Alberta securities law does not define a private equity fund (a PE Fund). However, the Alberta Securities Commission, the regulator responsible for the administration of Alberta securities law, distinguishes private equity investing from other types of investing by focusing on the role of a PE Fund’s management company (a PE Firm).

What is a PE Firm?

In 2009, the Alberta Securities Commission adopted guidance on venture capital private equity investing (the PE Guidance), which characterizes a PE Firm’s activities as follows:

• A PE Firm raises capital by distributing (a PE Fund’s) securities to investors in reliance on exemptions from the prospectus requirement in Alberta securities law.
•  Investors usually agree that their capital will remain invested with a PE Firm for a period of time.
•  A PE Firm invests in the securities of privately-held companies (known as its portfolio companies).
• A PE Firm becomes actively involved in the management of its portfolio companies. Examples of active management include representation on a portfolio company’s board of directors, direct involvement in the appointment of a portfolio company’s managers, and input in a portfolio company’s material management decisions.
• Investors rely on a PE Firm’s expertise to select and manage its portfolio companies.
• A PE Firm does not receive any compensation for raising or investing capital. Rather, it receives a management fee in exchange for the active management of its portfolio companies, or profits from the sale of its portfolio companies’ securities.

The PE Guidance states that, unlike a typical investment fund, a PE Firm is generally not required to register as an adviser, a dealer, or an investment fund manager under Alberta securities law unless the PE Firm engages in activities other than those described above.

What is the difference between a PE Fund and an investment fund?

Alberta securities law defines an investment fund as either:

(a)  a mutual fund, which is an issuer whose primary purpose is to invest money provided by its security holders and whose securities are redeemable on demand, or within a specified period after demand, at an amount computed by reference to the value of a security holder’s proportionate interest in the issuer’s net assets; or

(b)  a non-redeemable fund, which is an issuer whose primary purpose is to invest money provided by its security holders, that does not invest for the purpose of exercising or seeking to exercise control, or for the purpose of being actively involved in the management, of the companies in which it invests, and is not a mutual fund.

The main difference between a PE Fund and an investment fund, as these definitions suggest, is that an investment fund generally does not become actively involved in the management of its portfolio companies.

The manager of an investment fund is usually required to register as an adviser, a dealer, and an investment fund manager under Alberta securities law. In addition, an investment fund that is a reporting issuer in Alberta (i.e., an issuer that has filed a prospectus with, and obtained a receipt for that prospectus from, the Alberta Securities Commission) is subject to numerous investment and operational restrictions, as well as continuous filing and disclosure requirements.

Invitation for discussion

If you would like to discuss this blog in greater detail, or any other business law matter, please do not hesitate to contact one of the lawyers in the Business Law group at Linmac LLP.

Disclaimer

The foregoing is for general discussion purposes only and should not be construed as legal advice to any one firm. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.