The Global Regulatory Environment Randy Kraft, Partner

© 2011 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2 The Global Regulatory Environment

© 2011 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 3 Where We Are Today…in Canada ■Investment advisers in Canada have historically been subject to a high level of regulation –Recent registration reform –Recent surveys/inspections by the securities regulators of hedge fund and other advisers ■As a result of the Dodd-Frank Act, Canadian asset managers may have to register with the SEC in order to advise U.S. investors in certain funds –Even if exempt from actual registration, there are still certain reporting and other requirements ■As a result of the Alternative Investment Fund Managers Directive, Canadian asset managers may have to register with individual E.U. states in order to accept E.U. based investors –Even if exempt under third country rules, there are still certain reporting and other requirements If you’re a Canadian asset manager with U.S. or E.U. investors (or plans to have some) your operating model is about to change significantly

© 2011 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 4 Where We Are Today…in the U.S. ■Passage of the Dodd-Frank Act and the resulting SEC rule proposals will have a profound impact on the regulation of the investment adviser industry ■The broad scope of the Dodd-Frank Act and the SEC rules reaches beyond traditional investment advisers to managers of all asset classes, including private equity fund advisers, real estate managers, collateral managers for structured products, and others ■Regulatory developments outside of Dodd-Frank have also affected the regulatory environment for investment advisers ■The political support that drove passage of the Dodd-Frank Act, and continued demands for investor protection, are likely to maintain the current focus on robust financial regulation ■Regulators are responding to these demands with a new sense of empowerment and purpose in all areas of the financial industry, which will include private equity funds, real estate funds and other structured product ■The broad mandate to the SEC, CFTC, and other regulators for the implementation of the Dodd-Frank Act likely will contribute to a prolonged focus on financial regulation

© 2011 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 5 Investment Adviser Registration in the Dodd-Frank Era The Act provides limited exemptions on which some advisers may be able to rely: ■Investment advisers that solely advise private funds with less than $150 million in U.S. Assets Under Management (AUM) ■Foreign private adviser exemption ■Investment advisers that solely advise venture capital funds ■Investment advisers to family offices

© 2011 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 6 Investment Adviser Compliance in the Dodd-Frank Era Investment advisers required to register must: ■Develop a compliance program, including developing and implementing policies and procedures reasonably designed to prevent violations of the securities laws, conduct an annual review of those policies and procedures, and designate a Chief Compliance Officer ■Establish, maintain, and enforce a Written Code of Ethics, which must apply to the investment adviser’s personnel and must include provisions on standards of business conduct, compliance with the federal securities laws, reporting of personal securities transactions, and reporting violations of the Code ■Maintain books and records, including substantial records relevant to the investment adviser’s business ■Follow specific rules when entering into advisory contracts ■Disclose information about their advisory business, advisory personnel, fee arrangements, industry affiliations, and control persons. Additionally, investment advisers have a fiduciary duty with respect to their relationships with clients and will be subject to examination by the SEC

© 2011 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 7 Investment Adviser Compliance in the Dodd-Frank Era: Systemic Risk Large portions of the Dodd-Frank Act are dedicated to provisions designed to help ensure the financial stability of the U.S. economy. Investment advisers to private funds will be required to retain records and make them available for inspection. These records, specific to each private fund advised by the investment adviser, will be required to include descriptions of: ■AUM and use of leverage, including off-balance-sheet leverage ■Counterparty credit risk exposure ■Trading and investment positions ■Valuation policies and practices of the fund ■Types of assets held ■Side arrangements or side letters whereby certain investors in a fund obtain more favorable rights or entitlements than other investors ■Trading practices ■Other information deemed necessary and appropriate

© 2011 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 8 SEC’s Enhanced Scrutiny/Enforcement of Investment Advisers Robert Khuzami, director of the Division of Enforcement for the SEC, has stated: “As head of the SEC's Division of Enforcement, the staff and I will relentlessly pursue and bring to justice those whose misconduct infects our markets, corrodes investor confidence, and has caused so much financial suffering.” Since Khuzami took office, SEC efforts have included: ■In fiscal 2009, netted more than $2.0 billion in disgorgement of gains (an increase of 170% over fiscal 2008); in fiscal 2010, $1.53 billion in disgorgements ■In 2009, ordered penalties of $345 million (an increase of 35% over fiscal 2008); in 2010, $968 million in penalties ■In 2009, obtained 71 emergency temporary restraining orders (TROs) to halt ongoing misconduct and prevent further investor harm (an increase of 82% over fiscal 2008); in 2010, obtained 45 TROs ■In 2009, obtained 82 asset freezes to preserve funds for the benefit of investors (an increase of 78% over fiscal 2008); in 2010, obtained 56 asset freezes ■In 2009, levied 496 orders opening formal investigations (an increase of over 100% over fiscal 2008); in 2010, 634 enforcement actions Source: Remarks at 2009 AICPA National Conference on Current SEC and PCAOB Developments by Robert Khuzami;

© 2011 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 9 Other Developments Affecting Investment Advisers Other provisions of the Dodd-Frank Act that may affect investment advisers: ■Changes to the Accredited Investor Standard ■Compensation Disclosure ■Qualified Clients ■Studies Other recent regulatory developments have also had a profound effect on the regulation of investment advisers: ■Amended Custody Rule ■Changes to Form ADV Part 2 ■Adoption of Pay-to-Play Rules

© 2011 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 10 Alternative Investment Fund Managers Directive (AIFMD) – The Big Picture ■What is the AIMFD? –EU law introducing enhanced regulation to alternative investment fund managers in the EU, including hedge funds, private equity funds and real estate ■When is it applicable? –Expected to be implemented by EU members states in 2013 ■How does it impact Canadian managers? –Coverage includes non-UE alternative investment fund managers with EU funds or non-EU funds with EU investors –Third country rules effectively allow for continued distribution to EU investors by non-EU managers under existing private placement regimes until 2018

© 2011 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 11 Alternative Investment Fund Managers Directive (AIFMD) – The Timeline

© 2011 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 12 Alternative Investment Fund Managers Directive (AIFMD) – What to think about ■Earlier drafts had very restrictive measures limiting the distribution of non-EU funds to EU investors ■Final rules effectively allow for continued distribution under existing private placement regimes of individual EU member states until at least 2018 –Regulatory exchange agreement must be in place between domicile of fund and manager and respective EU member state(s) –Domicile of fund and manager cannot be on FATF blacklist ■Final rules introduce reporting and disclosure requirements even for non- EU funds