Flow-Through Limited Partnerships - Finders Fees

This article was originally published in the Investment Funds Practitioner in March 2014.

Staff have reviewed prospectuses for certain flow-through limited partnerships which permit compensation arrangements involving entities related to the fund's manager. These entities are typically paid a fee for sourcing investment opportunities in the securities of resource issuers for the flow-through limited partnership. The fees payable to such related entities are often referred to as 'finder's fees'.

Staff's view is that finder's fee arrangements represent a conflict of interest matter under National Instrument 81-107 Independent Review Committee for Investment Funds and should be referred to the fund's Independent Review Committee (IRC) for its recommendation. Staff also expect that appropriate disclosure of these arrangements will be made in the prospectus.¹ Such disclosure should (a) identify the arrangement as a conflict of interest under NI 81-107; (b) indicate that the arrangement has been referred to the fund's IRC for its recommendation; (c) state the fees associated with the arrangement and payable to the related entity; (d) identify who pays the finder's fee and the basis for payment; (e) explain the details of the services provided by the related entity in exchange for the fee; and (f) state any limits on the arrangements, for example, on the amount of fees payable to the related entity or on the percentage of the fund's portfolio investments that may be sourced by the related entity.

¹For an example of this disclosure, refer to the prospectus for Pathway Mining 2011 Flow-Through Limited Partnership dated January 27, 2011 at page 72.