AIMA Canada introduces guide for alternative investments

Date: Tuesday, June 14, 2005
Author: Lara Hertel- www.investmentexecutive.com

The Canadian chapter of the Alternative Investment Management Association today released a new guide that sets out recommended practices for promotional, marketing and presentation materials for both retail and privately offered alternative investments, as well as for general sales practices used to distribute these products.

The AIMA Canada Guide to Sound Practices for Disclosure and Promotion of Alternative Investments was developed over the past six months as a service for AIMA Canada members as well as for institutional and retail investors, investment managers, regulators and educational institutions.

It is available free of charge from AIMA Canada. For the purposes of the guide, alternative investments include hedge funds, fund of funds, and principal protected notes.

“The Guide is intended to promote sound disclosure and marketing practices in the rapidly growing Canadian alternative investment industry,” said AIMA Canada chairman Jim McGovern. Though the guide is not mandatory for AIMA members, McGovern said that there’s “nothing revolutionary” contained within it, and that members in good standing will adhere to it on their own accord.

“We don’t have the resources to police the industry,” said Gary Ostoich, member of the executive committee, AIMA Canada. “Our role is to educate our members and promote proper use of these products, and that’s what we’re focusing on.”

“The Guide will help to establish a recommended framework for appropriate disclosure in the marketing of alternative investment products which will be both important and timely for the alternative investment industry in this country," Mr. McGovern said.

McGovern said that publication of the Guide “is another significant step in the development of the alternative investment industry in Canada which now accounts for more than $26 billion in assets under management.”

The guide has three major sections and extensive appendices. The main sections are: Legal and Regulatory Overview; Recommended General Disclosure Requirements in Offering Documentation; and Recommended Marketing and Presentation Disclosure Guidelines.

The last section in particular has garnered much attention in recent months in light of the investigation into hedge fund products offered by Portus Alternative Asset Management Inc. The section addresses calculating and presenting returns in line with industry standards; selecting a benchmark relevant to the strategy; disclosing fees and performance clearly and completely; reporting and advertising fund returns without being misleading.

“Paying attention to the small print is important,” says Andrew Doman, AIMA Canada secretary and COO of Toronto-based Abria Alternative Investments Inc. Doman says that reporting and advertising fund performance is particularly important, and clearer standards must exist as to not mislead investors. “What we’re promoting [in Section 3] is adherence to national instrument 81-105 so investors can compare apples to apples.”

NI 81-105 provides a set of ethical standards for investment management firms to follow when presenting their performance results to potential clients. It’s intended to provide greater uniformity and comparability among performance presentations and to allow investors to directly compare the performance of different investment managers.

The AIMA also introduced a 10-part investor “check-list”, which will be published in Advocis’ Best Practices guide.