Ontario Securities Commission
December 12, 2019
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 VENATOR CAPITAL MANAGEMENT LTD. (the Filer)
AND
VENATOR INCOME FUND (the Fund)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Fund for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation), pursuant to section 19.1 of National Instrument 81-102 Investment Funds (NI 81-102), exempting the Fund from the following provisions of NI 81-102:
(i) subsection 9.3(1), to permit the Fund to process purchase orders for its units, as described in its simplified prospectus and fund facts documents, on a semi-monthly basis at their class net asset value per unit calculated as at the last Valuation Date (as defined below) of the semi-monthly period in which the purchase order for such units is received (the Purchase Relief); and
(ii) subsection 10.3(1), to permit the Fund to process redemption orders for its units, as described in its simplified prospectus and fund facts documents on at least 7 business days prior written notice, on a semi-monthly basis, redeeming such units at their class net asset value per unit calculated on the last Valuation Date of each semi-monthly period in which the redemption order for such units is processed (the Redemption Relief)
(collectively, the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(i) the Ontario Securities Commission is the principal regulator for this application; and
(ii) 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 other provinces and territories of Canada (together with the Jurisdiction, the Canadian Jurisdictions).
Interpretation
Terms defined in NI 81-102, National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101), 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 Filer and the Fund
The Filer is a corporation incorporated under the laws of the Province of Ontario with its head office located in Toronto, Ontario.
The Filer is registered under securities legislation in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Québec and Saskatchewan as an adviser in the category of portfolio manager and as a dealer in the category of exempt market dealer. The Filer is registered under securities legislation in Newfoundland and Labrador, Ontario and Québec as an investment fund manager.
The Filer is the trustee, investment fund manager, promoter and portfolio manager of the Fund.
The Fund is an open-end mutual fund trust established under the laws of the Province of Ontario pursuant to a declaration of trust dated July 30, 2008 (the Inception Date), as amended and restated as at February 21, 2013 (the Declaration of Trust), and is governed by the provisions of NI 81-102.
Since the Inception Date, units of the Fund were distributed to investors on a prospectus-exempt basis in accordance with National Instrument 45-106 Prospectus Exemptions.
The Filer intends to amend and restate the Declaration of Trust to, inter alia, change the Fund’s name to Venator Alternative Income Fund and provide for the issuance of Class A, D, F and I units of the Fund (Units).
The Units will be offered by simplified prospectus, subject to NI 81-101, filed in the Canadian Jurisdictions, and accordingly, the Fund will be a reporting issuer in the Canadian Jurisdictions.
The Fund’s net asset value will be calculated at the close of regular trading, normally 4:00 p.m. (Eastern Time), on a day the Toronto Stock Exchange is open (a Valuation Date).
Neither the Filer nor the Fund is in default of the securities legislation in any of the Canadian Jurisdictions.
The Purchase Relief and the Redemption Relief
The Filer will calculate the net asset value for the Fund on a daily basis in order to meet its obligations under National Instrument 81-106 Investment Fund Continuous Disclosure regarding the use of derivatives, including the obligation to daily mark-to-market the value of its derivatives.
Subsections 9.3(1) and 10.3(1) of NI 81-102 require that the purchase price and redemption price of a security of a mutual fund to which a purchase order and redemption order pertains, respectively, be the net asset value per security next determined after receipt by the fund of the purchase order and redemption order, respectively.
As described in the Fund's simplified prospectus and fund facts documents, the Fund will:
(a) process purchase orders for its units on a semi-monthly basis at their class net asset value per unit calculated as at the last Valuation Date of the semi-monthly period in which the purchase order for such units is received; and
(b) process redemption orders for its units on at least 7 business days prior written notice, on a semi-monthly basis, redeeming such units at their class net asset value per unit calculated on the last Valuation Date of each semi-monthly period in which the redemption order for such units is processed (such date, a Redemption Date).
As described in the Fund's simplified prospectus, the Fund will pay the redemption proceeds for units that are the subject of a redemption order no later than 10 business days after the Redemption Date on which the redemption price was calculated.
The Filer has structured its mutual fund operations so that it can consolidate all purchase and redemption orders into one efficient semi-monthly processing transaction. The Filer has determined that effecting such purchases and redemptions on a semi-monthly basis strikes the best balance between the needs of a unitholder to invest or access its assets in a timely and orderly manner, and the need to minimize the impact of such transactions on other unitholders in the Fund.
The Filer believes that semi-monthly redemptions will mitigate excessive portfolio turnovers to boost the Fund’s net asset value due to lower transaction costs in the form of brokerage commissions and the bid-ask spread. Further, it has determined that semi-monthly redemptions will protect the Fund from having to reduce positions at less than ideal times during potentially challenging market conditions. This will ensure that all unitholders of the Fund will be treated fairly in instances where the Fund is not able to unwind its portfolio holdings in an orderly manner to honour the redemption requests at the time.
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 Exemption Sought is granted provided that:
- In the case of the Purchase Relief, the Fund:
(a) processes, and discloses in its simplified prospectus and in the “Quick Facts” section of its fund facts documents that it processes, purchase orders for its units on a semi-monthly basis at their class net asset value per unit calculated as at the last Valuation Date of the semi-monthly period in which the purchase order for such units is received (the Purchase Processing Frequency); and
(b) discloses in the “Who should invest in the Fund?” section of the Part B of its simplified prospectus and in the “Who is this Fund for?” section of its fund facts documents the Purchase Processing Frequency and that the Fund is only suitable for investors who can accept the Purchase Processing Frequency.
- In the case of the Redemption Relief, the Fund:
(a) processes, and discloses in its simplified prospectus and in the “Quick Facts” section of its fund facts documents that it processes, redemption orders for its units on at least 7 business days prior written notice, on a semi-monthly basis, redeeming such units at their class net asset value per unit calculated on the last Valuation Date of each semi-monthly period in which the redemption order for such units is received (the Redemption Processing Frequency); and
(b) discloses in the “Who should invest in the Fund?” section of the Part B of its simplified prospectus and in the “Who is this Fund for?” section of its fund facts documents the Redemption Processing Frequency and that the Fund is only suitable for investors who can accept the Redemption Processing Frequency.
“Darren McKall”
Darren McKall
Investment Funds and Structured Products Branch
Ontario Securities Commission
App. No. #2019/0579