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ARTICLE · 09 OCTOBER 2018

The New Liquid Alt Funds Regime – And Some Changes For Conventional Mutual Funds And Closed-End Funds

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On October 4, 2018, the Canadian securities administrators published the final version of the amendments that will create a new regime for liquid alternative mutual funds (alt funds).

CanadaFinance and Banking
John Kruk
John Kruk
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On October 4, 2018, the Canadian securities administrators published the final version of the amendments that will create a new regime for liquid alternative mutual funds (alt funds).

The regime will come into effect on January 3, 2019 and could provide retail investors with greater access to alternative investment strategies, including leveraged and market neutral portfolios.

Leverage

Key to the regime is the ability of alt funds to use leverage. The leverage limit is effectively set at 4X the alt fund's net asset value (NAV) and can be achieved through a combination of derivatives (alt funds are not required to hold cover for their derivatives), short selling (alt funds do not need to set aside cash cover for their short sales, and can reinvest their short sale proceeds in additional long positions) and borrowing. There will be a cap set at 50% of NAV for the aggregate amount of exposure through short sales and borrowing, with a further cap of 10% per issuer

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