> registered dealers and advisers and persons acting on behalf of fully managed accounts managed by those persons, if those persons are registered or authorized to carry on business as advisers or the equivalent under the securities legislation of a jurisdiction of Canada or a foreign jurisdiction. – Permitted clients are practically a subset of accredited investors that are presumed to be even more sophisticated than accredited investors and that therefore require even less protection under the law. As set forth in more detail below, reliance on the following exemptions depends on fund investors and potential investors being permitted clients: “international dealer” exemption from the dealer registration requirement; the “international adviser” exemption from the adviser registration requirement; and the exemption in certain provinces from the investment fund manager registration requirement. The definition of “permitted client” includes most types of institutional investors, entities other than investment funds with net assets of at least C$25 million and individuals who beneficially own financial assets with a pre-tax aggregate realizable value, net of any related liabilities, in excess of C$5 million. MINIMUM INVESTMENT EXEMPTION Foreign private funds may also rely on an exemption from the prospectus requirement that allows securities to be offered for sale without a prospectus to any entity that purchases as principal securities having an aggregate acquisition cost of not less than C$150,000. To rely on this exemption, the purchaser must pay the consideration in cash at the time of the distribution and the purchaser must not have been created or used solely to purchase or hold securities on that basis. An issuer is not permitted to rely on the exemption if the purchaser is an individual. Owing to the requirement that the consideration be paid “at the time of the distribution,” commitment- based funds that draw down capital on an as-needed basis may not be able to rely on this exemption.
In addition, funds or fund managers that intend to rely on the international dealer exemption (and the permitted client exemption from the investment fund manager registration requirement) would not rely on this exemption because they are entitled to deal only with permitted clients. REPORT OF EXEMPT DISTRIBUTION In each of the provinces, a report of an exempt distribution must be filed with the relevant regulator along with the prescribed filing fee when a distribution is made in reliance on certain exemptions from the prospectus requirements, including the accredited investor exemption and the minimum amount exemption. Generally, the reports must be filed within 10 days of a distribution; however, an investment fund is permitted to file the report within 30 days of the end of the calendar year in which the distribution was made. The report includes information about the issuer, the securities, the purchasers and the exemptions relied upon. Depending on the province and the prospectus exemption relied upon, the fund may also be required to file the offering document delivered to Canadian purchasers. While it is generally the policy of the provincial securities commissions to treat information relating to purchasers as confidential, in certain provinces, the relevant securities regulatory authority may have to make this information available if requested, in accordance with applicable freedom of information legislation. OFFERING DOCUMENTS The exemptions from the prospectus requirements described above do not require that an offering document be provided or that the offering document, if provided, be in a particular form. The term “offering memorandum” is broadly defined under Canadian securities law and includes any form of offering or informational document. The distribution of securities under an offering memorandum is subject to statutory liability in many Canadian jurisdictions. It is generally recommended that an offering document be provided
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Marketing Private Funds in Canada
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