Canada represents a significant and growing presence in the global alternative investment fund landscape, offering a stable political climate, robust regulatory framework, and strategic proximity to the U.S. market.
The Canadian alternative investment fund industry continues to evolve with expanding opportunities for both institutional and accredited retail investors.
Key Metrics:
Key Differentiators:
The Canadian alternative investment fund market continues to demonstrate resilience and growth despite global economic headwinds. As of early 2025, the estimated total assets under management (AUM) in Canadian alternative investment funds exceeds C$850 billion, representing approximately 15% of the total Canadian investment fund market.
The Canadian AIF market has shown consistent growth over the past decade, with a compound annual growth rate of approximately 7.2% from 2023 to 2024. This growth has been particularly pronounced in private credit, infrastructure, and real asset sectors, which have benefited from institutional investment seeking stable returns in an environment of economic uncertainty.
Canada's alternative investment fund industry has evolved significantly over the past two decades. Initially dominated by institutional investors and pension plans, the market has gradually expanded to include more retail-accessible products. The introduction of "liquid alt" regulations in 2019 marked a significant milestone, allowing alternative strategies to be offered through prospectus-qualified funds available to retail investors, which has continued to mature and grow.
While Canada's AIF market is smaller than those of the United States or major European domiciles, it offers distinct advantages:
Canada offers a well-established securities regulatory framework administered primarily at the provincial level. The Canadian Securities Administrators (CSA) provides national harmonization across provincial and territorial jurisdictions, offering a balance between investor protection and operational flexibility.
Key regulatory advantages include:
Canada consistently ranks among the world's most stable countries politically and economically. This stability provides:
Canada's strategic position provides several advantages:
The Canadian alternative fund industry is supported by a mature ecosystem:
As a bilingual country, Canada offers:
Canada boasts:
Operating costs in Canada provide advantages:
Canada offers several legal structures for alternative investment funds:
Limited Partnerships:
Most common structure for private equity, venture capital, and private credit funds. Limited partnerships offer pass-through tax treatment and limited liability for limited partners, while providing flexibility in governance and economic arrangements. The general partner of a limited partnership has unlimited personal liability for the debts and obligations of the limited partnership, so managers typically incorporate a company with nominal assets to use as the general partner.
Trusts:
Predominant structure for open-ended funds, often structured as "mutual fund trusts" for tax efficiency. Trusts are suitable for funds seeking to qualify for inclusion in tax-deferred plans (RRSPs, TFSAs, FHSAs). They offer strong liability protection for unitholders in many provinces. Trust units that qualify as "mutual fund trust" units are eligible investments for registered retirement savings plans.
Corporations:
Less common for pure investment funds due to less favorable tax treatment. Corporations are sometimes used for certain specialized strategies or publicly-listed vehicles. They offer clear governance structures but suffer from potential double taxation issues.
Canadian AIFs generally fall into the following regulatory categories:
Prospectus-Qualified Funds:
"Alternative mutual funds" (liquid alts) are open to all investors and subject to NI 81-102 investment restrictions (with some flexibility for alternative strategies). These funds have comprehensive disclosure and reporting requirements but offer broader market access.
Privately-Placed Funds:
Sold under prospectus exemptions (primarily to accredited investors), these funds enjoy greater flexibility in investment strategies and structures with fewer regulatory constraints on investments. They have limited reporting requirements to securities regulators. The most common exemption used is the "accredited investor" exemption.
Foreign Funds Marketed in Canada:
Foreign funds must comply with dealer registration requirements or exemptions and must distribute securities under prospectus exemptions. They may benefit from certain exemptions for foreign managers, particularly if only dealing with "permitted clients" (a higher threshold than "accredited investors").
Limited Partnership Advantages:
Limited Partnership Limitations:
Trust Advantages:
Trust Limitations:
Corporation Advantages:
Corporation Limitations:
Notable recent developments include:
The Canadian AIF market shows distinct preferences in asset allocation:
Primary AIF Asset Classes by AUM:
Private Equity leads the market at approximately 35% of AUM, followed by Real Estate at 20%, Infrastructure at 18%, and Private Credit at 15%. Hedge Strategies account for approximately 8% of the market, with Other Alternatives representing the remaining 4%.
Canadian AIFs are established by diverse sponsors:
By Geographic Origin:
Canadian-based managers dominate the market, representing 65% of fund initiators. U.S.-based managers account for 25%, with European managers at 8% and managers from Asia and other regions at 2%.
By Institution Type:
Independent asset managers represent the largest segment at 45%, followed by bank-affiliated managers at 20%, pension fund-affiliated managers at 15%, insurance company managers at 10%, and other institution types at 10%.
Canadian AIFs draw capital from a range of investor types:
Pension funds remain the dominant institutional investors in Canadian AIFs, representing approximately 40% of capital. High-net-worth individuals and family offices account for 25%, while insurance companies contribute 15%. Banks and other financial institutions represent 10%, with sovereign wealth funds and endowments/foundations each contributing 5%.
Distribution of Canadian AIFs occurs through several channels:
Direct placement remains the primary distribution method for Canadian AIFs at 55% of assets. Private wealth networks account for 20%, while specialized investment consultants facilitate 15%. The remainder is distributed through emerging fintech platforms (5%) and other channels (5%).
The Canadian tax framework for AIFs is designed to provide flexibility while ensuring appropriate taxation:
For AIFs structured as trusts, the trust is subject to tax in Canada on its net income. However, trusts can typically deduct distributions made to unitholders, effectively making the vehicle tax neutral. Trusts generally distribute enough income each year to avoid being liable for Canadian income tax.
For partnerships, the vehicle is not subject to Canadian income tax. Instead, the income generated by the partnership is allocated to the partners according to the terms of the partnership agreement, maintaining its character as ordinary income or capital gains.
Canada imposes withholding taxes on certain distributions to non-residents:
Distributions of income by a trust (other than capital gains in most cases) that are made to non-residents of Canada are generally subject to Canadian withholding tax. Partnerships are generally not required to withhold tax on distributions paid to non-residents of Canada (however, dividends and certain other amounts paid to the partnership by Canadian issuers may be subject to withholding tax if the partnership has non-resident members).
Canada maintains an extensive network of tax treaties:
Canada has tax treaties with over 90 countries, which can provide reduced withholding tax rates for eligible investors. This extensive network makes Canada an attractive domicile for funds with international investor bases.
Canada's tax regime for AIFs compares favorably with other jurisdictions:
Canadian limited partnerships can serve as tax neutral vehicles for non-Canadian investors, meaning non-resident investors are not required to pay any income tax in Canada or make any Canadian income tax filings in many cases. Foreign managers of Ontario limited partnerships are also not liable to pay Canadian income tax or make income tax filings in many cases.
Canada's tax treatment of capital gains is particularly advantageous, as only 50% to 66.66% of capital gains are subject to income tax, making capital gains more advantageous for investors compared to ordinary income.
Canada offers a comprehensive ecosystem of service providers for AIFs:
Legal Services: Several global and national law firms specialize in alternative investment fund formation and compliance, primarily concentrated in Toronto, Montreal, and Vancouver.
Fund Administration: Both global administrators with Canadian operations and specialized local providers offer comprehensive services tailored to Canadian regulatory requirements.
Custodial Services: Canadian custodians that meet the requirements of NI 81-102, as well as global custodians with Canadian operations, provide the necessary custody services for AIFs.
Audit and Tax: All major accounting firms maintain significant operations in Canada with specialized alternative investment practices.
Establishing an AIF in Canada involves several key considerations:
For investment fund managers, portfolio managers, and dealers, registration with provincial securities regulators is typically required, though exemptions may be available for certain non-resident entities dealing only with "permitted clients."
AIFs that are investment funds must engage a qualified Canadian custodian to hold the fund's assets, with limited exceptions. Prospectus-qualified funds have additional custodial requirements.
Registration of an AIF manager can take several months, though the Canadian passport system allows an applicant to designate a principal regulator that can approve the application on behalf of other securities regulators.
Governance standards for Canadian AIFs are well-established:
Registered firms must maintain minimum capital and insurance requirements, and appoint an "ultimate designated person" (typically the CEO) and a chief compliance officer.
Certain individuals within registered firms require personal registration if they advise, trade, or underwrite on behalf of the firm.
AIFs that distribute securities by prospectus must comply with extensive continuous disclosure requirements, while privately-placed funds have more limited reporting obligations.
The operational timeline and costs for Canadian AIFs vary by structure:
Fund establishment can generally be completed within 1-3 months for privately-placed funds, while prospectus-qualified funds may take 4-6 months due to regulatory review processes.
Costs are competitive with other developed markets and significantly lower than major financial centers like New York or London.
The Canadian AIF market continues to evolve with several notable trends:
The "retailisation" of alternative investments is accelerating, with more products designed to provide accredited investors access to strategies traditionally reserved for institutional investors.
ESG-focused alternative investments are gaining traction, with increased demand for sustainable infrastructure, clean energy, and responsible investment strategies.
Private credit continues to expand as traditional lenders pull back from certain markets, creating opportunities for direct lending and specialized credit funds.
Investor behavior is evolving in the Canadian AIF space:
There is growing demand for liquidity options even in traditionally illiquid asset classes, driving innovation in fund structures.
Multi-strategy and solution-oriented products are gaining popularity as investors seek diversification and specific outcome-oriented approaches.
Digital assets and fintech-related alternative investments are attracting increasing attention, despite regulatory challenges.
The regulatory landscape for Canadian AIFs continues to develop:
Securities regulators are focusing on enhancing disclosure requirements, particularly around fees, performance reporting, and ESG factors.
There is increasing harmonization of rules across provinces, reducing complexity for managers operating nationally.
New frameworks for digital asset funds are emerging, providing greater clarity for crypto and blockchain-related investment strategies.
Canada is well-positioned in the global AIF market:
The Canadian AIF industry benefits from strong institutional support, particularly from the country's sophisticated pension system.
Toronto's growing status as a global financial center enhances the ecosystem for alternative investments.
Canada's stability and strong governance provide a competitive advantage in an uncertain global environment.
Canada offers a compelling proposition as a domicile for alternative investment funds:
A robust regulatory framework balancing investor protection with operational flexibility;
Significant tax advantages, particularly for certain structures and investor types;
A sophisticated service provider ecosystem;
Political and economic stability;
Strategic access to North American markets.
Canada occupies a unique position in the global AIF landscape:
As a respected jurisdiction with a strong reputation for governance and oversight, Canada offers both legitimacy and efficiency.
The country serves as an effective bridge between European regulatory approaches and U.S. market access.
Canada's expertise in real assets, infrastructure, and natural resources provides specialized knowledge for funds focusing on these sectors.
Canada represents an attractive domicile for alternative investment funds seeking:
A respected jurisdiction with favorable tax treatment Access to North American investors without the full regulatory burden of U.S. domiciliation
Sophisticated service providers at competitive costs
A stable political and economic environment
The continued evolution of the regulatory framework, particularly for "liquid alts" and emerging asset classes, positions Canada for continued growth in the alternative investment fund space over the coming years.
Private Markets Group Ltd (PMGL)
Copyright © 2025 Private Markets Group Ltd (Company Number 16246242) All Rights Reserved.