The Ontario Securities Commission (“OSC”) announced the formation of a new OSC LaunchPad Long-Term Asset Fund Project (the “Project”) as part of an update on its proposed framework (the “Proposal”) to facilitate retail investment in illiquid long-term assets through a new type of prospectus-qualified investment fund (the “Ontario Long-Term Fund” or “OLTF”). Rather than publish a draft rule to codify the Proposal, the OSC will provide expanded support for novel exemptive relief applications as OSC staff (“Staff”) further explore ways in which retail investors might benefit from additional opportunities to invest in long-term assets through investment fund product structures.
Background
As we discussed in a previous post, the Proposal was first published for comment in October 2024. It sought to foster conditions for capital formation and innovation in public and private markets that could lead to increased investment in venture capital, private equity and debt, mortgages, real estate, infrastructure and natural resource projects, while enhancing the experience of individual investors by granting structured access to these asset classes with appropriate investor protections.
The OSC received approximately 40 letters from various stakeholders. Many commenters expressed general support for the Proposal. Industry commenters, while generally supportive, cautioned that certain structural elements were too restrictive and may limit the potential market for OLTFs. These commenters advocated for a principles-based approach, ideally in the form of a national framework, that would provide investment fund managers with more flexibility and have a greater impact on retail investor opportunities.
Investor advocate commenters, by contrast, did not support the Proposal. These commenters questioned whether there is sufficient retail investor demand for, and the benefit that might be derived from, the opportunity to invest in long-term assets through investment fund product structures. They also raised concerns about the adequacy of the investor protections and noted that the distribution of OLTF securities under existing know-your-client (KYC), know-your-product (KYP) and suitability frameworks might not adequately protect retail investors from inappropriate exposure to long-term assets, given the unique risks associated with, and the complexity of, the OLTF structure.
Long-Term Asset Fund Project
In the Proposal, Staff had anticipated considering stakeholder feedback before publishing for comment a proposed rule that would codify the OLTF framework described. Staff have since indicated that while they continue to consider rulemaking in this area, they believe there is an opportunity to work directly with interested parties that seek to develop an OLTF-like product.
During the term of the Project, the OSC will provide expanded support for novel exemptive relief applications that propose an investment fund solution to provide retail investors with exposure to long-term assets while maintaining appropriate investor protections. Staff expect that any exemptive relief granted through the Project will be subject to bespoke investor protection conditions, as well as ongoing monitoring and review to identify any regulatory or business outcomes that may inform Staff’s next steps. Staff also intend to work with other members of the Canadian Securities Administrators (CSA) to consider multijurisdictional or national exemptive relief as Staff may deem appropriate.
In addition to reviewing relevant developments in other jurisdictions, Staff plan to collect data, feedback and perspectives from key stakeholders throughout the term of the Project to better understand market demand and the investor experience across different investment fund product structures and long-term assets.
Stakeholders are encouraged to contact the OSC regarding potential investment fund solutions and the exemptive relief that may be necessary to facilitate product launches but should be prepared to discuss the thresholds and investor protection mechanisms that were outlined in the Proposal. We would be happy to engage with stakeholders that are interested in proposing an OLTF-like product to the OSC.
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