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Modernizing private equity capital markets in Canada

Investment Executive | Ian Russell | Apr 5, 2022

NCFA private capital markets - Modernizing private equity capital markets in CanadaAction is critical given the importance of small business to the economy

The Canadian Venture Capital and Private Equity Association announced a record total of venture financings in 2021 — $14.7 billion. However, excluding the venture financings related to the public listings of eight large tech companies, the total was in line with the steady, modest annual financings in the past four years. And private company deals totalled $18.1 billion last year, well below annual private financings from 2017 to 2019.

See:  NCFA Response to the Modernizing Ontario’s Capital Markets Consultation Taskforce

The domestic private equity markets have failed to keep pace with the financing needs of existing and new businesses amid a steadily growing economy and the transition to digitalization. Further, the large and growing institutional fund sector accounts for a declining share of domestic private investment. Few large investment funds have established specialized private equity funds to meet early-stage funding demand.

The Ontario Capital Markets Modernization Taskforce in 2019–20 made path-breaking initiatives for more efficient securities regulations, new proxy rules and structural reforms. Steps like consolidating the self-regulatory system, and concepts like open access to the product shelves of large financial institutions will improve the effectiveness of regulated small financial institutions.

However, the task force should be reformed to be national in scope, expanding membership to all regions and widening accountability to provincial governments and the federal government.

Here are specific initiatives to consider:

  1. As the task force resumes its work nearly two years after its initial proposals, the status of, and possible changes to, the original recommendations should be assessed.
  2. Small financial institutions, many with limited research capability, need access to quality financial information on private companies for investment. A regulatory framework to facilitate the exchange of information among individual angel investors through not-for-profit angel investor groups is a way forward. Further, the task force could consider a version of the Curated Capital platform developed and implemented by the Enterprise Investment Scheme (EIS) Association in the United Kingdom, which advises the government on private investment. Curated Capital matches participating investment firms to eligible startup and small companies through a rating system, enabling small dealers and funds to invest in and build diversified investments of private companies.

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