The Investment Funds Institute of Canada (IFIC) is concerned about proposals from the Canadian Securities Regulators (CSA) which would see certain mutual funds labeled as "alternative funds".
IFIC published its response to the CSA's proposed Framework for Modernization of Investment Fund Product Regulation – Alternative Funds yesterday. Among other things, the association is concerned about measures that would see funds that are permitted to engage in certain strategies or to invest in asset classes that are not necessarily available to more "conventional" mutual funds labelled as "alternative funds". While the CSA have made it clear that they are not proposing any mandatory naming conventions or other labelling requirements, IFIC is still recommending caution.
Alternative fund and conventional mutual fund
"Consistent with the CSA's intent, it is important that the descriptive terms ‘alternative fund’ and ‘conventional mutual fund’ not become defined terms. We see these descriptive terms as being a convenient substitute for more accurate but overlong and cumbersome descriptions such as ‘mutual funds that are permitted to adopt strategies not necessarily available to more conventional mutual funds’," reads the submission.
IFIC acknowledges that it is difficult to come up with one- or two-word product-type labels that conveniently distinguish between fund types, but says using these kinds of descriptive terms presuppose that clients fully understand the nature of the funds being compared. "Disclosure that reflects each product’s specific characteristics is preferable to labels that rely on comparisons, and mandatory comparative disclosure with other products such as that the CSA have in mind in the Proposal," concludes IFIC.
The complete submission is available on the IFIC web site.