OSC looks to improve access to private markets while investor advocate urges caution

Globe and Mail

3 days ago

The Ontario Securities Commission (OSC) is moving ahead with a project to make private market investment funds more accessible to investors, a proposal supported by asset managers while investor advocates raised concerns.
The regulator said Thursday that it's developing a LaunchPad project through its innovation office to introduce new investment fund products with exposure to long-term assets.
The project will allow firms to work with the OSC and receive exemptive relief to develop alternative investment funds for retail investors.
The move follows a consultation seeking input on a framework to give individual investors access to 'long-term asset funds' comprised primarily of non-public assets.
While many asset managers supported the proposal, other organizations raised concerns.
The OSC's Investor Advisory Panel (IAP) said in its annual report released this week that it's concerned about the rising interest in alternative investment products, as private markets lack transparency and offer less investor protection than public markets.
Any efforts to increase access to private markets should consider the risks to retail investors, it said.
The OSC said Thursday that exemptive relief decisions under the project would require 'bespoke investor protection controls based on the specific details of each fund and product.'
The IAP said in its submission to the OSC consultation that the 'nature and structure of long-term illiquid assets does not render them a suitable investment for a large swath of the retail investing public.'
However, the IAP added in the submission that not all retail investors need to be restricted to public markets and that an allocation to 'long-term assets' within retirement plans may be suitable for investors with a long time horizon.
If the OSC goes ahead with the proposed fund structure, the IAP recommends enhanced risk disclosure that explains the investments' illiquid nature and redemption costs clearly. The IAP also calls for clear fee structures that explain performance fees.
OSC chief executive officer Grant Vingoe said the LaunchPad project would provide new opportunities for firms and investors while providing oversight and protection.
'The investment landscape is shifting, and retail investors are increasingly looking to diversify their portfolios,' he said in a news release.
The IAP's annual report also noted concerns about unintended consequences from the client-focused reforms, which introduced enhanced know-your-client and know-your-product rules in 2021. Three of the big banks responded to the rules by restricting branch-level advisors and financial planners to selling their in-house proprietary products.
The IAP warned that limited product shelves may 'reduce interest and investment in the advisory channel.'
The panel also raised the issue of advisor titles causing confusion, especially at the bank branch level.
'[A]n investor who speaks to a bank branch-level employee, who uses the term 'advisor' in their title, may conclude, based on that title, that the employee is required to act in the investor's best interest,' it stated in the report. 'These issues need to be addressed.'
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