Headnote
NP 11-203 – Process for Exemptive Relief Application in Multiple Jurisdictions – relief granted from seed capital requirements for commodity pools in NI 81-104 – manager permitted to redeem seed investment in pool provided pool has received subscriptions from investors totalling at least $5 million and provided the manager maintains working capital as required for investment fund manager under National Instrument 31-103 Registration Requirements and Exemptions – National Instrument 81-104 Commodity Pools.
Applicable Legislative Provisions
National Instrument 81-104 Commodity Pools, paragraph 3.2(2)(a) and section 10.1.
July 26, 2013
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 PURPOSE INVESTMENTS INC. (the Filer)
AND
IN THE MATTER OF PURPOSE DIVERSIFIED REAL ASSET FUND (the Commodity Fund)
Decision
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Commodity Fund and such other exchange-traded commodity pools as may be established by the filer or an affiliate of the filer in the future (together with the Commodity Fund, the Commodity Pools) for a decision under the securities legislation of the Jurisdiction (the Legislation) granting, in accordance with the terms of this decision, relief from section 3.2(2)(a) of National Instrument 81-104 – Commodity Pools (NI 81-104) to permit the required initial investment of $50,000 in each Commodity Pool to be redeemed on certain conditions (the Requested Relief).
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 section 4.7(1) of Multilateral Instrument 11-102 – Passport System (MI 11-102) is intended to be relied upon in all of the provinces and territories of Canada other than Ontario (together with Ontario, the Jurisdictions).
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.
Unless otherwise specified, all references to money amounts are to Canadian currency.
Representations
This decision is based on the following facts represented by the Filer.
The Filer is a corporation incorporated under the laws of the Jurisdiction.
The registered office of the Filer is located at 77 King Street West, TD North Tower, 21st Floor, Toronto, Ontario.
The Filer is registered as an investment fund manager, portfolio manager and an exempt market dealer under the Securities Act (Ontario).
The manager of each Commodity Pool will be the Filer or an affiliate thereof.
The Filer is not in default of securities legislation in any of the Jurisdictions.
Each of the Commodity Pools, is or will be, a mutual fund subject to NI 81-102 and a commodity pool, as such term is defined under NI 81-104, in that the Commodity Pools will have adopted fundamental investment objectives that permit the Commodity Pool to gain exposure to or invest in specified derivatives that is not permitted under NI 81-102.
The Commodity Fund filed in accordance with National Instrument 41-101 – General Prospectus Requirements a long form prospectus dated May 1, 2013. The Commodity Fund offers ETF shares as well as Series A, Series F and Series I shares.
The Filer or an affiliate acting as investment fund manager has or will provide seed capital by investing an aggregate of at least $50,000 in the securities of the Commodity Pool before the time of filing the (final) prospectus of that Commodity Pool.
Pursuant to section 3.2(2) of NI 81-104, unless a redemption, repurchase or return is effected as part of the dissolution or termination of the commodity pool, a commodity pool may redeem, repurchase or return any amount invested in securities issued upon the investment in the commodity pool referred to in section 3.2(1)(a) of NI 81-104 only if securities issued under section 3.2(1)(a) of NI 81-104 that had an aggregate issue price of $50,000 remain outstanding and at least $50,000 invested under section 3.2(1)(a) of NI 81-104 remains invested in the commodity pool.
The Filer wishes to be able to redeem the seed capital invested under section 3.2(1)(a) of NI 81-104 in accordance with this decision.
The Filer understands that the policy rationale behind the permanent seed capital requirement for commodity pools under NI 81-104 is to encourage promoters to ensure that the commodity pool is being properly run for the benefit of the investors by requiring that the promoter of a commodity pool, or a related party, will itself be an investor in the commodity pool at all times.
The Commodity Pools will be properly managed for the benefit of investors because, as the manager of the Commodity Pools, the Filer will be obliged in accordance with the terms of the constating document of the Commodity Pools, and in accordance with legislative requirements, to at all times act honestly and in good faith, and in the best interest of the Commodity Pools, and exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
Having regard to the Filer’s fiduciary obligation as set out above, not having $50,000 invested in each Commodity Pool at all times will not change how the Filer manages the Commodity Pools. The Filer will manage the Commodity Pools in accordance with the Legislation and its contractual requirements and the Filer’s interests will generally be aligned to those of investors in the Commodity Pools.
If the Commodity Pools were governed solely by the provisions of NI 81-102 (rather than NI 81-104), the Filer would be allowed to redeem its seed capital investment in a Commodity Pool upon the Commodity Pool having received subscriptions totalling not less than $500,000 from investors other than the persons or companies referred to in section 3.1(1)(a) of NI 81-102. A Commodity Pool will not issue securities to investors other than the persons or companies referred to in section 3.2(1)(a) of NI 81-104 unless subscriptions from such other investors aggregating at least $500,000 have been received and accepted by it.
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 Seed Capital Relief is granted, provided that:
(a) the Filer may not redeem any of its initial investment in a Commodity Pool until $5 million in subscriptions has been received by the Commodity Pool from persons or companies other than the persons and companies referred to in section 3.2(1)(a) of NI 81-104;
(b) if, after the Filer redeems its initial investment in a Commodity Pool in accordance with condition 2(a) immediately above, the value of the securities subscribed for by investors other than the persons and companies referred to in section 3.2(1)(a) of NI 81-104 drops below $5 million for more than 30 consecutive days, the Filer will, unless the Commodity Pool is in the process of being dissolved or terminated, reinvest $50,000 in the Commodity Pool and maintain that investment until the value of securities subscribed for by investors other than the persons and companies referred to in section 3.2(1)(a) of NI 81-104 is at least $5 million;
(c) the Filer or affiliate acting as investment fund manager complies with the applicable requirements of registration as an investment fund manager under National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations including by maintaining excess working capital of a minimum of $100,000 or such other amount as may be required by NI 31-103; and
(d) the basis on which the Filer may redeem any of its initial investment of $50,000 in a Commodity Pool will be disclosed in any prospectus of the Commodity Pool filed after the date of this decision.
“Darren McKall”
Name: Darren McKall
Title: Manager, Investment Funds Branch
Ontario Securities Commission