On October 10, 2024, the Ontario Securities Commission (OSC) published OSC Consultation Paper 81-737– Opportunity to Improve Retail Investor Access to Long-Term Assets through Investment Fund Product Structures (Consultation Paper).¹ The Consultation Paper is aimed at improving retail investor access to long-term assets and fostering capital formation and innovation through a framework proposal (the Proposal) for an investment fund product structure.²

For the purpose of the Proposal, long-term assets (Long-Term Assets) mean illiquid assets that cannot be easily or quickly sold, may be difficult to value and generally have longer investment timelines than other assets. They include venture capital, private equity, private debt, mortgages, real estate, infrastructure and natural resource projects. They may include assets within and outside Ontario.

Currently, retail investors may only invest in Long-Term Assets indirectly by holding securities in public companies that own a variety of Long-Term Assets, by being a member of a pension plan that invests in Long-Term Assets or by investing through public investment fund product structures that hold illiquid assets, subject to certain limitations³. Many retail investors may be unwilling or unable to invest in Long-Term Assets through these channels. Additionally, many Long-Term Assets are privately funded and unavailable to retail investors. The increase in private financing in Ontario and other developed economies and the growing tendency for issuers to stay private for longer, may further reduce existing opportunities for retail investors to access Long-Term Assets.⁴

The Proposal contemplates a new investment fund structure that would allow retail investors to invest directly in Long-Term Assets (Ontario Long-Term Fund or OLTF). Depending on the redemption terms of the product, an OLTF would fall within the definition of a mutual fund or a non-redeemable investment fund with certain adjustments to the current requirements applicable to those types of funds.

Under the Proposal, OLTFs would become reporting issuers in Ontario through a prospectus-qualified offering. As they are available only to Ontario investors, OLTFs would not be listed or traded on a marketplace in Canada. OLTFs would not be subject to the illiquid asset restrictions applicable to the existing investment funds. Rather, they would be required to hold a minimum percentage of Long-Term Assets. There would also be a cap on the maximum percentage of Long-Term Assets OLTFs may hold to ensure they hold sufficient liquid assets to meet redemption requests.

OLTFs could be either fixed-term or evergreen funds. The Proposal would require OLTFs to invest in Long-Term Assets through the securities of underlying collective investment vehicles (CIV). CIVs are issuers that have the objective of investing in Long-Term Assets and would be required to have a sophisticated cornerstone investor (e.g. a pension fund or other institutional investor).

Under the Proposal, one of the requirements for the OLTFs would be to be managed by a registered investment fund manager and a registered portfolio manager. The OLTFs would also have to calculate their net asset value at the end of each financial reporting period at a minimum. Dealers and advisers are required to perform a suitability determination when taking certain actions, including making a recommendation to a client to invest in an OLTF.

The Proposal is aimed at enhancing the experience of individual investors and fostering conditions for capital formation and innovation in both public and private markets. Similar types of investment funds have been implemented in the United Kingdom and the European Union.

The Proposal may offer benefits to investors and businesses alike and could lead to increased capital investment in capital-intensive assets, such as infrastructure, natural resources projects and other long-term projects. It is also aligned with the goal of the Government of Ontario to look at innovative ways to finance projects in the public interest, such as transportation, housing, energy and municipal services.

The proposal raises interesting issues, although there may be concerns with the proposed restrictions and safeguards for investors, including the requirement to file a prospectus and become a reporting issuer and other restrictions with respect to redemption, valuation and governance.

The OSC is seeking comments from stakeholders, including investors, investment fund managers, portfolio managers, dealers, owners and operators of Long-Term Assets, and managers of Long-Term Asset pools. The consultation paper sets out 24 questions, covering topics such as redemption, valuation, monitoring and governance, disclosure, investment restrictions and distribution. All comments must be submitted on or before February 7, 2025.

Should you have any questions about the proposed Ontario Long-Term Fund, please do not hesitate to contact the authors, Andreas Kloppenborg, David Coultice or Ann Chen or any member of Dentons Canada's Securities and Corporate Finance group.

[1] Available at https://www.osc.ca/en/securities-law/instruments-rules-policies/8/81-737/osc-consultation-paper-81-737-opportunity-improve-retail-investor-access-long-term-assets-through.

[2] OSC, News Release, "OSC consults on improving retail investor access to long-term asset investments" (available at https://www.osc.ca/en/news-events/news/osc-consults-improving-retail-investor-access-long-term-asset-investments).

[3] Such as the illiquid asset restrictions in section 2.4 of National Instrument 81-102 – Investment Funds ("NI 81-102") and section 2.3 of NI 81-102.

[4] OSC, Strategic Plan, 2024-2030 (available at https://www.osc.ca/sites/default/files/2024-05/pub_20240503_OSC-strategic-plan.pdf.)