Gestión de Sistemas de Vida

Description In Canada, hedge funds do not constitute a distinct category of CIS. There is no global, agreed-upon definition of hedge funds. The securities regulators introduced a working definition of HFs in CSA Staff Notice 81-316 Hedge Funds (2007 Hedge Fund Notice), following a sample-based review of hedge funds in Canada. According to such definition HFs are pools that use alternative investment strategies not generally available to traditional mutual funds, such as taking long and short positions and using arbitrage, leverage, options, futures, bonds and other financial instruments to

capitalize on market conditions.

relatively small. As of June 2012 HFs AUM represented about four percent of the total size of MFs in Canada, and two percent of the global HF market. Individual Canadian HF are relatively small, with more than 80 percent of all hedge funds having less than $100 million in assets under management

Entities involved in the operation of a HF

The operation of a HF typically involves several entities, many of which are required to register under NI 31-103.

Operators must registered under the IFM category, advisers that provide portfolio advice to a HF under the PM category, dealers that market or sell its securities under the ID or the EMD categories, and prime brokers to the hedge fund must be registered under the IC and are subject to the regulatory requirements in NI 31-103. They are also required to deal fairly, honestly and in good faith with their clients under securities legislation.

Requirements for IFMs that manage HFs are the same than for any other IFM, and have been explained in Principle 24. Accordingly an applicant must demonstrate:

 Fit and proper requirements for individuals that perform the UDP and CCO position

 Financial resources: the minimum capital is $100,000 as calculated according to Form 31-103F1. An IFM must maintain insurance based on either one percent of its assets or the assets it has under management, with a minimum per clause of $200,000 and a maximum of $25,000,000 or a higher amount set by the board of directors, the same insurance as is required for portfolio managers. From a practical perspective, the majority of registered IFMs in Canada are also registered as portfolio managers.

 A system of compliance, which in Canada includes both the (i) system of compliance with rules and regulations and the (i) internal controls and risk management

 Policies and procedures to address conflict of interest

The HF custodian is not required to register under NI 31-103 if the custodian is not in the business of trading or advising. However NI 41-101 contains requirements relating to custodians for hedge funds that offer securities under a prospectus.

Fund

In the majority of cases, HFs are distributed in Canada on a prospectus exempt basis, through private placements. Most of the prospectus exemptions are set out in NI 45-

106. As a result the HFs themselves are not subject to any review by the securities regulatory agencies. However, where the hedge fund becomes a reporting issuer by distributing its securities under a prospectus, regulatory requirements apply to the hedge fund itself in respect of its operations and distribution. These include comprehensive requirements related to (i) prospectus filing and disclosure and (ii) operational requirements in areas such as investments of the fund; conflicts of interest; custodianship of assets; CD; purchases and redemptions; and sales practices. Segregation of assets

IFMs are required to keep assets segregated.

IFMs of HFs (other than those that offer securities under a Prospectus) are not by law required to use a separate custodian. However based on a review conducted in 2006 Staff Notice 2007 HF indicated that client assets were held in safekeeping

predominantly by large, reputable third parties such as banks, dealers and trust companies.

HFs that offer securities under a prospectus are required to use the services of a custodian, as described in Principle 25.

Powers of the regulators

The regulatory authorities have the same powers in regard to IFMs of HFs that they have in connection with any other IFM, as described in Principle 24.

Information to the regulators

The regulators receive information, both qualitative and quantitative, about the operations of hedge funds through the following filings:

 information provided at the time of registration of the IFM and the adviser;

 information provided during compliance reviews; information provided at the time of filing a prospectus (if such is the method of distribution) on risks

 ongoing information requirements (if the securities have been distributed by prospectus) by filing CD documents, including: annual and interim financial statements; MRFP; AIFs; on a quarterly basis, the hedge fund’s top 25 holdings;

 information required in the reports of exempt trades (if the securities have been distributed on a prospectus exempt basis), including the name and address of the hedge fund; the name of the investor; a description of the securities; the date of the trade; the particulars of the trade, such as the

number of securities sold and the purchase price. In the jurisdictions with the largest populations, the regulators obtain periodic information of all IFMs, including those that manage HFs, via risk-assessment questionnaires. In addition, regulators can request ad-hoc information if issues of concern arise. An example of this case was the survey sent to all IFMs in 2012 to obtain a better understanding of their exposure to the Eurozone.

Information to investors

The level of disclosure to investors varies depending on the method of distribution of the securities of the hedge fund. Hedge funds sold under a prospectus are required to provide full, true and plain disclosure about the fund. Those hedge funds become reporting issuers and are therefore subject to CD requirements.

However, as indicated above HFs in Canada are mainly distributed on a prospectus exempt basis. The exemptions under NI 45-106 contain conditions that limit either the distributions to persons that have sufficient investment knowledge or the resources to obtain expert advice, and accordingly may not need or wish to have the same level of protection as other investors or require substituted disclosure.

Ongoing supervision of IFMs of HFs and the HFs themselves

Ongoing supervision of IFMs that manage HFs is carried out by the regulators as part of the general program of supervision for IFMs. In practice this means, that off-site, an important amount of information comes from the self-assessment questionnaires that all intermediaries are required to submit on an annual basis to the OSC (as is the province with the largest population of IFMs that manage HFs). In addition, they are subject to on-site inspections. The frequency of their on-site inspections would depend on their risk classification. OSC staff explained that in their case, the IFMs that manage HFs would tend to fall in the high risk category based on the nature of the products they manage and the nature of their business operations as dictated by these products. As a result, they would be included in regular routine inspections of IFMs that are chosen for review based on risk. Similarly the AMF has found that on the basis of its methodology, IFMs that manage HFs are not expected to fall in the low risk category. As an example, 8 out of the 25 HF managers identified in the 2009 thematic review were inspected in the last 2 years, based on the AMF risk score. The authorities also highlighted that the IFMs that manage HFs would also fall under the thematic reviews carried out on IFMs.

In addition to the inspections of the IFMs, the authorities have conducted thematic work on the HFs themselves. A thematic inspection was conducted in 2007. Its main objective was to gain understanding of the possible risks posed by HFs managers. The inspection focused on valuation methodologies, portfolio holdings exposure to illiquid

assets, counterparty risk, ability to meet investors’ redemptions requests and procedures and controls to monitor investment portfolio. There has been a more recent thematic inspection of HFs, which involved Canada’s participation in the second IOSCO Hedge Fund Survey that was sent to a sample of HF managers in 2012, with the parameters developed by IOSCO. It is anticipated that a report will be produced by IOSCO based on the findings of this survey as a whole (from all the participating member jurisdictions).

Cooperation with foreign regulators

The laws of the four agencies specifically provide them with the ability to collect and share information amongst themselves and internationallyand with law enforcement agencies, governments, governmental authorities, financial regulatory authorities or a person with whom they have entered into an arrangement or agreement relating to the sharing of information. In addition, they are all signatories of the IOSCO MMoU. Results of compliance reviews are also occasionally shared with foreign financial regulatory authorities, including the SEC.

Assessment Fully Implemented Comments

Principles for Market Intermediaries

Principle 29. Regulation should provide for minimum entry standards for market intermediaries.