February 26, 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
TD ASSET MANAGEMENT INC. (TDAM)
AND
IN THE MATTER OF
THE TOP FUNDS (AS DEFINED BELOW)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from TDAM on its behalf and on behalf of TD Greystone Real Asset Pooled Fund Trust and TD Greystone Mortgage and Short Bond Pooled Fund Trust (the Initial Top Funds) and any future mutual fund which is not a reporting issuer under the legislation of the principal regulator and that is managed by TDAM or one of its affiliates (the Future Top Funds, and together with the Initial Top Funds, collectively, the Top Funds and each a Top Fund), which will invest in Greystone Mortgage Fund (the Mortgage Fund), Greystone Real Estate LP Fund (the Real Estate Fund) and/or Greystone Infrastructure Fund (Canada) L.P. II (the Infrastructure Fund and together with the Mortgage Fund and the Real Estate Fund, collectively, the Underlying Funds and individually, an Underlying Fund), for a decision under the securities legislation of the Jurisdiction (the Legislation):
- exempting the Top Funds from the restriction in the Legislation (the Related Issuer Restriction) which prohibits:
(a) an investment fund from knowingly making an investment in a person or company in which the investment fund, alone or together with one or more related investment funds, is a substantial security holder; and
(b) an investment fund from knowingly making an investment in an issuer in which:
(i) any officer or director of the investment fund, its management company or distribution company or an associate of any of them, or
(ii) any person or company who is a substantial security holder of the investment fund, its management company or its distribution company,
has a significant interest; and
(c) an investment fund, its management company or its distribution company from knowingly holding an investment described in paragraph (a) or (b) above (collectively, the Related Issuer Relief); and
- exempting TDAM and its affiliates, with respect to the Top Funds, from the provision in paragraph 13.5(2)(a) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) (the Consent Requirement) which prohibits a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as adviser, to invest in securities of any issuer in which a responsible person or an associate of a responsible person is a partner, officer or director, unless the fact is disclosed to the client and the written consent of the client to the investment is obtained before the purchase (the Consent Requirement Relief and, together with the Related Issuer Relief, 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) TDAM has provided notice under section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) that
(i) the Related Issuer Relief is to be relied upon by TDAM in Alberta, and
(ii) the Consent Requirement Relief is to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (together with the Jurisdiction, 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.
Representations
This decision is based on the following facts represented by TDAM:
TDAM and Greystone
TDAM is a corporation amalgamated under the Business Corporations Act (Ontario).
TDAM is a wholly-owned subsidiary of The Toronto-Dominion Bank (TD Bank), a Schedule 1 Canadian chartered bank. The head office of TDAM is located in Toronto, Ontario.
Greystone Managed Investments Inc. (Greystone) is a wholly-owned indirect subsidiary of TD Bank and, accordingly, Greystone is an affiliate of TDAM.
TDAM is registered in each of the jurisdictions of Canada as an adviser in the category of portfolio manager (PM) and as a dealer in the category of exempt market dealer. TDAM is also registered in Ontario, Québec and Newfoundland and Labrador in the category of investment fund manager (IFM). TDAM is also registered in Ontario in the category of commodity trading manager.
TDAM will be the IFM and PM of the Top Funds.
Greystone is the PM for the Underlying Funds. Greystone or an affiliate of Greystone may also act as a distributor of the securities of the Underlying Funds not otherwise sold through another registered dealer.
An officer and/or director of TDAM or an affiliate of TDAM may have a “significant interest” (as such term is defined in the Legislation) in an Underlying Fund from time to time. A person or company who is a substantial security holder of a Top Fund, TDAM, or an affiliate of TDAM may also have a significant interest in an Underlying Fund from time to time.
TDAM or its affiliates are, or will be, “responsible persons” of the Top Funds and the Underlying Funds, as that term is defined in NI 31-103.
Neither TDAM nor Greystone is in default of securities legislation in any of the Jurisdictions.
The Top Funds
Each of the Top Funds will be a mutual fund established under the laws of the Province of Ontario and will be an investment trust established by TDAM. The Top Funds will be investment funds for the purposes of the Legislation.
The Canada Trust Company will be the trustee of each Top Fund unless the trustee is changed in accordance with the terms of any trust agreement relating to the Top Funds.
The investment objective of TD Greystone Mortgage and Short Bond Pooled Fund Trust will be to seek to provide income and preserve capital over the long-term by primarily investing in, or gaining exposure to, a diversified portfolio of Canadian commercial real estate mortgages and fixed income investments.
The investment objective of TD Greystone Real Asset Pooled Fund Trust will be to seek to provide income and capital growth over the long-term by primarily investing in, or gaining exposure to, a diversified portfolio of Canadian and global real estate and infrastructure investments as well as publicly traded securities.
The Top Funds will not be reporting issuers in any of the Jurisdictions. The securities of the Top Funds will be sold solely to accredited investors pursuant to exemptions from the prospectus requirements in accordance with National Instrument 45-106 Prospectus Exemptions (NI 45-106).
Each Top Fund will be permitted to invest in the Underlying Funds in order to achieve its investment objectives and strategies.
The Mortgage Fund
The Mortgage Fund is an investment trust established under the laws of Ontario. The Mortgage Fund is a “mutual fund” as defined in the Legislation. The Mortgage Fund is administered by Greystone, as manager, its assets are managed by a portfolio manager and the trustee of the Mortgage Fund calculates a net asset value (NAV) that is used for purposes of determining the purchase and redemption price of the units of the Mortgage Fund.
The investment objective of the Mortgage Fund is to provide a vehicle to invest in Canadian commercial real estate mortgages and to achieve superior long-term total returns while maintaining long-term stability of capital. Under its investment strategy, the Mortgage Fund invests in a diversified portfolio of Canadian commercial real estate mortgages and other permissible investments, including first and subsequent priority mortgages, equity investments in Canadian real estate in very limited circumstances, closed or open ended pooled mortgage funds, and securities or bonds where the asset underlying the securities or bonds is a mortgage or other debt security secured by a real property mortgage or charge.
The Mortgage Fund is not a reporting issuer in any of the Jurisdictions. Units of the Mortgage Fund are sold solely to accredited investors pursuant to exemptions from the prospectus requirements in accordance with NI 45-106. Each such investor is responsible for making its own investment decisions regarding its purchases and/or redemptions of units of the Mortgage Fund.
The Mortgage Fund is not in default of the securities legislation of any of the Jurisdictions.
The Real Estate Fund
The Real Estate Fund is an investment product established as a limited partnership under the laws of Ontario. The General Partner of the Real Estate Fund is GMI Real Estate Inc., which is an affiliate of Greystone and TDAM.
The Real Estate Fund is not considered to be an investment fund. Nevertheless, the Real Estate Fund is operated in a manner similar to how Greystone operates its investment funds. The Real Estate Fund is administered by Greystone, as manager, its assets are managed by a portfolio manager and the custodian of the Real Estate Fund calculates a NAV that is used for purposes of determining the purchase and redemption price of its units.
The investment objective of the Real Estate Fund is to seek superior long-term total returns by investing in a diversified Canadian real estate portfolio. Under its investment strategy, the Real Estate Fund may invest in equity interests in, and mortgages of, Canadian real estate, securities or bonds where the underlying asset is a mortgage or real estate equity, cash and short-term investments.
The Real Estate Fund is not a reporting issuer in any of the Jurisdictions. Units of the Real Estate Fund are sold solely to accredited investors pursuant to exemptions from the prospectus requirements in accordance with NI 45-106. Each such investor is responsible for making its own investment decisions regarding its purchases and/or redemptions of units of the Real Estate Fund.
The Real Estate Fund is not in default of the securities legislation of any of the Jurisdictions.
The Infrastructure Fund
The Infrastructure Fund is an investment product established as a limited partnership under the laws of Ontario. The General Partner of the Infrastructure Fund is Greystone Infrastructure Fund (Canada) Inc., which is an affiliate of Greystone and TDAM.
The investment objective of the Infrastructure Fund is to provide sustainable long term returns from infrastructure assets by investing in units of Greystone Infrastructure Fund (Global Master) L.P. (the Master Infrastructure Fund), a limited partnership formed under the laws of the Cayman Islands. The investment objective of the Master Infrastructure Fund is to invest in and to earn income directly or indirectly from infrastructure assets, specifically:
(a) transportation, including roads, rail, ports and airports;
(b) contracted generation;
(c) power transmission and distribution;
(d) renewable energy, including wind, hydro, solar and waste-to-energy;
(e) pipelines, including oil, gas and refined products;
(f) utilities, including water, wastewater and energy;
(g) telecommunications;
(h) social infrastructure, including hospitals, prisons and schools;
(i) rolling stock and parking; and
(j) other assets that are expected to generate predictable cash flows over the long-term and exhibit sustainable competitive advantages.
2. The Infrastructure Fund and the Master Infrastructure Fund have substantially similar investment objectives, in that they both seek sustainable long term returns from infrastructure assets.
3. The Infrastructure Fund and the Master Infrastructure Fund are not considered to be investment funds. Nevertheless, the Infrastructure Fund and the Master Infrastructure Fund are operated in a manner similar to how Greystone operates its investment funds. The Infrastructure Fund and the Master Infrastructure Fund are administered by Greystone, as manager, their assets are managed by a portfolio manager and the custodian of the Infrastructure Fund and the Master Infrastructure Fund calculates a NAV that is used for purposes of determining the purchase and redemption price of the units of the Infrastructure Fund and the Master Infrastructure Fund, as the case may be.
4. The Infrastructure Fund is not a reporting issuer in any jurisdiction of Canada. Units of the Infrastructure Fund are, or will be, sold solely to investment funds managed by Greystone and to the Top Funds, in each case pursuant to an exemption from the prospectus requirements in accordance with NI 45-106. Other investors who wish to obtain exposure to the assets of the Master Infrastructure Fund purchase units of another Canadian infrastructure limited partnership managed by Greystone that has an investment mandate similar to the investment mandate of the Master Infrastructure Fund pursuant to exemptions from the prospectus requirements in accordance with NI 45-106.
5. The Infrastructure Fund is not in default of the securities legislation of any of the Jurisdictions.
Fund-on-Underlying Funds Structure
6. An investment by a Top Fund in one or more of the Underlying Funds will be compatible with the investment objectives of the Top Fund and will allow the Top Fund to obtain exposure to securities in which the Top Fund may otherwise invest directly (the Fund-on-Underlying Funds Structure). TDAM believes that the Fund-on-Underlying Funds Structure will provide each Top Fund with an efficient and cost-effective manner of pursuing portfolio diversification instead of purchasing securities directly. The Fund-on-Underlying Funds Structure will also provide each Top Fund with access to the investment expertise of the portfolio advisers of one or more Underlying Funds.
7. Investments by a Top Fund in one or more of the Underlying Funds will be effected at an objective price. According to TDAM’s policies and procedures, an objective price, for this purpose, shall be the NAV of each Underlying Fund.
Top Funds Liquidity
8. TD Greystone Real Asset Pooled Fund Trust will be valued and redeemable quarterly.
9. TD Greystone Mortgage and Short Bond Pooled Fund Trust will be valued daily and redeemable monthly.
10. At least 50% of the assets held by each Top Fund will be redeemable at least as frequently as units of the Top Fund are redeemable; the balance of the assets may have more limited liquidity.
Mortgage Fund Liquidity
11. The investments of the Mortgage Fund, which consist primarily of commercial mortgages, are primarily illiquid.
12. The Mortgage Fund is priced daily and valued and redeemable monthly.
13. The value of the portfolio assets of the Mortgage Fund is independently determined by a party that is arm’s length to TDAM, Greystone or an affiliate of Greystone, the Mortgage Fund, the Real Estate Fund, the Infrastructure Fund and all other investment funds or vehicles managed by Greystone or TDAM (MF Independent Valuator) on at least a monthly basis. The Mortgage Fund’s auditor will not act as an MF Independent Valuator. The Mortgage Fund’s NAV is based on the valuation of the portfolio assets determined by the MF Independent Valuator. The valuation process is audited annually by an independent accounting firm.
14. A Top Fund will not invest in units of the Mortgage Fund unless, at the time of purchase, at least 20% of the units of the Mortgage Fund are held by unitholders that are not affiliated or associated with TDAM or Greystone.
15. No Top Fund will actively participate in the business or operations of the Mortgage Fund.
Real Estate Fund Liquidity
16. The investments of the Real Estate Fund, which consist primarily of interests in real estate, are primarily illiquid.
17. The Real Estate Fund is valued and redeemable monthly, although “significant” redemptions (a redemption request that is for greater than $1,000,000 and 10% of the Real Estate Fund’s liquidity available for investment) may only be made on a quarterly basis.
18. The value of the portfolio assets of the Real Estate Fund is independently determined by one or more accounting firms and/or appraisal firms accredited through the Appraisal Institute of Canada that is arm’s length to TDAM, Greystone or an affiliate of Greystone, the Mortgage Fund, the Real Estate Fund, the Infrastructure Fund and all other investment funds or vehicles managed by Greystone or TDAM (RE Independent Appraiser) on a quarterly basis, which quarterly valuation may be refreshed by the RE Independent Appraiser if Greystone determines that a significant valuation event has occurred. The Real Estate Fund’s auditor will not act as a RE Independent Appraiser. The Real Estate Fund’s NAV is based on the valuation of the portfolio assets determined by the RE Independent Appraiser(s).
19. To the extent feasible and practicable, each RE Independent Appraiser will be rotated on three-year intervals.
20. A Top Fund will not invest in units of the Real Estate Fund unless, at the time of purchase, at least 20% of the units of the Real Estate Fund are held by unitholders that are not affiliated or associated with TDAM or Greystone.
21. No Top Fund will actively participate in the business or operations of the Real Estate Fund.
Infrastructure Fund Liquidity
22. The investments of the Infrastructure Fund consist primarily of units of the Master Infrastructure Fund. The investments of the Master Infrastructure Fund, which consist primarily of infrastructure assets, are primarily illiquid, and the units of both the Infrastructure Fund and the Master Infrastructure Fund have limited liquidity.
23. The Infrastructure Fund is valued and redeemable semi-annually.
24. The Master Infrastructure Fund is valued and redeemable semi-annually.
25. The value of the portfolio assets of the Master Infrastructure Fund is independently determined by one or more internationally recognized accounting firms and/or appraisal firms that is arm’s length to TDAM, Greystone or an affiliate of Greystone, the Mortgage Fund, the Real Estate Fund, the Infrastructure Fund, the Master Infrastructure Fund and all other investment funds or vehicles managed by Greystone or TDAM (IF Independent Appraiser) who independently values such portfolio assets on a semi-annual basis. A semi-annual valuation of one or more of such assets may be refreshed by an IF Independent Appraiser during an interim period if the portfolio adviser of the Master Infrastructure Fund determines that a significant valuation event has occurred. It is anticipated that the valuation frequency will increase to quarterly by the end of 2019. Neither the Infrastructure Fund’s auditor nor the Master Infrastructure Fund’s auditor will act as an IF Independent Appraiser. The Infrastructure Fund invests in the Master Infrastructure Fund at the NAV of the Master Infrastructure Fund, which is based on the valuation prepared by the IF Independent Appraiser.
26. To the extent feasible and practicable, each of the IF Independent Appraiser will be rotated on three-year intervals.
27. A Top Fund will not invest in the Infrastructure Fund unless the PM of the Top Fund believes that the liquidity of the Top Fund’s portfolio is adequately managed through other strategies. As part of such strategies, a Top Fund will not invest more than 50% of its NAV, at the time of purchase, in units of the Infrastructure Fund.
28. In addition, a Top Fund will not invest in the Infrastructure Fund unless, at the time of purchase, at least 20% of the units of the Master Infrastructure Fund are directly or indirectly held by unitholders that are not affiliated or associated with TDAM or Greystone (not including any holdings made through the Top Fund).
29. No Top Fund will actively participate in the business or operations of the Infrastructure Fund.
Generally
30. The amount invested from time to time in an Underlying Fund by a Top Fund, either alone or together with one or more other Top Funds, may exceed 20% of the outstanding voting securities of such Underlying Fund. As a result, a Top Fund could, either alone or together with one or more other Top Funds, become a substantial security holder of an Underlying Fund. The Top Funds will be “related investment funds”, as such term is defined in the Legislation.
31. In addition, the Fund-on-Underlying Funds Structure may result in a Top Fund investing in an Underlying Fund in which an officer or director of TDAM or an affiliate of TDAM has a significant interest and/or a Top Fund investing in an Underlying Fund in which a person or company who is a substantial security holder of the Top Fund, TDAM or an affiliate of TDAM has a significant interest.
32. The Fund-on-Underlying Funds Structure will also result in a Top Fund investing in an Underlying Fund in which a responsible person or an associate of a responsible person is a partner, officer or director, or performs a similar function or occupies a similar position.
33. In the absence of the Related Issuer Relief, each Top Fund would be precluded from purchasing and holding securities of an Underlying Fund due to the investment restrictions contained in the Legislation.
34. In the absence of the Consent Requirement Relief, TDAM or its affiliates would be precluded from causing a Top Fund to invest in an Underlying Fund in these circumstances unless the consent of each investor in the Top Fund is obtained.
35. Since the Top Funds will not be reporting issuers subject to National Instrument 81-102 Investment Funds (NI 81-102) they cannot rely on the exemption from the Related Issuer Restriction and the Consent Requirement codified under subsection 2.5(7) of NI 81-102 in order to facilitate the Fund-on-Underlying Funds Structure.
36. A Top Fund’s investment in an Underlying Fund will represent the business judgment of a responsible person uninfluenced by considerations other than the best interests of the investment funds concerned.
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 provided that:
(a) the securities of the Top Funds and the Underlying Funds are distributed in Canada solely to accredited investors pursuant to exemptions from the prospectus requirements in accordance with NI 45-106;
(b) the investment by a Top Fund in an Underlying Fund is compatible with the fundamental investment objectives of the Top Fund;
(c) at the time of the purchase by a Top Fund of securities of an Underlying Fund, either the Underlying Fund holds no more than 10% of its NAV in securities of other investment funds or the Underlying Fund:
(i) has adopted a fundamental investment objective to track the performance of another investment fund or similar investment product;
(ii) purchases or holds securities of investment funds that are “money market funds” (as such term is defined in NI 81-102); or
(iii) purchases or holds securities that are “index participation units” (as such term is defined in NI 81-102) issued by an investment fund;
(d) no management fees or incentive fees are payable by a Top Fund that, to a reasonable person, would duplicate a fee payable by an Underlying Fund for the same service;
(e) no sales fees or redemption fees are payable by a Top Fund in relation to its purchases or redemptions of securities of an Underlying Fund;
(f) the securities of an Underlying Fund held by a Top Fund will not be voted at any meeting of the security holders of the Underlying Fund, except that the Top Fund may arrange for the securities of the Underlying Fund it holds to be voted by the beneficial holders of securities of the Top Fund;
(g) the statement of investment policies and procedures or other similar document provided or made available to each investor in a Top Fund will disclose:
(i) that the Top Fund will purchase securities of one or more Underlying Funds;
(ii) that TDAM is the IFM and PM of the Top Fund and that Greystone, an affiliate of TDAM, is the PM of each of the Underlying Funds;
(iii) the approximate or maximum percentage of the NAV of the Top Fund that it is intended be invested in securities of each Underlying Fund;
(iv) the process or criteria used to select the Underlying Funds, if applicable;
(v) that one or more officers, directors or substantial securityholders of TDAM, an affiliate of TDAM or of the Top Fund may have a significant interest in an Underlying Fund, and the potential conflicts of interest which may arise from such relationships;
(vi) the fees and expenses payable by the Underlying Funds that the Top Fund may invest in, including any incentive fee; and
(vii) that securityholders of the Top Fund are entitled to receive from TDAM or an affiliate of TDAM, on request and free of charge, a copy of the offering memorandum or other disclosure document, if any, and the annual and interim financial statements of the Underlying Funds in which the Top Fund invests;
(h) a Top Fund will not invest in units of the Mortgage Fund unless, at the time of purchase, at least 20% of the units of the Mortgage Fund are held by unitholders that are not affiliated or associated with TDAM or Greystone;
(i) a Top Fund will not invest in units of the Real Estate Fund unless, at the time of purchase, at least 20% of the units of the Real Estate Fund are held by unitholders that are not affiliated or associated with TDAM or Greystone;
(j) a Top Fund will not invest more than 50% of its NAV, at the time of purchase, in units of the Infrastructure Fund;
(k) a Top Fund will not invest in units of the Infrastructure Fund unless, at the time of purchase, at least 20% of the units of the Master Infrastructure Fund are directly or indirectly held by unitholders that are not affiliated or associated with TDAM or Greystone (not including any holdings made through the Top Fund); and
(l) a Top Fund will invest in units of each Underlying Fund at the NAV of the applicable Underlying Fund based on the valuation of the applicable portfolio assets by the MF Independent Valuator, the RE Independent Appraiser or the IF Independent Appraiser, as applicable.
The Consent Requirement Relief
“Neeti Varma”
Neeti Varma
Acting Manager
Investment Funds and Structured Products Branch
The Related Issuer Relief
“M. Cecilia Williams”
“Garnet W. Fenn”
Name: M. Cecilia Williams
Commissioner
Name: Garnet W. Fenn
Commissioner
ONTARIO SECURITIES COMMISSION