February 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 NINEPOINT PARTNERS LP
AND
IN THE MATTER OF THE TOP FUNDS (as defined below)
DECISION
Background
The principal regulator in the Jurisdiction has received an application (the Application) from Ninepoint Partners LP on its behalf and on behalf of Ninepoint – TEC Private Credit Fund (the First Top Fund) and any other Existing Fund (as defined below) or Future Fund (as defined below) (collectively the Future Top Funds and, together with the First Top Fund, the Top Funds) which invests its assets in Third Eye Capital Alternative Credit Trust (the First Underlying Fund) or any other investment fund managed by Third Eye Capital Management Inc. (the First Underlying Fund Manager) or another investment fund manager other than Ninepoint Partners LP from time to time (the Future Underlying Funds and, together with the First Underlying Fund, the Underlying Funds), for a decision under the securities legislation of the Jurisdiction (the Legislation) exempting the Filer and the Top Funds from:
(a) the restriction in the Legislation that prohibits an investment fund from knowingly making or holding 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) the restriction in the Legislation that prohibits an investment fund, its management company or its distribution company from knowingly holding an investment described in paragraph (a) above
(collectively, the Requested Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission (the Commission) is the principal regulator for the Application; and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11102 Passport System (MI 11102) is intended to be relied upon in Alberta.
Interpretation
Terms defined in National Instrument 14101 Definitions and MI 11102 have the same meaning if used in this decision, unless otherwise defined. The following additional terms shall have the following meanings:
The term Existing Funds when used herein means the existing pooled funds set out in Exhibit A hereto (and, for greater certainty, includes the First Top Fund), each being an investment fund that is not a reporting issuer which the Filer currently acts as manager and/or portfolio manager.
The term Future Funds when used herein means investment funds that are not reporting issuers, and that are established, advised or managed by the Filer in the future
Filer means Ninepoint Partners LP or any affiliate of Ninepoint Partners LP.
Representations
This decision is based on the following facts represented by Ninepoint Partners LP:
Filer
1Ninepoint Partners LP is a limited partnership formed and organized under the laws of the Province of Ontario. The general partner of Ninepiont Partners LP is Ninepoint Partners GP Inc., a corporation incorporated under the laws of the Province of Ontario. The head office of Ninepoint Partners LP is located in Ontario.
2Ninepoint Partners LP is registered as (i) an investment fund manager in Ontario, Quebec and Newfoundland and Labrador, (ii) a portfolio manager in Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia and Newfoundland and Labrador, and (iii) an exempt market dealer in Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Newfoundland and Labrador and Quebec. Neither Ninepoint Partners LP nor any of the Funds currently managed by Ninepoint Partners LP is in default of securities legislation in any province or territory of Canada.
3The Filer is or will be, the investment fund manager of the Top Funds. Ninepoint Partners LP is the portfolio manager for the First Top Fund and has complete discretion to invest and reinvest the assets of the First Top Fund, and is responsible for executing all portfolio transactions while being subject to applicable securities laws. Furthermore, the Filer may also act as a distributor of the securities of the Top Funds not otherwise sold through another registered dealer.
4The Filer is not a reporting issuer in any jurisdiction of Canada and is not in default of securities legislation of any jurisdiction of Canada.
Existing Relief
5Ninepoint Partners LP became the manager and portfolio adviser of the Existing Funds when the management agreements relating to the Existing Funds were transferred to the Filer by Sprott Asset Management LP pursuant to an Asset Purchase Agreement among, inter alia, Sprott Asset Management LP, Sprott Private Wealth LP and Ninepoint Financial Group Inc. (formerly 2568004 Ontario Inc.) dated April 10, 2017, as filed on SEDAR under the profile of Sprott Inc., as the same may be amended, supplemented or modified from time to time in accordance with its terms.
6Each of the Existing Funds obtained the same relief as the Requested Relief evidenced by a decision dated September 27, 2016 (the Specified Prior Relief). Ninepoint Partners LP, as the current manager of the Existing Funds, is now seeking to obtain the Requested Relief in a separate, new decision, reflecting itself as the current manager of the Existing Funds, and on behalf of the Existing Funds and the Future Funds the Filer may establish in the future.
7Should the Requested Relief be granted, neither the Filer or any of the Top Funds will rely on the Specified Prior Relief. The Specified Prior Relief will continue to apply to existing and future investment funds managed by Sprott Asset Management LP.
Top Funds
8The First Top Fund is an investment trust established under the laws of the province of Ontario. The future Top Funds will be structured as trusts, limited partnerships or corporations under the laws of the province of Ontario or another jurisdiction of Canada.
9The securities of each Top Fund are, or will be, sold solely to investors pursuant to exemptions from the prospectus requirements in accordance with National Instrument 45-106 Prospectus Exemptions (NI 45-106) or the Legislation.
10The assets of each Top Fund (only if such Top Fund holds securities other than securities of an Underlying Fund) will be held by an entity that meets the qualifications of section 6.2 of NI 81-102 (NI 81-102) (for assets held in Canada) or an entity that meets the qualifications of section 6.3 of NI 81-102 (for assets held outside Canada).
11Each of the Top Funds is, or will be, a "mutual fund" as defined in securities legislation of the jurisdictions in which the Top Funds are distributed.
12The First Top Fund currently invests substantially all of its assets in the First Underlying Fund. A future Top Fund may invest substantially all of its assets in a future Underlying Fund.
13None of the Top Funds will be a reporting issuer in any jurisdiction of Canada.
Underlying Funds
14The First Underlying Fund is a trust established under the laws of the province of Ontario, for which the First Underlying Fund Manager acts as the investment fund manager and portfolio manager. The future Underlying Funds will be structured as trusts, limited partnerships or corporations under the laws of the province of Ontario, another jurisdiction of Canada or a foreign jurisdiction.
15The First Underlying Fund Manager acts as the investment fund manager and portfolio manager of the First Underlying Fund. It is unknown at this time who will be the investment fund manager and/or portfolio manager of the Future Underlying Funds, however, each Future Underlying Fund will be managed by a third party investment fund manager that is, or will be, unrelated to the Filer and which will meet the due diligence criteria established by the Filer for third party investment fund managers as described below with respect to the Underlying Funds.
16Each of the Underlying Funds has, or will have, separate investment objectives and investment strategies.
17The securities of the First Underlying Fund are sold solely to investors in Canada pursuant to exemptions from the prospectus requirements in accordance with NI 45-106 or the Legislation.
18The assets of the First Underlying Fund are held by RBC Investor Services Trust. The assets of the Future Underlying Funds will be held by an entity that meets the qualifications of section 6.2 of NI 81-102 (for assets held in Canada) or an entity that meets the qualifications of section 6.3 of NI 81-102 (for assets held outside Canada).
19Each of the Underlying Funds is, or will be, a “mutual fund” as defined in securities legislation of the jurisdictions in which the Underlying Funds are distributed.
20Each Underlying Fund has, or is expected to have, other investors in addition to the Top Fund.
21None of the Underlying Funds will be a reporting issuer in any jurisdiction of Canada.
Fund-on-Fund Structure
22The First Top Fund currently benefits from the expertise of the First Underlying Fund Manager in respect of the First Top Fund through a fund-of-fund strategy in accordance with the Specified Prior Relief.
23The First Top Fund currently invests substantially all of its assets in securities of the First Underlying Fund. The First Top Fund may cease to allocate 100% of its assets to investing in the First Underlying Fund and instead allocate all or some of its investments to one or more other Underlying Funds or invest directly in a portfolio of securities, depending upon the Filer's view of the best method by which to obtain the desired investment exposure from the best portfolio manager for the asset class, as identified by the Filer from time to time. A future Top Fund may invest its assets in the First Underlying Fund, a future Underlying Fund or a combination of both.
24The Top Funds allow investors to obtain exposure to the investment portfolios of the Underlying Funds and their respective investment strategies through direct investments by the Top Funds in securities of the Underlying Funds (the Fund-on-Fund Structure).
25The purpose of a Fund-on-Fund Structure is to provide an efficient and cost-effective manner of pursuing portfolio diversification on behalf of the Top Funds rather than through the direct purchase of securities. Managing a single pool of assets provides economies of scale and allows the Filer to meet the investment objective of each Top Fund in the most efficient manner.
26The Fund-on-Fund Structure seeks to provide access to managers the Filer views as best-in-class at superior pricing than the pricing a client would obtain on its own.
27The Filer will use the Fund-on-Fund Structure to invest the Top Funds in Underlying Funds that are managed by investment fund managers that are unrelated to the Filer.
28The Filer proposes to operate the Top Funds under a “manager of managers” structure whereby the Filer will either invest the Top Funds in Underlying Funds (that are, or will be, managed by a third party investment fund manager) and/or appoint various third party sub-advisors to a Top Fund (each a Sub-Advisor and collectively, the Sub-Advisors) to assist in the management of the investment portfolios of the Top Funds. The structures that the Filer contemplates are outlined in paragraph 29 below.
29There are two different Fund-on-Fund Structures that may be used by the Filer to invest the assets of a Top Fund:
(a) Certain Top Funds will invest in only one Underlying Fund managed by a third party investment fund manager. This Fund-on-Fund Structure will be used where the Filer determines that the investment objective of a Top Fund is best achieved by investing in one Underlying Fund, either alongside other securities or not. Such Underlying Fund may be changed to one or more other Underlying Funds, depending on whether the Filer concludes that different Underlying Funds would better achieve the investment objective of the Top Fund. The amounts invested from time to time in any Underlying Fund by one or more Top Funds may exceed 20% of the outstanding voting securities of the Underlying Fund.
(b) Certain Top Funds will invest in more than one Underlying Fund, each of which is managed by a third party investment fund manager. This Fund-on-Fund Structure will be used where the Filer determines that the investment objective of the Top Fund is best achieved through exposure to different investment styles and broader diversification provided by investing in multiple Underlying Funds, either alongside other securities or not. One or more of such Underlying Funds may be changed to other Underlying Funds from time to time, depending on whether the Filer concludes that different Underlying Funds would better achieve the investment objective of the Top Fund. The amounts invested from time to time in any Underlying Fund by one or more Top Funds may exceed 20% of the outstanding voting securities of the Underlying Fund.
30The Filer selects Underlying Funds and their investment fund managers, and Sub-Advisors to a Top Fund, from a universe of potential opportunities by utilizing a selection process which evaluates information across several key categories including asset class, loan underwriting methodology, target borrowers, target geography, industry focus, management, operations and control processes, loan loss history, market position, investment staff, investment process, investment risk, performance, and terms and conditions.
31The Filer will allocate assets of a Top Fund to third party investment fund managers as appropriate and consistent with the investment objectives of the relevant Top Fund. At the time of investment of a Top Fund in an Underlying Fund, the aggregate amount of assets directed to the third party investment fund manager of the Underlying Fund, across all Underlying Funds of such third party investment fund manager, will not represent more than 20% of the total assets under management of such third party investment fund manager in its overall asset management business.
32Any investment made by a Top Fund in an Underlying Fund will be aligned with the investment objectives, investment strategy, risk profile and other principal terms of the Top Fund.
33When a Top Fund invests in one or more Underlying Funds, the Underlying Fund(s) will pay a management fee (and may pay an incentive fee) to its investment fund manager for services related to selecting investments for the Underlying Fund and administering the Underlying Fund. As a result, investors in the Top Fund indirectly will pay the management (and incentive) fee of the third party investment fund manager. This fee is for portfolio management and administrative services related to the Underlying Fund and its investments. It is not duplicative of the fee that investors are paying to the Filer for determining the overall asset allocation of the investor’s portfolio.
34Each of the Top Funds and the Underlying Funds that are subject to National Instrument 81-106 - Investment Fund Continuous Disclosure (NI 81-106) will prepare annual audited financial statements and interim unaudited financial statements in accordance with NI 81-106 and will otherwise comply with the requirements of NI 81-106.
35The portfolio of the First Underlying Fund consists of privately-negotiated senior secured loans, primarily to Canadian companies. The portfolio of Future Underlying Funds will consist primarily of asset-based loans and companies based primarily in Canada and/or the United States. An investment by a Top Fund in an Underlying Fund will be effected based on an objective net asset value (NAV) of the Underlying Fund.
36Redemptions from the First Top Fund and the First Underlying Fund are permitted on a monthly basis. The First Top Fund and the First Underlying Fund will be valued on a monthly basis. Redemptions from the Future Top Funds are expected to be monthly. Valuation of the Future Top Funds is expected to occur on a monthly basis.
37A Top Fund will have the same valuation and redemption dates as the Underlying Fund or Underlying Funds in which it invests.
38Each Top Fund that invests substantially all its assets in Underlying Fund(s) will not be available for redemption on a valuation date where Underlying Fund(s) representing more than 10% of the NAV of the Top Fund are not available for redemption. In all cases, the Filer will manage the liquidity of the Top Funds having regard to the redemption features of the Underlying Fund(s) to ensure that it can meet redemption requests from investors of the Top Funds.
39The Top Funds are, or will be, related mutual funds under the Legislation by virtue of the common management by the Filer. The amounts invested from time to time in an Underlying Fund by a Top Fund, either alone or together with other Top Funds, may exceed 20% of the outstanding voting securities of the Underlying Fund. As a result, each Top Fund could, either alone or together with other Top Funds, become a substantial security holder of an Underlying Fund.
40In the absence of the Requested 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.
41A Top Fund’s investments in an Underlying Fund represent the business judgement 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) securities of the Top Funds are distributed in Canada solely pursuant to exemptions from the prospectus requirements in NI 45106 or the Legislation;
(b) the investment by a Top Fund in an Underlying Fund is consistent with the investment objectives of the Top Fund;
(c) at the time of the purchase of securities of an Underlying Fund by a Top Fund, the Underlying Fund holds not more than 10% of its NAV in securities of other investment funds unless the Underlying Fund:
(i) is a “clone fund” (as defined by NI 81102),
(ii) purchases or holds securities of a “money market fund” (as defined by NI 81102), or
(iii) purchases or holds securities that are “index participation units” (as defined by NI 81102) 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 or redemption fees are payable by a Top Fund in relation to its purchases or redemptions of securities of an Underlying Fund, except that a fee or deduction may be payable or incurred by a Top Fund provided the subscription or redemption relates to a corresponding subscription or redemption at the Top Fund level and the fee or deduction is flowed through to the subscribing or redeeming securityholder(s) of the Top Fund only;
(f) no fees or deductions are payable by investors in a Top Fund in relation to such investor’s purchase or redemption of securities of such Top Fund that would duplicate a fee payable by the Top Fund in connection with its subscription or redemption of securities of an Underlying Fund;
(g) the Filer does not cause the securities of an Underlying Fund held by a Top Fund to be voted at any meeting of holders of such securities, except that the Filer may arrange for the securities the Top Fund holds of the Underlying Fund to be voted by the beneficial holders of securities of the Top Fund;
(h) at the time of investment of a Top Fund in an Underlying Fund, the aggregate amount of assets directed to the third party investment fund manager of the Underlying Fund, across all Underlying Funds of such third party investment fund manager, will not represent more than 20% of the total assets under management of such third party investment fund manager in its overall asset management business;
(i) the offering memorandum, where available, or other disclosure document of a Top Fund, will be provided to investors in the Top Fund prior to the time of investment and will disclose:
(A) that the Top Fund may purchase securities of the Underlying Fund(s);
(B) that the Filer is the investment fund manager and portfolio manager of the Top Fund or, where the Filer is the portfolio manager of a Top Fund, the Filer may appoint a third party SubAdvisor to a Top Fund which meets the Filer’s due diligence criteria for third party portfolio managers, and that any Underlying Fund has, or will have, an investment fund manager that, in each case, is a third party entity, unrelated to the Filer, and which meets the due diligence criteria established by the Filer for third party investment fund managers;
(C) the approximate or maximum percentage of net assets of the Top Fund that is intended be invested in securities of the Underlying Fund(s);
(D) the fees and expenses payable by the Underlying Fund(s) in which the Top Fund invests, including any incentive fees;
(E) the process or criteria used to select an Underlying Fund;
(F) that investors in each Top Fund are entitled to receive from the Filer, on request and free of charge, a copy of the offering memorandum or other similar disclosure document of the Underlying Fund(s) (if available); and
(G) that investors are entitled to receive from the Filer, on request and free of charge, the annual and semiannual financial statements of the Underlying Fund(s) in which the Top Fund invests its assets.
“Poonam Puri” “M. Cecilia Williams”
Poonam Puri M. Cecilia Williams
Commissioner Commissioner
Ontario Securities Commission Ontario Securities Commission
Application File # 2017/0659
EXHIBIT A
EXISTING FUNDS
Pooled Funds
1 Ninepoint Enhanced Long Short Equity RSP Fund
2 Ninepoint Enhanced Long Short Equity Fund L.P.
3 Ninepoint Credit Income Opportunities Fund
4 Ninepoint Alternative Income Fund
5 Ninepoint - TEC Private Credit Fund
6 Ninepoint Canadian Senior Debt Fund