Innovative fund for charities receives approval from Ontario Securities Commission

An innovative new fund set up to provide loans to charities and nonprofits has received approval from the Ontario Securities Commission (OSC) as an investment fund manager.

This approval will allow the Community Forward Fund (CFF) to receive investments from accredited investors to create a pool of funds that can then be used to make loans to nonprofits and charities.

“From the perspective of the OSC it was kind of unique in terms of the kind of business we were hoping to run,” CFF CEO Nora Sobolov told Lexpert.

Sobolov retained Blakes’ Mike Sharp to advise on the securities implications. Both Sharp and Sobolov weren’t aware of any similar funds that had been registered by a securities regulator in Canada, although similar organizations exist in other countries – like the Nonprofit Finance Fund in the US and the Charities Aid Foundation’s Venturesome in the UK.

Innovation in the financial sector has been portrayed somewhat negatively in the media since the financial meltdown – but innovation in the financing of charitable work is often seen as a positive story about financial innovation.

Sharp says that although the OSC did require the CFF to be registered, the OSC seemed to be helpful and supportive of this project:

You never got the sense that they were trying to make it not happen. Quite the reverse, they had their own concerns and their own views and they were very rigid in making sure that we met those but I did get the sense from them that they saw the merit in this kind of structure and were doing the best they could to facilitate it.

Sharp says that the OSC determined that although the CFF is a not-for-profit, it was still “in the business” of trading or advising on securities, and therefore needed to be registered as a dealer, advisor and investment fund manager. However, in rare instances the OSC will categorize an organization as a “restricted” dealer or advisor, which they did in this case, exempting the CFF from some of the normal requirements of registration, such as having to take courses about investments that the CFF was not planning to offer, such as stocks, bonds or mutual funds.

Sobolov says they already have four investors that have committed to investing, including community and private foundations, and that they are in discussions with some wealth management groups. Charitable foundations have traditionally given out grants to charities, but have not felt qualified to give loans, so CFF saw itself as filling this gap. Foundations are also restricted to giving only a small amount of their funds to charities each year, and have to invest the rest to ensure their long term existence, so investing in the CFF will allow foundations to also invest in ways that meet their mission.

Tim Wilbur

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