The Alternative Investment Management Association first opened a branch in Canada in 2003.
In recent days, AIMA has posted a report on what it calls the “landscape.” It doesn’t mean the Rockies. It means the lay of the land for alternative investments in that country.
AIMA’s report looks at a number of subjects, including retail distribution channels, capital introductions, fintech, and infrastructure as an asset class. Our precis below will focus on each of those four important features of the landscape.
Retail Distribution Channels
The most attractive retail channel for fund managers is the Investment Industry Regulatory Organization of Canada. IIROC is a national self-regulatory organization whose members are the major banks and independent brokerage houses. In order to retail through IIROC, a fund manager first must get on Fundserv, the network that automates all the operational aspects of transacting from funds. The usual way of getting onto Fundserv, and thus using the IIROC channel, is through obtaining the Canadian Securities Administrators’ registration as an Investment Fund Manager. There are other ways to go about it, but “if the IFM registration in not in place, considerable IIROC approval challenges should be expected.”
Beyond the issues of registration and memberships, the paper observes that success in the Canadian retail marketplace involves “the time and expertise to foster advisor relationships, navigate the head office approval process, and generate demand for the fund.”
A start-up, or a manager from outside Canada seeking to make headway there, will want to access a Canadian prime broker’s investor network. One time-honored way to go about that is to participate in capital introduction events, educational events for investors that provide a platform to network and raise the profile of the new kid in school.
The manager might participate in a panel at a thematic event, where the theme is in the new kids’ wheelhouse. Or the manager may simply engage in one-on-one conversations at the events.
The prime brokers have capital introduction teams dedicated to making the connections of managers to have to “the right Canadian investors—at the right time in a fund’s lifecycle,” the report says.
It is the managerial cycle, too, that needs such tailoring. At some points a manager will be interested in seed or accelerator funding, at other points it may be looking for stable long-term investors for mature funds.
The capital introduction team should have a bird’s eye view of best practices. It should also be prepared to connect managers with the appropriate service providers for a more in-depth take on such practices.
The AIMA report describes Canada as the host of a lot of ecosystems in which fintech companies have the opportunity to partner with both startups and established institutions, and to receive introductions to venture capitalists. The ecosystems include accelerators, innovation labs, and incubators.
There are some Canadian innovation hubs that “focus exclusively on disruptive and decentralized technologies, including blockchains and cryptocurrencies.”
The legal environment in Canada is more open to the immigration of the top talent in technology than is that of “our neighbors to the south [or] our allies across the pond” in the wake of Brexit. Although Britain and the United States are the Fintech leaders, there is reason to believe Canada can hold its own in that league.
The report highlights Q4, a Toronto-based provider of IR solutions, which AIMA says is “disrupting investment-banking and broker-dealer cash equities desks.” The report is clearly using “disrupt” here in the contemporary consultant-speak sense as a good thing.
Finally, for our brief precis, we might say a word about the AIMA report’s discussion of infrastructure in Canada as an asset class ripe for AI investors.
It offers the following three key statistics: 67% of Canadian institutions allocate to infrastructure; 141 infrastructure transactions occurred in the country in 2018; and US$22 billion got allocated to infrastructure in 2018, this was the largest allocation to that asset class in five years.
The report suggests that fund managers with interest in this space might want to partner with a third-party service provider with expertise in the field and the necessary reporting and technology capabilities.