Headnote
NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Approval of a change of control of a mutual fund manager – No changes to be made to the management, operations or investment management of the mutual funds for 60 days subsequent to notice being provided to security holders.
Applicable Legislative Provisions
Sections 5.5(2) and (3) of National Instrument 81-102 – Mutual Funds.
February 3, 2010
In the Matter of the Securities Legislation of Ontario (the “Jurisdiction”)
and
In the Matter of the Process for Exemptive Relief Applications in Multiple Jurisdictions
and
In the Matter of Redwood Asset Management Inc. post Amalgamation (as defined below) (the “Filer”)
and
In the Matter of Redwood Asset Management Inc. pre Amalgamation (“Redwood”)
and
In the Matter of Ark Financial Holdings Inc. (“Ark Parent”) and Ark Fund Management Ltd. (“Ark Manager”, together with Ark Parent, “Ark”) and Trapeze Value Class (formerly Ark Aston Hill Opportunities Class) Ark Aston Hill Energy Class Ark Aston Hill Monthly Income Class Ark StoneCastle Stable Growth Class Ark Catapult Energy Class Fund Ark NorthRoad Global Fund (collectively, the “Funds”)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the “Legislation”) for approval in satisfaction of subsection 5.5(2) of National Instrument 81-102 Mutual Funds (“NI 81-102”) of the change in control (the “Change of Control”) of Ark Manager resulting from Redwood having acquired Ark on August 31, 2009 (the “Approval Sought”).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application)
(a) the Ontario Securities Commission is the principal regulator for this application, and
(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (“MI 11-102”) is intended to be relied upon in each of the provinces and territories of Canada other than Ontario.
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
The Funds
1The Funds are either mutual fund trusts governed under the laws of Ontario or classes of a mutual fund corporation established under the laws of Ontario.
2Securities of the Funds are distributed in the provinces and territories of Canada, as set forth in Schedule “A”, under simplified prospectuses dated January 14, 2009, August 7, 2009 and December 23, 2009.
3The Funds are reporting issuers under applicable securities legislation in the provinces and territories of Canada, as set out in Schedule “A”, and are not on the list of defaulting reporting issuers maintained under applicable securities legislation in those jurisdictions.
4All the portfolio managers of the Funds are third party portfolio managers.
The Amalgamation
5The Filer is a corporation amalgamated under the laws of Ontario with its head office in Toronto, Ontario.
6The Filer is the result of the amalgamation, effective January 1, 2010, of each of Redwood, Ark Parent and Ark Manager (the “Amalgamation”).
7The Filer is registered as an exempt market dealer in the Jurisdiction and, following the Amalgamation, is now the manager of the Funds, other Ark investment funds and the Redwood Funds (as defined below).
The Change of Control
8The Change of Control was effected on August 31, 2009, as a result of Redwood acquiring all of the issued and outstanding shares of Ark Parent, which was the sole shareholder of Ark Manager. As a result, there was an indirect change of control of Ark Manager for the purposes of subsection 5.5(2) of NI 81-102.
9A press release announcing the completion of the Change of Control was issued on September 8, 2009.
Redwood
10At the time of the Change of Control, Redwood had been an investment fund manager for approximately 6 years and, with combined assets under management as at June 30, 2009 of approximately $48 million, was the manager both of mutual funds offered under a multi-fund simplified prospectus and annual information form dated June 11, 2009 and of other investment funds not offered by prospectus (collectively, the “Redwood Funds”).
11At the time of the Change of Control, Redwood was registered as a limited market dealer (now exempt market dealer) in the Jurisdiction.
Prior to the Change of Control
12Prior to the Change of Control, Ark Parent was principally owned by Peter Shippen (43.7%) and Brian Petersen (29.3%) with the remaining 27% of the shares held by five individual shareholders.
13Prior to the Change of Control, the officers and directors of Ark Manager were as follows:
Name
Title
Peter Shippen
Director and Chief Executive Officer
Richard Scott
Director and Chief Financial Officer
Michael Franks
Director
Following the Change of Control
14On the Change of Control, in exchange for their shares of Ark Parent, the former shareholders of Ark Parent received an approximate 40% holding in Redwood with the remaining 60% held by those who were shareholders of Redwood prior to the closing.
15Following the Change of Control, Richard Scott and Michael Franks ceased in their positions with Ark Manager. In their respective places, one of the shareholders of Ark Parent, Brian Petersen, became a director of Ark Manager, and one of the officers and directors of Redwood, Jonathan Clapham, became an officer and director of Ark Manager. As such, the officers and directors of Ark Manager following the Change of Control were as follows:
Name
Title
Jonathan Clapham
Director and Chief Executive Officer
Peter Shippen
Director, President and Chief Financial Officer
Brian Petersen
Director
Impact of Change of Control and Amalgamation
16The current shareholders, directors and officers of the Filer are as follows:
Name and % holding in Filer
Title
Jonathan Clapham, 24.5%
Director and Chief Executive Officer
IPI Corp, 21.8%; IPI Corp is 100% owned by Gian Delzotto
Gian Delzotto is a Director
Peter Shippen, 17.5%
Director, President and Chief Financial Officer
Brian Petersen, 11.7%
Director
17The officers and directors of the Filer have the requisite experience and integrity to manage the Funds.
18The acquisition of Ark by Redwood was intended to and did result in a significantly stronger and better capitalized fund management business. The transaction provided Ark Manager with increased support and resources, which enabled it to raise new assets in the Funds and allowed for greater profile in the market place with the potential for increased economies of scale in operating the Funds. The Filer anticipates that this increased support and resources, along with the potential economies of scale will continue for the Funds under the amalgamated entity.
19The independent review committee for the Funds (the “IRC”), which remains unchanged, provided a positive recommendation for the Change of Control.
20Due to an inadvertent oversight, the Filer and its predecessor companies failed to apply for prior regulatory approval of the Change of Control, as required by subsection 5.5(2) of NI 81-102, and failed to send prior notice of the Change of Control to securityholders of the Funds, as required by section 5.8(1) of NI 81-102.
21The Change of Control and Amalgamation have had no adverse effect on the management, operations and investment management of the Funds and no significant changes have been made to the management, operations or investment management of the Funds, other than a recent change of portfolio manager for one Fund, which will be treated as a “material change” within the meaning of National Instrument 81-106 Investment Fund Continuous Disclosure:
(a) While Jonathan Clapham became Chief Executive Officer and a director of Ark Manager and remained Chief Executive Officer and a director of Redwood (and is now Chief Executive Officer and a director of the Filer), Peter Shippen, the former Chief Executive Officer and operating mind of Ark Manager remained part of the core leadership of the Funds, becoming President, Chief Financial Officer and a director of Ark Manager and Redwood (and is now President, Chief Financial Officer and a director of the Filer). Also, Brian Petersen, a former shareholder of Ark Parent, became a director of Ark Manager and Redwood (and is now a director of the Filer);
(b) Ark Manager remained the trustee of the Funds that are structured as trusts until, by virtue of the Amalgamation, the Filer became trustee of those Funds;
(c) The portfolio managers of the Funds continued to provide investment advice to those Funds to which they provided such advice prior to the Change of Control, with the exception of Trapeze Value Class. The change of portfolio manager for Trapeze Value Class is in keeping with the fiduciary obligation of a fund manager;
(d) The members of the IRC did not change and remain the same individuals prior to and following the Change of Control and Amalgamation;
(e) The custodian of the Funds did not change and remains CIBC Mellon Trust Company;
(f) The auditor of the Funds did not change and remains Deloitte & Touche LLP;
(g) The registrar and transfer agent of the Funds did not change and remains KeiDATA Backoffice Solutions Inc;
(h) The systems, back office, fund accounting and all other administrative functions of the Funds continue to operate in the same manner after as they operated before the Change of Control; and
(i) The investment objectives, investment strategies, management fees and operating expenses of the Funds have not changed.
22The current simplified prospectuses and annual information forms of the Funds reflect or will reflect that the Filer is the manager of the Funds and disclose or will disclose the names of the officers and directors of the Filer and the ownership of the Filer, the Change of Control and the Amalgamation.
23The Filer will send a notice, containing the information that would be required by law to be provided to securityholders if securityholder approval of the change were required to be obtained, to all securityholders of the Funds, advising them of the inadvertent oversight to send prior notice of the Change of Control and providing details about the Filer and information regarding the Change of Control and Amalgamation.
24With the exception of the name change and portfolio manager change for Trapeze Value Class (formerly Ark Aston Hill Opportunities Class), no other change will be made to the management, operations or investment management of the Funds, except as necessary in order for the Filer to fulfil its fiduciary obligations in respect of the Funds, for at least 60 days after the mailing of the securityholder notice, so as to provide investors with sufficient time to contemplate whether or not to remain in the Funds.
25The Filer will issue a press release announcing the Amalgamation of Ark and Redwood.
26The Filer will post the press release and investor notice on its website, making it clear to existing securityholders in the Funds that the Filer is now the manager of the Funds.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Approval Sought is granted.
“Rhonda Goldberg”
Rhonda Goldberg Manager, Investment Funds Branch Ontario Securities Commission
Schedule “A”
Trapeze Value Class (formerly Ark Aston Hill Opportunities Class) 1
Ark Aston Hill Energy Class 1
Ark Aston Hill Monthly Income Class 1
Ark StoneCastle Stable Growth Class 2
Ark Catapult Energy Class Fund 3
Ark NorthRoad Global Fund 3
Notes:
offered in all of the provinces and territories of Canada
offered in the provinces of Alberta and British Columbia
offered in all of the provinces of Canada
Headnote
NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Approval of a change of control of a mutual fund manager – No changes to be made to the management, operations or investment management of the mutual funds for 60 days subsequent to notice being provided to securityholders.
Applicable Legislative Provisions
Sections 5.5(2) and (3) of National Instrument 81-102 – Mutual Funds.