these distribution challenges.”
A consultation on the OSC’s proposal for a new fund category for long term asset funds closed in February, drawing a mixed response from industry.
Policymakers in the U.S. and the U.K. have recently expanded investors’ access to illiquid funds in retirement accounts, the OSC noted. It’s now looking for feedback on whether a similar approach could work in Canada.
Specifically, it’s seeking input on whether there are any legal restrictions on holding illiquid private funds in defined contribution plans; if there are any other impediments to retail investors holding private funds in registered accounts (such as RRSPs); and, if there are private fund managers and investment fund managers looking to team up to offer retail investor access to long-term assets.
“We will continue to prioritize working with stakeholders interested in obtaining exemptive relief to permit product [launches],” it said, adding that it’s also seeking to “facilitate further dialogue on this topic at upcoming industry forums.”