Canada’s $35bn hedge fund industry is primed for growth, according to market experts, thanks to favorable new rules, positive returns, access to finance and more diversified strategies.

Speaking in Toronto last week, a panel of broker dealers and investors picked out the recent positives for the sector and where they see the bright spots occurring over the next few years.

“Four years ago the mixture of hedge fund assets were heavily weighted to Canadian equity, energy and mining,” said Tony Venditti, managing director and global head of BMO Capital Markets’ prime finance group.

“That’s changed now and we’re seeing more diversified and innovative strategies, particularly market neutral, global macro and debt focused funds.”

Venditti’s comments were made at the Canadian Securities Lending Association’s annual event – the trade body promotes best lending and borrowing practices by working with regulators, banks, brokers, beneficial owners and hedge funds.

Panelists at the conference also made reference to the recent favorable performance track record among Canadian managers compared to their US and global peers.

Scotiabank’s Canadian Hedge Fund Index Asset Weighted index showed hedge funds returned an average of 6.21% in 2015, for example. 

While the managers skill and securities selection were noted as the core factors driving the returns – the ability of Canadian prime brokers to continue providing financing, access to balance sheet and securities lending to hedge funds shouldn’t be underestimated.

“If you’re a Canadian hedge fund using a Canadian prime broker, there’s certainly some arbitrage pricing opportunity from a regulatory standpoint as opposed to going outside of the country for the same services - although it may not contribute much to overall returns,” said Mark Purdy, managing director and chief investment officer at hedge fund Arrow Capital. 

John Stracquadanio, head of prime services at Scotiabank, added that Canadian banks “have room” when it comes to providing balance sheet access for their clients.

“Given the healthy balance sheets and capital ratios of Canadian banks, I would argue certain hedge fund strategies stand to benefit from using a Canadian provider, there’s also less risk for clients when it comes to being repriced when comparing to US and European providers. ”

Upcoming rules permitting alternative funds to offer their strategies for investment at the retail level in Canada is also set to be another major boost to the industry.

“This will be a game changer as previously hedge funds have only been available to high net worth investors and institutions,” said Michael Burns, chair of the National Group of AIMA, the Alternative Investment Management Association.

“The perception of hedge funds will begin to change and, as a result, the vehicles will be seen as a much more competitive, feasible option to mutual funds.”