Investing in the Canadian private market offers distinct opportunities compared to public markets.
Exempt Market / the Private Market vs the Public Markets
Public markets, like the Toronto Stock Exchange (TSX), feature assets which are easily accessible and liquid, allowing for quick buying and selling. These public assets are often volatile, and operate along with investor sentiment and the news cycle.
In contrast, the private market includes assets not listed on public exchanges, such as direct investments in private real estate or private REITs. It operates within what is known as the exempt market, where securities can be issued without the need for a full prospectus and are sold to qualified investors through Exempt Market Dealers. These exempt securities are less correlated with public market fluctuations, offering an effective hedge against volatility through consistency.
The private market is a strong option for those seeking diversification in their investment portfolios. By investing in private assets, individuals can access consistent returns and capital preservation options that complement the public market's ups and downs.
Who can invest?
Broadly speaking, if you are a Canadian, permanent resident, or non-resident1 and an eligible or accredited investor (more on this below), you can invest in the Canadian private market. If one lives and works in Canada but is not a citizen or permanent resident, they can still participate but must at least have a SIN, investing experience and qualify as an eligible or accredited investor.
Your investor classification gears you towards the most appropriate investments you can make in the exempt market. It’s typically determined by your net worth or annual income.
To be classified as an eligible investor
- Your net assets (net assets are non-financial assets, for example, your equity in a car, your home etc. minus your debts) have to be greater than $400,000
- Or your annual income for the past 2 years has to be greater than $75,000 before taxes.
- Or you can, with your spouse, have a combined annual income greater than $125,000 for the past 2 years.
To be classified as an accredited investor, you’ll have similar financial requirements as the eligible investor but the threshold is much higher
- Your financial assets (Financial assets are tangible liquid assets and don’t include property), have to be greater than $1 million
- Or if you want to rely on your net assets and include things like property for accredited status, your net assets must exceed $5 million.
- Or if you want to rely on income requirements, your annual income must be greater than $200,000 for the past 2 years, and if you combine it with your spouse, it must be greater than $300,000 for the past 2 years.
If you are accredited or friends and family of the issuer, you are not subject to 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.
If you don’t meet any of the requirements of an eligible investor, you can still potentially invest in the Exempt Market as a non-eligible investor, but it must be $10,000 or less in a 12-month period.
How much can you invest?
Your investor classification also helps determine how much you can invest in a given period.
- Eligible investors can invest $10,000 or more in the Exempt Market, not exceeding $100,000 in any 12-month period.
- Eligible investors in these provinces also face concentration rules. Concentration risk is a type of downside risk faced by investors when a significant portion of their portfolio is invested in only a few holdings.
- There are certainly exceptions, but as a general rule, it is not advisable for an eligible investor to exceed investing 10% of their net financial assets in one issuer and or exceed 30% of their net financial assets in the Exempt Market overall. That percentage can also be a lot less depending on your current financial situation and experience in private investing.
How can you invest?
Before making any investment, you would first meet with a Dealing Representative (DR) of an Exempt Market Dealer to assess whether private investing in the Exempt Market aligns with your financial goals. DRs evaluate factors such as your age, time horizon, financial objectives, and risk tolerance to ascertain the suitability of these investments for your portfolio. Additionally, they consider various factors to determine the appropriate allocation.
The Role of Exempt Market Dealers
Exempt Market Dealers are regulated by provincial securities commissions which oversee dealer registration and compliance requirements. EMDs operate in all provinces and territories of Canada.
As EMDs deal in alternative investment opportunities, investing with an Exempt Market Dealer provides the ability to invest in multiple market sectors, such as real estate, technology, and ESGs.
Investing through an Exempt Market Dealer offers several advantages that may not exist via traditional investment channels, such as:
- Access to private deals and companies.
- A lower correlation with the stock market, often resulting in reduced volatility.
- Enhanced portfolio diversification through private investments.
- The potential for capital preservation alongside higher returns in certain investments.
- Tax advantages when using registered funds for investments.
Parvis is a registered Exempt Market Dealer that offers institutional-level private real estate investments that are not available on public exchanges. For investors looking to diversify their portfolios and tap into the opportunities that real estate can offer, we have a range of funds and direct deals that suit every type of investor profile.
Explore our opportunities today, or connect with our Dealing Representatives to learn more.
