PMAC says pooled funds should not be treated like retail funds

The association representing portfolio managers in Canada is asking the Canadian Securities Administrators(CSA) not to lump funds sold to sophisticated investors with those sold to average investors.

In a submission to the CSA on its request for comment on proposed amendments to National Instrument 81-105, the Portfolio Management Association of Canada (PMAC) says it stands for the highest standard of unbiased portfolio management for investors and for advancing standards.

But PMAC says the use of pooled funds, generally used for sophisticated, high-net-worth clients, fundamentally differs from retail mutual funds “and they should not be treated similarly.”

Unintended consequences

“PMAC is concerned that increased costs and regulatory burden on pooled funds could have unintended consequences on the continued ability to offer investors the unique benefits of pooled funds in a cost effective manner. Investor access to pooled funds should not be compromised as a result of an increased regulatory burden in the absence of specific policy concerns.”

PMAC says clients of portfolio managers already benefit from a number of protections, pointing to investment management arrangements, as well as registrants who manage a discretionary portfolio in accordance with other rules and regulations. It says this contrasts with NI 81-102 funds that can be sold to retail investors by members of the Mutual Fund Dealers Association (MFDA) and the Investment Industry Regulatory Organization of Canada(IIROC).

Know-your-product provisions

PMAC said it also has concerns about some of the enhanced conflicts of interest and know-your-product (KYP) provisions. It has asked the CSA to exempt pooled funds from the application of some of these conflicts and KYP requirements.

“Despite our concerns, PMAC believes that the more general proposed amendments to the conflicts of interest framework with an increased focus on the analysis, mitigation/avoidance and disclosure obligations would still adequately address any regulatory concerns regarding conflicts of interest for pooled funds, without necessitating the regulatory burden of compliance with sales practices in NI 81-105.

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