Regulation, licensing and registration

Principal regulatory bodies

What are the principal regulatory bodies that would have authority over a private equity fund and its manager in your jurisdiction, and what are the regulators’ audit and inspection rights and managers’ regulatory reporting requirements to investors or regulators?

There is no regulatory body directly focused on private equity funds and their managers in Canada. However, compliance with the statutory filing requirements under provincial limited partnership laws is required and the registrar or administrator under such legislation has a right to review certain limited partnership records. Also, tax authorities have audit rights and the issuance and trading of interests in a private equity fund are subject to securities laws and the jurisdiction of the various provincial (and territorial) securities commissions to enforce such laws. There are 10 provinces and three territories in Canada.

Governmental requirements

What are the governmental approval, licensing or registration requirements applicable to a private equity fund in your jurisdiction? Does it make a difference whether there are significant investment activities in your jurisdiction?

Except for the administrative registration described above to form a limited partnership, there are no approval, licensing or registration requirements applicable to a private equity fund in Canada.

Registration of investment adviser

Is a private equity fund’s manager, or any of its officers, directors or control persons, required to register as an investment adviser in your jurisdiction?

A typical private equity fund and its manager, officers, directors or control persons are exempt from registration under National Instrument 31-103 as dealers, advisers or investment fund managers to the extent that they and the fund do not engage in activities that require registration and, in this regard:

  • adviser registration is not required provided that the advice given in connection with the purchase and sale of portfolio investments is incidental to its active management of the portfolio companies;
  • dealer registration is not required provided that the raising of money from investors and its subsequent investment is occasional and uncompensated; and
  • investment fund registration is not required provided that the private equity fund is actively involved in the management of the companies it invests in, or the private equity fund otherwise invests in the underlying portfolio company for the purpose of achieving control.
Fund manager requirements

Are there any specific qualifications or other requirements imposed on a private equity fund’s manager, or any of its officers, directors or control persons, in your jurisdiction?

There are no specific qualifications or other requirements imposed on a private equity fund’s manager in Canada. However, the commercial realities and process of raising money mean that investors want to see a track record of investment success from the principals of the general partner as well as a minimum investment by the management team.

Political contributions

Describe any rules - or policies of public pension plans or other governmental entities - in your jurisdiction that restrict, or require disclosure of, political contributions by a private equity fund’s manager or investment adviser or their employees.

Canadian pension funds are deferential to the Private Equity Principles published by the Institutional Limited Partners Association, which require reporting on such contributions.

Use of intermediaries and lobbyist registration

Describe any rules - or policies of public pension plans or other governmental entities - in your jurisdiction that restrict, or require disclosure by a private equity fund’s manager or investment adviser of, the engagement of placement agents, lobbyists or other intermediaries in the marketing of the fund to public pension plans and other governmental entities. Describe any rules that require a fund’s investment adviser or its employees and agents to register as lobbyists in the marketing of the fund to public pension plans and governmental entities.

All levels of Canadian government have broadly similar rules concerning the lobbying of public officials. The rules are primarily aimed at capturing communication with public office holders intended to influence their decision-making, subject to certain exceptions. Marketing a fund to a public office holder could fall within the definition of lobbying applicable in various Canadian jurisdictions, which may require registration by employees (ie, in-house lobbyists) or consultant/external lobbyists.

The core of all lobbying legislation in Canada is the requirement to register. The relevant federal, provincial or municipal rules will outline when registration is required, what information must be disclosed and who must register. In most Canadian jurisdictions, lobbyists must meet a threshold minimum of lobbying activity before registration requirements apply to them. When registration and reporting is required, the information that must be disclosed and who must register varies according to the type of lobbyist (ie, in-house or consultant/external lobbyist). Fund managers and investment advisers are not required to disclose the engagement of consultant/external lobbyists. However, consultant/external lobbyists must register on behalf of an organisation once they are retained.

Bank participation

Describe any legal or regulatory developments emerging from the recent global financial crisis that specifically affect banks with respect to investing in or sponsoring private equity funds.

There is no industry-wide phenomenon that limits banks’ participation in private equity funds in Canada. Banks are not, however, typically sponsors of private equity funds. There was some historic activity in this regard, but it eroded (eg, EdgeStone Capital Partners was created from NB Capital (National Bank), Birch Hill Equity Partners evolved from TD Capital and more recently Fulcrum Capital Partners separated and rebranded from HSBC Capital).