There may be some confusion surrounding what exempt markets are, how they work, and what kind of opportunities they present to investors. Perhaps a brief explanation, and some perspective, is in order.
First, in Canada, exempt markets are a specific classification for investments mostly surrounding the reporting requirements of any particular investment security or opportunity. So, in essence, an investment opportunity that meets the classification of an exempt market is, as the name suggests, exempt from certain requirements, especially that of the issuance of a prospectus.
Investor knowledge and protection
Does that mean that investment securities without a prospectus are less secure, so to speak? No. In fact, as many knowledgeable investors are aware, the existence of a prospectus certainly doesn’t guarantee investors are properly informed, nor does it in any way constitute a formula for investing success. It’s simply a reporting requirement in most public markets, while extremely safe and well disclosed investment opportunities are offered in the private markets too — without prospectus.
This doesn’t mean that securities offered in the private or exempt markets come without due financial reporting. Many of them, such as mortgage investment corporations (MICs), come with a rather standard offering memorandum. Exempt market securities also often come with accredited investor requirements, minimum transaction thresholds, and are done in the private markets where rather large investors — both individual and institutional — can have access to structured investments more suited to their specific needs.
The right people
Of course, what makes the path towards the exempt markets much more navigable is dealing with financial professionals and managers who know their way around and can offer investors the knowledge, experience and performance needed for success.