Headnote National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Relief granted to pooled funds not subject to NI 81-102 to purchase securities of a related entity over a stock exchange and to purchase debt securities of a related entity under primary offerings of the related entity and in the secondary market – future oriented relief – relief subject o conditions including IRC approval, pricing requirements, and limits on the amount of the primary offering the funds can purchase.
Applicable Legislative Provisions
Securities Act (Ontario), sections 111(2)(a), 111(3), 113.
March 30, 2012
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 FIERA SCEPTRE INC. (the Filer)
AND
IN THE MATTER OF THE POOLED FUNDS (as defined below)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of existing mutual funds listed in Schedule A and future mutual funds of which the Filer is the manager and adviser and to which National Instrument 81-102 Mutual Funds (NI 81-102) does not apply (each, a Pooled Fund and collectively, the Pooled Funds) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Pooled Funds (the Requested Relief) from the prohibitions in the Legislation that prohibit a mutual fund from making or holding an investment in any person or company who is a substantial security holder of the mutual fund, its management company or distribution company (Related Shareholder).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission (OSC) is the principal regulator for this application; and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is also intended to be relied upon in Alberta (the Passport Jurisdiction).
Interpretation
Terms defined in MI 11-102 and National Instrument 14-101 Definitions, NI 81-102, National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107) and National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103) 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 Filer
The Filer is a corporation existing under the laws of the Province of Ontario with its head office is located in Montréal, Québec and an office located in Toronto, Ontario.
The Filer is registered with the OSC as a portfolio manager, an investment fund manager and an exempt market dealer and is also registered as a commodity trading manager. The Filer is also registered with the Autorité des marchés financiers as a portfolio manager, an investment fund manager, and an exempt market dealer and a derivatives portfolio manager. In Manitoba, the Filer is registered as an exempt market dealer portfolio manager and adviser under the Commodity Futures Act (Manitoba). In each of the other provinces and territories of Canada the Filer is registered as an exempt market dealer and a portfolio manager.
The Requested Relief is not being sought under the securities legislation of Québec. The Filer also has an office, assets and operations located in Toronto, Ontario. As well, each Pooled Fund has been formed under the laws of Ontario and has its head office in Ontario, and each Future Pooled Fund will be formed under the laws of Ontario and will have its head office in Ontario.
The Filer is, or will be, the manager and/or portfolio adviser to the Funds.
The Acquisition
On April 2, 2012, the Filer will acquire all assets of Natcan Investment Management Inc. (Natcan), a subsidiary of the National Bank of Canada (National Bank). In return, National Bank, through Natcan, will receive class A subordinate voting shares of the Filer representing 35% of the issued and outstanding shares of the Filer along with an option to increase its stake to 40% (the Acquisition). Pursuant to the Legislation, National Bank will be a Related Shareholder of the Filer.
Upon completion of the Acquisition, the Filer will change its name to Fiera Capital Corporation.
The Pooled Funds
Each of the Pooled Funds is or will be a mutual fund established under the laws of Ontario.
The Filer and the Pooled Funds are not in default of securities legislation in any jurisdiction.
The securities of the Pooled Funds are or will be offered for sale only on an exempt basis pursuant to available prospectus and registration exemptions from the prospectus requirements in the provinces of Alberta and Ontario as well as in other Canadian provinces. None of the Pooled Funds is or will be a reporting issuer.
The investment strategies of each of the Pooled Funds that relies on the Requested Relief permit, or will permit, it to invest in the securities purchased.
The manager of the Pooled Funds will establish an independent review committee (IRC) in respect of each Pooled Fund (in accordance with section 3.7 of NI 81-107).
The purchase of securities of Related Shareholders by a Pooled Fund will be referred to the IRC of such Pooled Fund.
Section 6.2 of NI 81-107 provides mutual funds managed by the Filer and governed by NI 81-102 (NI 81-102 Funds) with an exemption from the prohibitions comprising the Requested Relief in respect of purchasing exchange-traded securities, such as common shares, in the secondary market.
NI 81-107 does not apply to the Pooled Funds as they are not reporting issuers. Accordingly, in the absence of the Requested Relief, the Pooled Funds may not purchase or hold exchange-traded securities of a Related Shareholder (Listed Securities).
The Filer is seeking the Requested Relief to permit the Pooled Funds to purchase and hold Listed Securities.
In addition, as National Bank or other Related Shareholder is or may be an issuer of non listed and non exchange-traded securities such as debt securities, the Filer is also seeking the Requested Relief to permit the Pooled Funds to purchase and hold such debt securities (NET debt securities).
The Filer has determined that it would be in the best interests of the Pooled Funds to receive the Requested Relief.
The Filer considers that the Pooled Funds should have access to the NET debt securities for the following reasons:
(a) there is limited supply of highly rated corporate debt;
(b) diversification is reduced to the extent that a Pooled Fund is limited with respect to investment opportunities; and
(c) to the extent that a Pooled Fund seeks to track or outperform a benchmark it is important for the Pooled Fund to be able to purchase any securities included in the benchmark. Debt securities of the Related Shareholders of the Filer are included in most of the Canadian debt indices.
- Where the NET debt security is purchased by a Pooled Fund in a primary distribution or treasury offering (Primary Offering),
(a) the debt security, other than an asset backed commercial paper security, will have a term to maturity of 365 days or more and will be issued by a Related Shareholder that has been given and continues to have, at the time of purchase, an “approved credit rating” by an approved credit rating organization; and
(b) the terms of the Primary Offering, such as the size and the pricing, will be a matter of public record as evidenced in a prospectus, offering memorandum, press release or other public document.
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 Requested Relief is granted to permit the Filer to purchase and hold NET debt securities on behalf of the Pooled Funds on condition that:
(a) the purchase or holding is consistent with, or is necessary to meet, the investment objective of the Pooled Fund;
(b) at the time of the purchase the IRC of the Pooled Fund has approved the transaction in accordance with Section 5.2(2) of NI 81-107;
(c) the manager of the Pooled Fund complies with section 5.1 of NI 81-107 and the manager and the IRC of the Pooled Fund comply with section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with the transactions;
(d) in the case of NET debt securities to be purchased in a Primary Offering:
(i) the size of the Primary Offering is at least $100 million;
(ii) at least 2 purchasers who are independent, arm's length purchasers, which may include "independent underwriters" within the meaning of National Instrument 33-105 Underwriting Conflicts, collectively purchase at least 20% of the Primary Offering;
(iii) no Pooled Fund shall participate in the Primary Offering if following its purchase the Pooled Fund together with related funds will hold more than 20% of the securities issued in the Primary Offering;
(iv) no Pooled Fund shall participate in the Primary Offering if following its purchase the Pooled Fund would have more than 5% of its net assets invested in NET debt securities of a Related Shareholder;
(v) the price paid for the securities by a Pooled Fund in the Primary Offering shall be no higher than the lowest price paid by any of the arm's length purchasers who participate in the Primary Offering;
(e) in the case of NET debt securities to be purchased in the secondary market:
(i) the security has been given and continues, at the time of the purchase, to have an "approved credit rating" by an "approved credit rating organization" within the meaning of those terms in NI 81-102;
(ii) the price payable for the security is not more than the ask price of the security;
(iii) the ask price of the security is determined as follows:
(1) If the purchase occurs on a marketplace, the price payable is determined in accordance with the requirements of that marketplace; or
(2) If the purchase does not occur on a marketplace,
(A) the Pooled Fund may pay the price for the security at which an independent, arm's length seller is willing to sell the security, or
(B) if the Pooled Fund does not purchase the security from an independent, arm's length seller, the Pooled Fund must pay the price quoted publicly by an independent marketplace or obtain, immediately before the purchase, at least one quote from an independent, arm's length purchaser or seller and not pay more than that quote;
(iv) the transaction complies with any applicable "market integrity requirements" as defined in NI 81-107;
(f) on or before the 90th day after the end of each financial year of a Pooled Fund, the Filer files with the securities regulatory authority or regulator the particulars of any investments made in reliance on this relief;
(g) the IRC of the Pooled Fund complies with section 4.5 of NI 81-107 in connection with any instance that it becomes aware that the Filer did not comply with any of the conditions of this decision; and
(h) the decision with respect to NET debt securities purchased pursuant to a Primary Offering or in the secondary market will expire on the coming into force of any securities legislation relating to fund purchases of NET debt securities purchased pursuant to a Primary Offering or in the secondary market.
The decision of the principal regulator under the Legislation is that the Requested Relief is granted to permit the Filer to purchase and hold Listed Securities on behalf of the Pooled Funds on condition that:
(a) the purchase or holding is consistent with, or is necessary to meet, the investment objective of the Pooled Fund;
(b) at the time of the purchase the IRC of the Pooled Fund has approved the transaction in accordance with Section 5.2(2) of NI 81-107;
(c) the manager of the Pooled Fund complies with section 5.1 of NI 81-107 and the manager and the IRC of the Pooled Fund comply with section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with the transactions;
(d) the purchase is made in the secondary market on an exchange on which the Listed Securities are listed and traded;
(e) on or before the 90th day after the end of each financial year of a Pooled Fund, the Filer files with the securities regulatory authority or regulator the particulars of any investments made in reliance on this relief;
(f) the IRC of the Pooled Fund complies with section 4.5 of NI 81-107 in connection with any instance that it becomes aware that the Filer did not comply with any of the conditions of this decision; and
(g) the decision with respect to purchases of Listed Securities by the Pooled Funds will expire on the coming into force of any securities legislation relating to purchases of exchange-traded securities of a related party by mutual funds not governed by NI 81-102.
“Vern Krishna”
“Margot Howard”
Name: Vern Krishna Title: Commissioner Ontario Securities Commission
Name: Margot Howard Title: Commissioner Ontario Securities Commission
Schedule A
Pooled Funds
Fiera Sceptre Pooled Funds
Money Market Section
Small Capitalization Section
Bond Section
International Equity Section
Canadian Equity Section
EFT Section
Foreign Equity Section
Equity Section
Balanced Section
Balanced Core Section
Sceptre 130/30 Canadian Equity Fund
Fiera Private Wealth Opportunities Fund
Fiera Private Wealth Income Fund
Fiera Canadian High Yield Bond Fund
Fiera Active Fixed Income Fund
Fiera Short Term Investment Fund
Fiera Balanced Fund
Fiera Canadian Equity Value Fund
Fiera International Equity Fund
Fiera Private Wealth US Equity Fund
Fiera North American Market Neutral Fund
Fiera Market Neutral Equity Fund
Fiera Global Macro Fund
Fiera Private Wealth Canadian Equity Fund
Fiera Long/Short Equity Fund
Fiera Absolute Bond Yield Fund
Fiera Multi-Manager Fund
Fiera Canadian High Income Equity Fund
Fiera Private Wealth Moderate Fund
Fiera Private Wealth Growth Fund
Fiera Private Wealth Conservative Fund