Some Canadian hedge funds are finding their growth crimped by tougher sales policies at the country’s second-largest bank.
(Bloomberg) — Some Canadian hedge funds are finding their growth crimped by tougher sales policies at the country’s second-largest bank.
Toronto-Dominion Bank has put a limit on how much its retail clients, collectively, can own of particular funds, according to people familiar with the matter. TD implemented the rules partly to mitigate the risks associated with being too exposed to any one firm, the people said.
Hedge fund providers Timelo Investment Management and Polar Asset Management Partners are among those caught in the net, said the people. The funds are victims of their own success: Individual investors are eager to own them, but Toronto-Dominion has restricted sales in order to cap total client holdings, said the people, who asked not to be identified discussing confidential policies.
The additional scrutiny came on the heels of the collapse of private credit firm Bridging Finance Inc. in 2021 and regulatory changes in Canada, known as “client-focused reforms,” that were implemented less than two years ago.
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The new regulations tightened the rules governing investment advisers and the disclosures they must make about investment products they sell. Toronto-Dominion introduced standard criteria for due diligence and concentration limits on “alternative investment funds,” which include hedge funds and private asset funds, said a person familiar with the bank’s policy.
“We regularly review our products based on many factors, such as risk assessments and the regulatory environment, balanced against being able to offer our clients robust investment choices that meet their needs,” Julie Bellissimo, a spokesperson for Toronto-Dominion, said in an emailed statement.
Bank Advisers
Canada’s largest banks have secured dominant positions in the investment-advice business, consolidating it as firms like Merrill Lynch exited the country. With their large networks of advisers, the banks play a key role in deciding which new hedge funds and mutual funds have the best chance to succeed and grow. TD has more than 800 investment advisers in its Canadian wealth management operation; its combined wealth and insurance unit earned C$2.4 billion ($1.8 billion) during the fiscal year that ended Oct. 31.
Some Canadian advisers and their clients were burned when Bridging, a Toronto private credit firm run by a husband-and-wife team, David Sharpe and Natasha Sharpe, failed two years ago. Bridging had about C$2 billion in assets under management when it was put into receivership, with regulators alleging that senior executives mismanaged funds and failed to disclose conflicts of interest. PricewaterhouseCoopers estimated last year investors will lose at least C$1.2 billion under a proposal to liquidate the assets. That process is still ongoing.
Timelo, founded by veteran fund manager Jean-François Tardif, manages more than C$500 million in assets including the Timelo Strategic Opportunities Fund, a long-short equity and bond strategy that has returned 19.6% a year over the past three years, according to the firm’s website. Its JFT Strategies Fund, a closed-end fund that’s listed in Canada, has returned 9.4% annualized since it was launched in 2012.
Polar’s flagship fund, which has $5.4 billion in assets, gained 1.4% last year, marking its 11th straight year of gains. The fund, managed by Chief Investment Officer Paul Sabourin, follows several strategies, including convertible arbitrage, equity long-short trades and structured credit, according to its website. Sabourin’s fund has outperformed both the US and Canadian equity benchmarks since the fund’s launch in 1991.
Timelo and Polar didn’t reply to requests for comments.
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