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Are Private Wealth Strategies Too Risky & Can You Lose All of Your Money?

Are Private Wealth Strategies Too Risky & Can You Lose All of Your Money?

These are the two biggest questions on every investors mind (especially if you don’t have a lot of investing experience).

The Private Investment Markets are very similar to the Public Markets in this regard because there are varying levels of risk in both. 

You may access the Private Markets via Private Portfolio Management companies which offer portfolios to suit any type of investor, from conservative (lower risk) to growth (higher risk).

In the Private Markets you also have access to the Exempt Market which is a much higher risk space.  It has the potential to deliver outsized returns but it’s important to assess your investor profile, i.e. your age, time horizon to retirement, risk tolerance and financial objectives before you ever invest there.

TO SUM UP

Investing does come with risks but with Private Wealth Strategies there are options to suit almost any type of investor – from low to high risk.

If you would like to learn more about Private Wealth Strategies and how they can benefit your portfolio, please contact me anytime.

 

P.S. If you’ve just landed on one of my posts for the first time and you want to start at the beginning…visit “Private Wealth Strategies – The Great Investing Alternative.”

 

 

 

 

 

Shannon Pineau
Exempt Market Dealing Representative

E: shannon@whitehaven.ca
C: 403-872-4010

shannonpineau.com

 

This blog post is intended for information purposes only and does not constitute an offer to sell or a solicitation to buy securities. No securities regulatory authority or regulator has assessed the merits of the information herein or reviewed the information contained herein. This blog post is not intended to assist you in making any investment decision regarding the purchase of securities. Rather, the Trust has prepared an offering memorandum for delivery to prospective investors that describes certain terms, conditions and risks of the investment and certain rights that you may have. You should review the offering memorandum with your professional adviser(s) before making any investment decision. This blog post and the accompanying offering memorandum are intended for delivery only to, and participation in the investment is restricted to, investors to whom certain prospectus exemptions apply, as described in the offering memorandum.

 

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Can Anyone Invest in Canada’s Exempt Market?

Can Anyone Invest in Canada’s Exempt Market?

That’s a good question – and the answer is no.  Not everyone is allowed to invest there.

That usually surprises people a little as they think, “hmmm… it’s my money, I should be able to invest it however and wherever I want.”  That is not the case in Canada’s Exempt Market though as there are restrictions when it comes to who can invest there – and also how much.  There are also very good reasons for these restrictions, which I will explain a little further in this post.

Overall, in order to invest in the Exempt Market, you have to be either “eligible” or “accredited”.

You can read a previous post here to refresh yourself about these two terms and see where you fall. (The post will also tell you about investing possibilities if you are not eligible).  What it boils down to though, is that the majority of investors fall into the same category…

Eligible Investors

Here is a summary of an eligible investor in Canada:

  • Net worth of $400,000 or more
  • Annual income $75,000+ for the last 2 years and/or
  • Household annual income $125,000+ for the last 2 years

If you are “eligible”, it means that you can’t invest more than $100,000 in a 12-month period in the Exempt Market.

(Now, there are all kinds of caveats here because we would need to determine many things before you ever invested in the private markets, just to make sure it’s “suitable” for you.  There are also recommendations as far as your overall allocation – but I will touch on these items a bit more later.)

For now, and for illustrative purposes though, those are the requirements to be an eligible investor and if you fit the bill, you can (likely) invest.

Accredited Investors

“Accredited” investors have an interesting history in the Exempt Market – and particularly over the last 20 years when the private markets became a little more mainstream and retail.

Once again, you can refresh yourself about the terms in a previous post but suffice it to say that “accredited” investors have a higher net worth than “eligible” investors and generally have no restrictions regarding how much they can invest in the Exempt Market or how often.  The general premise being that they have the financial knowledge necessary to make wise investment decisions and can evaluate a private investment offering accordingly.

The truth of the matter is though, that just because someone has reached accredited status, doesn’t necessarily mean that they know anything at all about the Exempt Market or have any experience there.

Over the last decade, I would venture to say that there were many accredited investors that were over allocated into Exempt Market investments – because they didn’t fully understand the Exempt Market itself or the higher level of risk involved. 

It is only through time and experience, particularly because the Exempt Market is still so new to the majority of investors, that we can see the best recommendations to make when it comes to private investing.  That’s also why it’s important to find an experienced Dealing Representative to work with.  They will understand the importance of treating an accredited investor, with little or no Exempt Market experience, with care.

Is the Exempt Market Suitable for You?

If you are eligible or accredited, you can invest in the Exempt Market but that leads to the next step in the process which is – determining if these types of investments are “suitable” for you.  This would involve some discussion of course but I’ll give you a general sense of the information I would be gathering, including things like:

– Your age

  – Your time horizon to retirement (or maybe you’re already there)

  – Your risk tolerance

  – Your financial objectives overall

All of these things help me determine if higher risk, Exempt Market investments are suitable for you and your portfolio and – if they are – how much you should invest there.

How Much Should You Invest in the Exempt Market?

For eligible investors there are strong recommendations that you not invest more than 30% of your overall investment portfolio in the Exempt Market, and of that 30%, no more than 10% with one private issuer.

This can vary though depending on your own circumstances and you might find that, once you understand the higher risk nature of the private markets, these percentages are much lower, and a private investment might not be suitable at all for your portfolio.

You may also find that, if you have many years left until retirement, these investments can be an excellent choice to fill the higher risk/(potentially) higher return portion of your portfolio.

To Sum Up

I’m sure there are times when you reach the end of my posts and feel a little trepidation about making a private investment in the Exempt Market.  And that’s okay because my goal is to educate investors and it’s always best to start the conversation with absolute clarity about the risks involved.

It’s higher risk, it is difficult to get your money back before the end of the term because there is no secondary market to sell your securities and private companies do go through restructures and some fail all together.

There are definitely losses that have happened and there will be losses again in the future.

 

BUT…

 

Always Leave on a Positive Note…

There are also excellent private investment opportunities in the Exempt Market, with well above average returns and profit-sharing opportunities available.  With higher risk comes the potential for higher returns and there have been many successful projects and funds that have done very well for investors. 

The most important thing is to work with an experienced professional in the industry that works for a very reputable Exempt Market Dealer.  This will go a long way to helping you understand the private markets, helping you find excellent investment opportunities, helping you find strong issuers that offer the investments and having a high level of diligence done on these issuers.

All of these items plus a good understanding of the Exempt Market as a whole will go a long way to ensuring your own success in private investing!

 

And on that note, I’ll tell you why I feel the Exempt Market is “One of Your Best Options to Make Higher Returns“.

 

I appreciate you reading my post and please contact me anytime.  I would welcome the opportunity to talk further.

 

 

 

 

 

Shannon Pineau
Exempt Market Dealing Representative

E: shannon@whitehaven.ca
C: 403-872-4010

shannonpineau.com

P.S. “Who Can Invest in Canada’s Exempt Market” is a big topic and I didn’t touch on:

  • Eligibility requirements by province.
  • Foreign persons that live outside of Canada wanting to invest.

I will cover these topics in upcoming posts but you can always contact me to find out more.

This blog post is intended for information purposes only and does not constitute an offer to sell or a solicitation to buy securities. No securities regulatory authority or regulator has assessed the merits of the information herein or reviewed the information contained herein. This blog post is not intended to assist you in making any investment decision regarding the purchase of securities. Rather, the Trust has prepared an offering memorandum for delivery to prospective investors that describes certain terms, conditions and risks of the investment and certain rights that you may have. You should review the offering memorandum with your professional adviser(s) before making any investment decision. This blog post and the accompanying offering memorandum are intended for delivery only to, and participation in the investment is restricted to, investors to whom certain prospectus exemptions apply, as described in the offering memorandum.
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How To Make an Exempt Market Investment Using RRSP or TFSA Funds

How To Make an Exempt Market Investment Using RRSP or TFSA Funds

Most Exempt Market issuers allow you to invest using registered funds.  This includes RRSP’s, TFSA’s, RESP’s, RIF’s, LIRA’s and LIF’s.

A common misconception among investors is that they will have to pay taxes on their registered funds if they use them towards an Exempt Market  investment opportunity.  This is not the case as the funds are transferred between accounts and never leave the registered umbrella.

Here is the process:

– We use Olympia Trust Company for all of our clients that want to use registered funds to invest.  Clients can now open a self-directed registered account online at Olympia Trust.

– Once the account is open, you can make a new contribution, transfer existing funds from another institution or a combination of the two.

– Once the required funds are in your account at Olympia Trust, then it is a matter of completing documents to make an Exempt Market investment.

– Olympia Trust charges an annual account fee of $175.00 + GST and then anytime you make a private investment there is a purchase fee of $75.00 + GST.

This brings us to the next question…

Should You Invest In The Exempt Market Using Registered Funds?

In the Exempt Market, everything comes down to suitability, meaning – Are these types of investments suitable for you and your portfolio?  There are many things to consider here including your age, your time horizon, your risk tolerance and your financial goals.

Contact me today and we can talk more about this and decide if the Exempt Market is suitable for a portion of your portfolio.

 

 

 

 

 

Shannon Pineau
Exempt Market Dealing Representative

E: shannon@whitehaven.ca
C: 403-872-4010

shannonpineau.com

 

This blog post is intended for information purposes only and does not constitute an offer to sell or a solicitation to buy securities. No securities regulatory authority or regulator has assessed the merits of the information herein or reviewed the information contained herein. This blog post is not intended to assist you in making any investment decision regarding the purchase of securities. Rather, the Trust has prepared an offering memorandum for delivery to prospective investors that describes certain terms, conditions and risks of the investment and certain rights that you may have. You should review the offering memorandum with your professional adviser(s) before making any investment decision. This blog post and the accompanying offering memorandum are intended for delivery only to, and participation in the investment is restricted to, investors to whom certain prospectus exemptions apply, as described in the offering memorandum.
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What To Do If You Experience a Loss In The Exempt Market

What To Do If You Experience a Loss In The Exempt Market

The Exempt Market is higher risk and so it can be expected that, at some point in time, you may experience an investment loss.  Whether it is a large or small investment though, losses can be very hard to deal with.

This is particularly true in the Exempt Market for a couple of reasons:

First, when an issuer runs into trouble, the losses can be quite significant.

Second, more often than not, losses can take a significant amount of time to realize.

With a stock, even if you are in a negative situation, you can still sell the stock and realize the loss.  You will likely still feel the same dismay at having lost money but it has happened and you can move on.  With private securities in the Exempt Market, the process can take a long time to wind everything down and crystallize what (if anything) you will be receiving back.  This tends to make it feel even worse because you continue to feel the loss through the whole wind up process.

So, if things don’t go as planned and you lose money in the Exempt Market, should you continue to invest there in the future? 

There’s a lot to take into consideration, and I’m here to help.

I’m going to lay it all out for you here – the pros, the cons – and then also make some recommendations based on your own particular situation.  After that, I feel you will be fully armed with the information you need to make an informed choice about your private investments.

FIRST STEP – REASSESS WHERE YOU ARE AT

Things change over time and it’s likely that your situation now is different than when you originally invested.  Here are 3 key things to consider right from the start:

YOUR FINANCIAL STATUS

It’s certainly possible that there have been some changes here, particularly related to the economy over the last few years.

This review is important both to determine if you have funds available that you’d like to invest and also to determine if your “eligible” or “accredited” investor status has changed.

YOUR CURRENT ALLOCATION TO THE EXEMPT MARKET

In the past, there were not a lot of guidelines here – for Dealing Representatives or Investors. There were no investment caps and no formal recommendations about how much an eligible investor should place in Exempt Market securities.  There was also not a lot of history yet to guide these decisions.

In today’s Exempt Market, the Exempt Market Dealers make these recommendations for investors and WhiteHaven Securities (my EMD) recommends that “eligible” investors not invest more than 30% of their net financial assets in private securities (and that amount can be much less).  And of that 30%, not more than 10% in one particular investment.

With these percentages in mind, we can figure out how much of your current portfolio is made up of Exempt Market securities and then adjustments can be made as needed.

YOUR CURRENT SITUATION & FINANCIAL OBJECTIVES

Some of the key things to look at here are your age, your time horizon for investing and your risk tolerance.

It’s important to reassess the first two if you are nearing (or in) retirement, and very important to reassess your risk tolerance. It may have changed now that you have experience in the market and have seen some of the challenges over the years.

MY RECOMMENDATIONS AT THIS STAGE:

Taking this all into consideration, and looking at your own personal situation, I would be happy to sit down with you and make recommendations any time at your convenience.

But even if you are just going to read this post, I think you will be able to determine yourself if your situation has changed significantly in any or all of the areas discussed above.  Here’s what I recommend:

If your allocation to the Exempt Market is higher than 30% or even just more than you are currently comfortable with, and/or you are in retirement and looking for shorter term investments with instant liquidity and much lower risk, it is time to start diversifying out of the Exempt Market.  (P.S. If you land in this category, you can stop here and reach out to me.  I’ll meet with you, we can look at your whole picture and find some solutions to re-balance.  You’re also welcome to read on though – particularly if you feel you might want to revisit the Exempt Market in the future).

If your current higher risk allocation is less than 30% of your overall financial portfolio, and you still have some years ahead to save for retirement, you may want to consider investing more in the Exempt Market. 

 

SECOND STEP – REASSESS YOUR OPINION OF THE EXEMPT MARKET  OVERALL

Even though you can invest more in the Exempt Market, after experiencing a loss, you might question why you would want to.

This is where I come in to help because I’ve been in the private investment markets for a long time and I believe I can put it all in perspective and also tell you about a lot of positive things that have happened over the years for investors:

THE FIRST THING TO REMEMBER IS THAT INVESTING HAS RISKS. INVESTMENTS LOSE VALUE OR FAIL.  INVESTORS CAN LOSE MONEY

This is true of almost any type of investment and particularly in a high-risk market.  There will be gains and there will be losses as this is the nature of investing.

FORTUNATELY, THE EXEMPT MARKET CONTINUOUSLY EVOLVES & IMPROVES

Private investing is still very new to the average “eligible” investor. Generally, the ability to invest privately became mainstream around 2005 – 2008 and then came back strongly in 2011/2012.  To read a very Brief History of the Exempt Market click here but suffice it to say that every failed issuer and investment leads to the market becoming stronger and more transparent for investors.

YOUR EXPERIENCE IS INVALUABLE

You’ve gained experience in a market that can be very lucrative and is still largely unknown. This experience will take you forward and help you evaluate new opportunities.

TODAY’S EXEMPT MARKET OFFERS ISSUERS THAT ARE EXPERIENCED WITH STRONG TRACK RECORDS

Nothing is ever guaranteed but in this ever evolving market, investors now have access to some of the best investment opportunities that are available in this higher risk space.

DIVERSIFICATION IS KEY

Spreading your capital out among several issuers helps to mitigate your risk. With multiple, strong, experienced issuers in this market now, that is easier to do.

TODAY’S EXEMPT MARKET OFFERINGS HAVE A LOT MORE OPTIONS

Regular returns

Early redemption options

Various terms

Different industries instead of such a huge focus on real estate

YOU HAVE AN EXPERIENCED DEALING REPRESENTATIVE WHO WORKS WITH A STRONG EMD

This becomes extremely important as time goes on. A strong EMD will perform extensive diligence on the issuers and investments and have a track record to prove that.  An experienced Dealing Rep will have seen all sides of the Exempt Market and will always work in your best interests.

MY RECOMMENDATIONS AT THIS STAGE:

If a higher risk product is still suitable for a portion of your portfolio – the Exempt Market is, in my opinion, one of the best places to find the higher returns you’re looking for.  Here’s why.

TO SUM UP

Any type of investment loss can be hard to take but hang in there, reassess, re-evaluate and let me help you find the best opportunities to take your portfolio forward to retirement.

I really appreciate you reading my post!  If you would like to talk further, with no obligation, please contact me today.

 

 

 

 

 

Shannon Pineau
Exempt Market Dealing Representative

E: shannon@whitehaven.ca
C: 403-872-4010

shannonpineau.com

 

This blog post is intended for information purposes only and does not constitute an offer to sell or a solicitation to buy securities. No securities regulatory authority or regulator has assessed the merits of the information herein or reviewed the information contained herein. This blog post is not intended to assist you in making any investment decision regarding the purchase of securities. Rather, the Trust has prepared an offering memorandum for delivery to prospective investors that describes certain terms, conditions and risks of the investment and certain rights that you may have. You should review the offering memorandum with your professional adviser(s) before making any investment decision. This blog post and the accompanying offering memorandum are intended for delivery only to, and participation in the investment is restricted to, investors to whom certain prospectus exemptions apply, as described in the offering memorandum.
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What Is One Of Your Best Options To Make Higher Returns?

What Is One Of Your Best Options To Make Higher Returns?

Almost everyone, at some point in time, wants to make higher returns on their investments.

The Usual Suspects

For most average or “eligible” investors, investing generally involves one or more of the following:

• Setting up a RRSP or TFSA account at a bank and investing in mutual funds
• Investing in stocks through a broker
• Setting up a discount trading account and buying and selling your own stocks
• Having a pension at work
• Having a RRSP savings program through work

There is nothing wrong with any of these strategies. They all have pros and cons but ultimately, they are helping you save money towards your goal of a great retirement. That is excellent in my books.

With employer plans, they generally hold the reins and their goal is to do well for you, so you can likely just sit back and let that happen. For personal registered accounts, you have a lot of choices for what you can invest in and generally, at some point in time, investors go looking for higher returns if they are not achieving the results they are hoping for with mainstream investment products.

Starting The Search

When you start looking for higher returns on your money – and by higher returns, I generally mean in the 7% + range – there are all kinds of different options that you can pursue. Things like:

• Stock related opportunities like day-trading, options, futures, penny stocks etc. There is nothing wrong with this it just takes time to learn about and more often than not, novice investors lose money based on emotion or speculations that don’t pan out.

• Investment real estate. I really like this strategy because I think it’s an excellent one that can generate some great wealth over time. There is a big learning curve here though and being a landlord comes with challenges so there is a lot to consider. A sound strategy though if you can take the time to learn.

• Investments in real estate projects found in other countries. There is a lot of opportunity to be found in some of these places, but things can change in a hurry as regulation can be sparse and plans can be difficult to execute.

• Investing with close family, friends or business associates. This can often work out well for accredited investors that are in the know and have larger sums to invest in sound projects. For the average investor though, investing with a smaller player, these often do not go as planned. Rather than the double digit returns that were promised, there are often strained relations instead.

• Multi-level marketing. This usually works out well for the person at the top and the super social. For most people though, it’s hard to make it off the bottom rung and easy to alienate friends and family.

• Get rich quicker scenarios. These come in all shapes and sizes and are always lurking out there for anyone that is searching out ways to make more money. Investors always need to be wary – particularly if something seems too good to be true.

So then what should you invest in that can possibly give you higher returns?

In my opinion – you should look straight to Canada’s Exempt Market and here are the reasons why:

• From a risk reward perspective – it is higher risk and that’s why the prospective returns are so much higher. But here, those risks are very transparent and well explained.

• It’s well regulated and within a safe country that takes its regulations very seriously. To learn more about this and how the market has evolved through years to get to this point – click here.

• In order to offer an investment to clients, issuers have to be accepted by an Exempt Market Dealer. The EMD conducts a rigorous diligence process on the issuer to ensure they are a strong company with a sound plan and a great likelihood of success.

• Issuers that I have offered in the past that have paid out their investors have averaged approximately 8-10% annual return over the life of the investment.

• I am here for you. I’ve worked in the private investment markets since 2007 – I will make sure you understand everything there is to know about the Exempt Market and then help you decide if it is the right fit for you.

But is it Guaranteed?

So with all of these benefits – there must be some guarantee of success right?

NO!

There is absolutely no guarantee. It is a higher risk market and even with all of these safeguards, things can and do go wrong and investors can definitely lose money. It’s important to discuss all of this in the beginning to ensure that the Exempt Market is a good fit and also ensure you allocate the proper amount there.

On the other side of the coin though (and the reason investors continue to invest in the private markets), if you are well diversified across a few quality issuers, there is excellent opportunity for you to achieve the returns you are searching for. When we meet in the future, we’ll look at issuer results to date which will help to illustrate all of this for you.

There you have it. There are a lot of options out there to try and make higher returns on your investment but if you are looking for one of the most regulated, easiest to understand and safest (in a high risk space) places, along with a Dealing Rep that will help you every step of the way – you should definitely consider the Exempt Market.

 

We’ve reached the end of my posts in the Exempt Market Category of my blog but there’s still more to learn if you’re interested!  Because the Exempt Market is higher risk, it is generally only suitable for a smaller portion of your portfolio.  What about the rest you may ask?  There are options for all different types of investors and I invite you to start at “Private Wealth Strategies – The Great Investing Alternative.”

 

I really appreciate you reading my post!  If you would like to talk further, with no obligation, please contact me today.

 

 

 

 

 

Shannon Pineau
Exempt Market Dealing Representative

E: shannon@whitehaven.ca
C: 403-872-4010

shannonpineau.com

 

This blog post is intended for information purposes only and does not constitute an offer to sell or a solicitation to buy securities. No securities regulatory authority or regulator has assessed the merits of the information herein or reviewed the information contained herein. This blog post is not intended to assist you in making any investment decision regarding the purchase of securities. Rather, the Trust has prepared an offering memorandum for delivery to prospective investors that describes certain terms, conditions and risks of the investment and certain rights that you may have. You should review the offering memorandum with your professional adviser(s) before making any investment decision. This blog post and the accompanying offering memorandum are intended for delivery only to, and participation in the investment is restricted to, investors to whom certain prospectus exemptions apply, as described in the offering memorandum.
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A Brief History of the Exempt Market

A Brief History of the Exempt Market

This post could go on for days…so much has happened in the Exempt Market since the early 2000’s! The title says brief though so that’s what I’ll try to be.

Where It All Began

Private investing has always been around in some form or another as people have always needed funding for their business growth or product ideas. In the past it has been referred to as the private or “alternative” investment market and it has largely been made up of wealthy or “accredited” investors.  

These investors would invest larger amounts in things like:
– Private business or real estate deals through close friends or associates
– Private MIC’s
– LP’s
– Venture capital deals
– Private leasing funds etc.

These types of private offerings could be very lucrative but were not available to or easily accessed by the “average” investor. You had to be in the know and generally have a high minimum to invest.

The Early 2000’s – The Beginning For “Eligible” Investors

Then the early 2000’s hit and private investing – particularly in B.C. and Alberta – went retail!

We were experiencing a very robust economy at that time with low borrowing rates and easy, accessible credit. Alberta had also experienced a big jump in housing prices which in turn gave home owners access to secured lines of credit. People were looking to invest and, in response to this, real estate development companies started shooting up everywhere, looking to raise capital.

And, where in the past these companies would have sought out accredited investors or friends/family/business associates – now they relied on the use of the Offering Memorandum to be able to raise capital from “eligible” (or average) investors.

This opened up a whole new market to people who had likely never even heard of these types of investments before. Or if they had – they likely didn’t have access to them.

These new private investment opportunities were very appealing to the average investor because of the projected high rates of return, low minimum investment amounts (generally a $5,000 minimum) and the ability to invest with RRSP funds.

This was essentially the beginning of the private investment market for most Canadians and it was a very busy time. Issuers would put on big presentations, investors would fill the rooms and millions were invested in a multitude of private investing companies.

It was a perfect storm…

 

 

 

 

– Many inexperienced investors
– Borrowing to invest
– A high-risk market
– Many inexperienced issuers
– Many inexperienced advisors
– Flawed investment structures
– A brand new space that still had very little regulation or oversight. (and that’s not a criticism of the regulators – things went crazy in a very short period of time and it would have been impossible to contain it).

And in 2008/2009, The Storm Hit

You can see where this is going (or may have even experienced it) and in 2008/2009 the private investment market imploded. Many issuers went into bankruptcy and, because of the long-term nature of private investments, many investors lost some or all of their invested capital.

In 2009, when the investment companies stopped answering the phone, most calls then started going to the provincial regulators – for example the Alberta Securities Commission.
So…after fielding those thousands of calls and now armed with all of the experience of what had just taken place (and with private investing now at a relative standstill while all the dust settled) the provincial regulators took their much-needed opportunity and reformed the private investment market completely.

2009 – A Pivotal Year in the Private Investment Space

Okay, I know I said I would give you a brief history and you might be concerned because I’m only at 2009. Never fear though because when you talk about the history of private investing, it usually comes down to what happened before 2009 and what happened after 2009.

A few years before was the birth of the market for “eligible” investors and a completely chaotic time that resulted in huge losses and a ton of learning experience for everyone involved.

After has been the continuous evolving of a much more regulated market space.

I don’t want to give you the impression that it has been all smooth sailing in this after period either as there have been further investment delays and losses over the years.  There are also many cases where investors have found themselves over allocated in private investments, particularly if they invested several years ago as there were no investment caps in place prior to 2016.

Where We Are Now

There continue to be many changes over time and they are always in favour of protecting investors. Overall, the regulators want to ensure that investors:

– Understand the Exempt Market
– Really understand the risks involved
– Are aware of the long-term nature of Exempt Market offerings
– Don’t invest too much
– Can withstand a loss
– Find a private investment that is suitable for them based on their goals and where they are at in life

What’s Next?

Many things!  But that will have to come in another post.

To Sum Up

When I entered the private investment markets in 2007, it was a very robust time economically and the private markets were still new to me as well. Through the next decade +, I’ve witnessed (and experienced) some huge ups and downs as things changed dramatically over time and I feel very positive about where things are now in the Exempt Market. For something that is still so new to the majority of people, it has evolved dramatically into a much more investor-friendly space.

P.S. I know this is a very condensed version of all that has taken place in the Exempt Market over the years. That’s intentional though, so as not to completely overwhelm the newcomer. There is much more information to come and eventually the whole private investing picture will be before you.

 

Moving on in this Exempt Market series, I’ve already touched briefly on the eligibility requirements to invest in these types of products but I go into quite a bit more detail in this next post…”Can Anyone Invest in Canada’s Exempt Market?”

 

I really appreciate you reading my posts!  If you would like to talk further, with no obligation, please contact me today.

 

 

 

 

 

Shannon Pineau
Exempt Market Dealing Representative

E: shannon@whitehaven.ca
C: 403-872-4010

shannonpineau.com

This blog post is intended for information purposes only and does not constitute an offer to sell or a solicitation to buy securities. No securities regulatory authority or regulator has assessed the merits of the information herein or reviewed the information contained herein. This blog post is not intended to assist you in making any investment decision regarding the purchase of securities. Rather, the Trust has prepared an offering memorandum for delivery to prospective investors that describes certain terms, conditions and risks of the investment and certain rights that you may have. You should review the offering memorandum with your professional adviser(s) before making any investment decision. This blog post and the accompanying offering memorandum are intended for delivery only to, and participation in the investment is restricted to, investors to whom certain prospectus exemptions apply, as described in the offering memorandum.
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Eligible or Accredited?…That’s The Question.

Eligible or Accredited?…That’s The Question

If you know the answer to this question, you will have a clearer picture about what you can and cannot do in the Exempt Market.

Let’s start with the majority of people who would generally be considered “average” investors. They usually have varying levels of investing experience and are also known as…

ELIGIBLE INVESTORS

To be “eligible” you either have to meet the net worth or annual income requirements:

– Your net assets have to be greater than $400,000 and or your annual income for the last 2 years has to be greater than $75,000 before taxes.

– If your income doesn’t quite make it alone, you can combine with your spouse and then your combined annual income has to be greater than $125,000 for the last 2 years.

If you meet one or more of these requirements, then you are an “eligible” investor. And being eligible means, you can invest a certain amount in the Exempt Market.

But just because you can, doesn’t always mean you should so please read on after I describe the next type of investor…

ACCREDITED INVESTORS

To be considered an “accredited” investor, you still have to meet one or more similar types of requirements as above but they are considerably higher.

– In this case, your financial assets have to be greater than $1 million, and notice that’s financial assets and not net assets. Financial assets are tangible liquid assets and don’t include property.

– If you want to include things like property and rely on your net assets for accredited status, your net assets must exceed $5 million.

– For the income requirements your annual income must be greater than $200,000 for the last 2 years and if you combine with a spouse it must be greater than $300,000 annual income for the last 2 years.

SO WHAT DOES ALL OF THIS MEAN TO YOU IN THE PRIVATE INVESTING WORLD?

Here is a quick summary:

– If you are not “eligible” – meaning that you don’t meet any of the requirements of an eligible investor, you can still potentially invest in the Exempt Market but it has to be $10,000 or less in a 12 month period.

– If you are “eligible” you can invest $10,000 or more in the Exempt Market but you can’t exceed $100,000 in any 12 month period.

(Before you invest in anything though, you would meet with a Dealing Representative, such as myself, and decide if private investing in the Exempt Market is a good fit for you.  We would consider things like your age, your time horizon, your financial objectives and your risk tolerance to determine if these types of investments are “suitable” for your portfolio. And if they are, we would also take various things into consideration to determine how much to allocate there. There are certainly exceptions but as a general rule, it is not advisable to exceed 30% of your net financial assets in the Exempt Market. That percentage can also be a lot less depending on your current financial situation and experience in private investing.)

– If you are “accredited” you are not subject to these caps and limitations. The overall assumption is that you achieved accredited status by having a good understanding of how to invest your money and you can generally invest it however you like.

I will say though that just because an investor is accredited, doesn’t necessarily mean they should exceed the allocation guidelines that are in place for an eligible investor. There is a lot of discussion to be had before any investment is ever made because there is a lot to take into consideration. Particularly things like previous experience in the Exempt Market and a full understanding of the risks involved.

TO SUM UP

Private investing is still relatively new to “eligible” and “accredited” investors alike so it’s important to get all the information you need before you decide if it is right for you.

I hope this post was helpful for you to figure out what type of investor you are. And of course, there are much more official definitions and explanations to describe these terms and I will link to them below. The links are to a great website that I visit often as they present excellent discussion around the topics as well.

Definitions:

 

I really appreciate you reading my post!  If you would like to talk further, with no obligation, please contact me today.

 

 

 

 

 

Shannon Pineau
Exempt Market Dealing Representative

E: shannon@whitehaven.ca
C: 403-872-4010

shannonpineau.com

This blog post is intended for information purposes only and does not constitute an offer to sell or a solicitation to buy securities. No securities regulatory authority or regulator has assessed the merits of the information herein or reviewed the information contained herein. This blog post is not intended to assist you in making any investment decision regarding the purchase of securities. Rather, the Trust has prepared an offering memorandum for delivery to prospective investors that describes certain terms, conditions and risks of the investment and certain rights that you may have. You should review the offering memorandum with your professional adviser(s) before making any investment decision. This blog post and the accompanying offering memorandum are intended for delivery only to, and participation in the investment is restricted to, investors to whom certain prospectus exemptions apply, as described in the offering memorandum.
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THE EXEMPT MARKET – Why Is It Called That?

The Exempt Market – Why Is It Called That?A big question mark

The “Exempt Market” is a relatively new term for investors and many aren’t even sure what it means. In the past we referred to it as the “private” or “alternative” market and many of the companies involved were doing real estate-based investments.

It All Starts With The Prospectus

To explain the Exempt Market in simple terms – if a business in Canada wants to raise capital they generally do so through a prospectus offering.  Most people will have heard this term in the past and I’ve included a lengthier definition link for anyone who hasn’t.

Basically, a prospectus details everything about the business itself and the securities they plan to offer to the public.

Doesn’t Everyone Use a Prospectus If They Want To Raise Capital?

To sell securities under a prospectus is very costly and onerous and not all businesses want to raise capital in this manner. Smaller, private companies that are looking to expand may not want to take on the process, time frame or expense of creating a prospectus. There are also many companies that want to raise capital but have no interest in taking their business public.

So, If a Privately Owned Company Wants to Raise Capital but Doesn’t Want to File a Prospectus, What Can They Do?

 

They can rely on an “exemption” to the prospectus requirements.

The most common exemptions include:

 – Selling only to accredited investors

 – Selling only to family friends and business associates

 – Selling a minimum of $150,000.00 per transaction

 – Issuing an Offering Memorandum (which allows “eligible” investors to participate – more on that in another post)

To Sum Up

Companies that raise capital from investors using one of these prospectus “exemptions” make up the Exempt Market.

Another question you may have on your mind is “Why Haven’t I Heard of the Exempt Market Before?”  Click through to find out!

 

I really appreciate you reading my post!  If you would like to talk further, with no obligation, please contact me today.

 

 

 

 

 

Shannon Pineau
Exempt Market Dealing Representative

E: shannon@whitehaven.ca
C: 403-872-4010

shannonpineau.com

 

This blog post is intended for information purposes only and does not constitute an offer to sell or a solicitation to buy securities. No securities regulatory authority or regulator has assessed the merits of the information herein or reviewed the information contained herein. This blog post is not intended to assist you in making any investment decision regarding the purchase of securities. Rather, the Trust has prepared an offering memorandum for delivery to prospective investors that describes certain terms, conditions and risks of the investment and certain rights that you may have. You should review the offering memorandum with your professional adviser(s) before making any investment decision. This blog post and the accompanying offering memorandum are intended for delivery only to, and participation in the investment is restricted to, investors to whom certain prospectus exemptions apply, as described in the offering memorandum.
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Why Haven’t I Heard of the Exempt Market Before?

Why Haven’t I Heard of the Exempt Market Before?

The Exempt Market (also known as the private or alternative market) has been around for centuries as people have always raised private capital to fund their developments.

Prior to the 2000’s though, this market was generally only known to the very wealthy and not available to average investors.

Common Exemptions Used in the Past

At that time, companies that didn’t want to complete a full prospectus in order to raise capital used an exemption from prospectus. Some examples include:

– Raising money from only friends and family

– Having a $150,000 minimum investment amount or

– Raising capital from accredited (high net worth) investors.

A Common Exemption Used Now

In the 2000’s, this all changed with increased use of another common exemption – the Offering Memorandum.

This document is a more condensed version of a prospectus and allows average investors to enter the Exempt Market with:

– Lower minimum investment amounts

– The ability to be an eligible instead of an accredited investor

All Of This Led To The Change in Terminology

I mentioned in a previous post that using one of these “exemptions” from a prospectus to invest in the private market is how the market got its name – The Exempt Market.

In addition, the changes that took place in the market in 2009 gave rise to a new entity called the “Exempt Market Dealer” or EMD, which further cemented the name.

So, to be fair, the official name THE EXEMPT MARKET has really only been around for the last decade.

Very Little Advertising

Another reason you don’t see or read a lot of information about the Exempt Market is because it’s not well advertised.

When the private markets really gained traction in the early 2000’s, it was a completely new market to average or “eligible” investors and there were all kinds of newspaper advertisements to bring investors out to large presentations.

At that time, the high-risk nature of private investing was not well understood by most, largely because of its newness and also because there hadn’t yet been any high-profile failures. Once the recession hit though in 2008/2009, there were many failures, and this was also the time that the provincial regulators stepped in in a big way to ensure that the proper regulations were put into place to protect investors.

This included the removal of any potentially misleading statements in advertising and also complete transparency about the high-risk nature of the market.

 

So, while an ad from 2007 might say:

“Come on out Thursday night and find out how to earn 12% return on your investment with a short 2 year term”

 

An ad nowadays would say something like:

“Come on out on Thursday night and hear about an Exempt Market issuer that could potentially deliver a good rate of return but could also cause you to lose some or all of your money”

 

The second is definitely better and more truthful but isn’t very appealing to a mass audience.

So, what happens now is Investors go looking online for information on how to make higher returns and eventually come upon the term “Exempt Market”. Then they might think to themselves, hmmmm…I’ve never heard that term before and then come upon my blog post. From there, they might reach out to me to find out more because there has to be something that is great about private investing otherwise no one would do it. Right?

Right! There are lots of benefits – and risks too of course.  I’ll tell you more about all of this as we go.

To Sum Up

The Exempt Market itself is not new but the terminology has changed and it is not well advertised. To learn more, you have to go looking and I’m very glad you found me and read my post. Thank you!

You can keep reading to learn more about private investing in Canada and I will continue by giving you “A Brief History of the Exempt Market“.

 

If you would like to talk further, with no obligation, please contact me today.

 

 

 

 

 

Shannon Pineau
Exempt Market Dealing Representative

E: shannon@whitehaven.ca
C: 403-872-4010

shannonpineau.com

This blog post is intended for information purposes only and does not constitute an offer to sell or a solicitation to buy securities. No securities regulatory authority or regulator has assessed the merits of the information herein or reviewed the information contained herein. This blog post is not intended to assist you in making any investment decision regarding the purchase of securities. Rather, the Trust has prepared an offering memorandum for delivery to prospective investors that describes certain terms, conditions and risks of the investment and certain rights that you may have. You should review the offering memorandum with your professional adviser(s) before making any investment decision. This blog post and the accompanying offering memorandum are intended for delivery only to, and participation in the investment is restricted to, investors to whom certain prospectus exemptions apply, as described in the offering memorandum.
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Top 5 Exempt Market Quotes

Top 5 Exempt Market Quotes

As I attempted to gather some quotes about the Exempt Market, it turns out – there aren’t any!  Instead, here are some great quotes about private equity which, fortunately, is what the Exempt Market is all about.  Enjoy!

 

 

 

 

 

 

 

 

 

If you’d like to talk more about the Exempt Market and how private equity opportunities can help diversify your portfolio – please contact me today!

 

 

 

 

 

Shannon Pineau
Exempt Market Dealing Representative

E: shannon@whitehaven.ca
C: 403-872-4010

shannonpineau.com

This blog post is intended for information purposes only and does not constitute an offer to sell or a solicitation to buy securities. No securities regulatory authority or regulator has assessed the merits of the information herein or reviewed the information contained herein. This blog post is not intended to assist you in making any investment decision regarding the purchase of securities. Rather, the Trust has prepared an offering memorandum for delivery to prospective investors that describes certain terms, conditions and risks of the investment and certain rights that you may have. You should review the offering memorandum with your professional adviser(s) before making any investment decision. This blog post and the accompanying offering memorandum are intended for delivery only to, and participation in the investment is restricted to, investors to whom certain prospectus exemptions apply, as described in the offering memorandum.
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