Income Funds: Recent Developments of Importance, November 2006
|Area||Tax, REITs and Income Securities|
Article originally published in the 2006 Lexpert/American Lawyer Guide to the Leading 500 Lawyers in Canada
Excerpt from "Income Funds: Recent Developments of Importance":
Over the past few years, income funds have become an increasingly popular investment vehicle in Canada. With an aggregate market capitalization of over $l76 billion, the Canadian income fund sector currently represents approximately ten per cent of the market capitalization of issuers traded on the Toronto Stock Exchange (TSX). In the first nine months of 2005, income fund initial public offerings (IPOs) on the TSX represented more than double the value of common share IPOs. The decision by Standard & Poor’s to include income funds in the benchmark S&P/TSX Composite Index starting in December 2005 reflects the acceptance of this asset class by the capital markets.
The dramatic growth of this sector (from a market capitalization of only $18 billion in 2000) has been driven by the attractiveness to investors of the comparatively high monthly cash distributions typically paid by income funds, particularly in a low-interest-rate environment and a volatile equity market. Canadian income funds and income securities have been used very effectively by private equity firms, owner/managers and public companies to monetize their interests in businesses and assets located both within and outside Canada.