Private Equity and Exempt Markets

The exempt market are becoming a new assets class for retail investors which we have tried to highlight some of the important characteristics of this class below.


Private equity is capital that is not noted on a public exchange. Private equity is composed of funds and investors that directly invest in private companies. Private equity is capital that is not noted on a public exchange. Private equity is composed of funds and investors that directly invest in private companies. Private equity comes primarily from institutional investors and accredited investors however, retail high net worth individuals can also participate in private equity investing through an exempt market dealer, without the requirement to issue a full prospectus and without the full public disclosure requirements. Under the rules laid out in National Instrument 45-106 & 31-103 each provincial securities authority allows ‘Exempt Market Dealers’ (like Privest Wealth Management) to offer exempt market securities. These eligible investors can purchase these securities with an Offering Memorandum which includes a description of the investment, the security and the rights of the security holder.

Exempt market securities issued in Canada fall under National Instrument 45-106. They are exempt from prospectus requirements and hence require less disclosure than a prospectus offering. To sell a security in the exempt market, an issuer must ensure that the investor qualifies under a specific exemption contained in the Instrument. Common exemptions include: issue of an offering memorandum; sell only to accredited investors; or sell only to family, friends and business associates. Exempt market securities involve a higher level of risk. There are no established secondary markets for exempt market securities and they are illiquid. Notably, unlike publicly traded companies, issuers of exempt market securities are not required to provide continuous disclosure to investors. Exempt market securities may be sold by an Exempt Market Dealer such as Privest or Investment Dealer.

The Canadian Securities Administrators (“CSA’) have made the harmonization of the registration rules among the jurisdictions of Canada a key goal. Pursuant to this goal new national securities regulations have been drafted – NI 31-103 to provide uniform requirements and categories of registration for dealers in exempt market securities across the country. These consistent rules for Exempt Market Dealers concerning proficiency, conduct, capital and compliance requirements and makes it clear that EMDs are subject to the same know-your-client (“KYC”) and suitability requirements as other dealer categories. Exempt market dealers, and the registered individuals who work for them, may act as a dealer or underwriter for any securities which are prospectus exempt, as a dealer for any securities sold to clients who qualify for purchase of exempt securities.

Across Canada, there are countless opportunities to invest in products throughout the Exempt Market. However, similar to the public markets, not all investments are of the same caliber in strategy, risk, and return. Exempt Market Dealers evaluate these opportunities through an in depth due diligence process, that evaluates how the investment is structured, the opportunities being pursued, and the likelihood outcome and profit or income the investor can reasonably expect. Only those investments which are deemed to be able to meet their product’s expectation are approved.

The Exempt Market Dealers are also responsible for oversight and compliance with a regulatory framework which can vary from province to province in Canada.

Exempt Market investments are an important part in bringing diversification to an investment portfolio. Investing in the exempt market offers investors an opportunity to participate in early stage companies with innovative products that are not large enough to be a public company. It also provides them with another option for diversifying their investment portfolios with asset classes other than stocks, bonds and cash.

An financial portfolio including exempt products can benefit from above market returns which are typically embedded in the publicly traded securities. Typically, bonds reflect the market rate of return plus a premium if the company has a perceived risk component.  Stocks are typically valued on the underlying value of the company but stock trading prices usually include a premium or discount in accordance with the current market sentiments such as commodity price risk, economic downturns or strengthening, or other factors influencing the “mind of the market”.

Unlike ‘angel investing’ or ‘venture capital,’ exempt market products are almost always made in companies that have existing cash flow from operations and sales. They may be trying to capitalize on a new opportunity, raising capital to fuel acquisitions, or any number of growth avenues, but they almost always do not want to engage in the expense or corporate distraction of issuing a public stock offering.

While Exempt Market offerings are not for everyone, the average and sophisticated investor is always looking for ways to diversify their portfolio to grow their capital and maximize their returns.

Many established Canadians could qualify in one or more categories that allows them to invest in the Exempt Markets. National Instrument 45-106 defines the financial criteria which allow an investor to qualify as “Eligible”, “Accredited”, or a minimum amount for a purchaser “other than an individual” (such as a corporation, trust, or other entity). These financial criteria exist in every jurisdiction except BC and NL/LB where no purchaser qualification is required however the offering memorandum is the basis for the investment decision and suitability.

All investment involves some form of risk, whether it is low or negative returns, or loss of investment capital. Securities including debt, equity, asset-backed securities, investment funds and derivatives can be sold within the Exempt Market, without a prospectus (hence, the term ‘Exempt [from Prospectus] Market’), under certain strict rules and regulations. Prospectus exemptions can help businesses because it lets them raise money without the time and expense of preparing a prospectus. In turn, this provides additional investment capital for the Issuer, but investors should be aware of the risks associated with investing in the exempt market which include the following.


As with any investment, you could lose your investment capital in the event negative market or corporate situations arise. Privest carefully analyzes all prospective issuers’ offerings, and in many cases conducts third-party reviews and analysis to understand the risk, prior to making that investment opportunity available to their dealing representatives. Privest Wealth Management or your investment advisor can help you understand the risks and opportunities.


Companies raising money through a prospectus exemption may not be required to provide the same amount of information as a public company. Regular reporting to private investors is common, but may not have the same depth of detail or standardization that would be required in the public stock market, such as comprehensive audited financial statements.


Lack of liquidity is one risk that investors should be fully aware of prior to making an investment in the Private Market. Securities in this market typically aren’t publicly traded, so you might not be able to sell your investment quickly, or in some cases, at all. As a result, you should be confident and fully knowledgeable about the issuer and their plans before you invest. The best way to do that is to establish a trusted advisor relationship, with Privest or your independent advisor.

Provincial Securities Commissions are charged with monitoring and enforcing different guidelines laid out in federal legislation, as well as province specific regulation. As each has their regulatory methodology and framework, it is difficult to highlight all aspects in a brief summary.

The Alberta Securities Commission (ASC) regulates the ‘Exempt Market’ under the guidelines of National Instrument 45-106 and 31-103. The ASC retains full oversight into the industry, including the ability to audit, investigate and penalize issuers, dealers and advisors who do not follow the rules, as is the case across Canada.

For more on the ASC’s role in the market, please visit their website here.