Non-Conventional Investment Funds

A non-conventional investment fund operates differently than a conventional mutual fund usually for two reasons: investors in the non-conventional investment fund may or may not be able to redeem their investment on demand for a proportionate interest of the fund’s net assets, or the non-conventional investment fund may be listed on an exchange.

For non-conventional investment funds that list their securities for trading on a stock exchange, investors get their money out of the fund primarily by trading their investment over the exchange. Some of these non-conventional investment funds also permit investors to get their money out by redeeming their investment for a proportionate share of the fund’s net asset value.

The regulatory requirements applicable to non-conventional investment funds vary depending on whether an investor can redeem the investment for a share of the fund’s net asset value and whether the fund is traded on a stock exchange.

If investors can redeem their investment in a non-conventional investment fund for a proportionate interest of the fund’s net assets more than once a year, then the fund is considered to be a mutual fund (regardless of whether or not it is listed) and is subject to the same operational requirements as conventional mutual funds (see Conventional Mutual Funds). These funds include exchange-traded funds (ETFs) that distribute their securities using designated brokers, track an index and distribute their securities continuously. Some split-share companies also fall into this category of investment fund.

If investors cannot redeem their investment for a proportionate interest of a non-conventional investment fund’s net assets more than once a year, the fund will be subject to the core operational requirements of NI 81-102, but will be permitted to engage in certain investment strategies, and invest in certain asset classes, beyond what is allowed for conventional mutual funds.  This category of investment funds includes closed-end funds (usually listed on an exchange) and flow-through limited partnerships.

Non-conventional investment funds are also subject to both National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) and National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107). NI 81-106 outlines requirements regarding the on-going calculation of a fund’s net asset value. NI 81-107 requires investment funds to appoint an independent review committee that is responsible for reviewing the fund manager’s conflicts of interest.

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