April 6, 2021
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 BT GLOBAL GROWTH INC. (the Filer)
AND
BT GLOBAL GROWTH TRUST
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on its behalf and on behalf of BT Global Growth Trust (the Initial Top Fund) and any other investment fund that is not a reporting issuer and that is established, advised or managed by the Filer, or an affiliate, after the date hereof (the Future Top Funds and, together with the Initial Top Fund, the Top Funds), for a decision under the securities legislation of the Jurisdiction (the Legislation) exempting the Filer, any affiliate of the Filer, and the Top Funds from:
(a) the restriction in the Legislation which prohibits 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 securityholder;
(b) the restriction in the Legislation which prohibits an investment fund from knowingly making an investment in an issuer in which any of the following may have a significant interest:
(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 securityholder of the investment fund, its management company or its distribution company;
(c) the restriction in the Legislation which prohibits an investment fund, its management company or its distribution company from knowingly holding an investment described in paragraphs (a) or (b) above (together with paragraphs (a) and (b), the Related Issuer Relief); and
(d) the restrictions contained in paragraph 13.5(2)(a) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) which prohibit a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as an adviser, to purchase a security of an issuer of which a responsible person or an associate of a responsible person is a partner, officer or director unless (i) this fact is disclosed to the client and (ii) the written consent of the client to the purchase is obtained before the purchase (the Consent Relief, together with the Related Issuer Relief, the Requested Relief),
to permit the Filer to cause the Top Funds to invest in the Underlying Funds (as defined below).
The Filer also seeks to revoke and replace the Current Relief (defined below) (the Revocation).
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 British Columbia, Alberta, Saskatchewan, Manitoba and Québec (together with Ontario, the Jurisdictions).
Interpretation
Terms used 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 the Filer:
Filer
The Filer is a corporation incorporated under the laws of Canada and has its registered office in Montréal, Québec.
The Filer is registered in the categories of portfolio manager and exempt market dealer in British-Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Québec. It is also registered in Ontario and Québec as investment fund manager and in Québec as derivatives portfolio manager.
The Filer is not a reporting issuer in any of the Jurisdictions and is not in default of the securities legislation of any of the Jurisdictions.
The Filer is or will be the investment fund manager and portfolio manager of the Top Funds.
The Filer is the investment fund manager and portfolio manager of BT Global Growth Fund LP (the Initial Underlying Fund) and will be the investment fund manager and portfolio manager of other underlying investment funds that may be established by the Filer or an affiliate of the Filer after the date hereof (collectively, the Future Underlying Funds and together with the Initial Underlying Fund, the Underlying Funds).
As the Filer is or will be the portfolio manager of the Top Funds and Underlying Funds, the Filer and any partner, director or officer of the Filer is or will be considered a “responsible person” of the Top Funds and Underlying Funds within the meaning of subsection 13.5(1) of NI 31-103.
The Filer will have complete discretion to invest the assets of the Top Funds and the Underlying Funds (collectively the “Funds”), and will be responsible for executing all portfolio transactions. Furthermore, the Filer, subject to compliance with applicable securities laws, may act as a distributor of securities of the Top Funds and Underlying Funds not otherwise sold through another registered dealer.
The Top Funds
The Initial Top Fund was established as an open-end investment fund trust, pursuant to a declaration of trust effective as of February 26, 2020. The Filer acts as trustee of the Initial Top Fund, pursuant to the blanket approval under OSC Revised Approval 81-901 Mutual Fund Trusts: Approval of Trustees Under Clause 213(3)(b) of the Loan and Trust Corporations Act.
Future Top Funds may be formed as limited partnerships, trusts or corporations under the laws of Québec, another jurisdiction in Canada, or a foreign jurisdiction.
Each of the Top Funds will be a “mutual fund” as defined in securities legislation of the jurisdictions in which the Top Funds are distributed.
The Initial Top Fund is not, and each Future Top Fund will not be, a reporting issuer in any jurisdiction of Canada.
Securities of the Top Funds will be offered for sale in any jurisdiction in Canada pursuant to prospectus exemptions under National instrument 45-106 Prospectus Exemptions (NI 45-106) or in other jurisdictions subject to available prospectus exemptions and applicable laws, including to managed accounts advised by the Filer.
Each Top Fund intends to invest all or substantially all of its assets in one or more Underlying Funds. Accordingly, each Top Fund could, either alone or together with one or more funds managed by the Filer or an affiliate, become a substantial securityholder of an Underlying Fund.
The Underlying Funds
The Initial Underlying Fund is an open-ended limited partnership established under the laws of Ontario whose portfolios are managed by the Filer.
Future Underlying Funds may be structured as limited partnerships, trusts or corporations under the laws of Ontario, another jurisdiction in Canada, or a foreign jurisdiction.
The general partner of the Initial Underlying Fund is BT Advisory Inc. (the General Partner). The General Partner is incorporated under the Canada Business Corporations Act and its majority shareholder is Paul Beattie, a registered individual sponsored by the Filer that is registered in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Québec as associate advising representative (portfolio manager), dealing representative (exempt market dealer) and ultimate designated person.
The Filer will be entitled to receive management fees with respect to one or more series of securities of the Initial Underlying Fund.
The General Partner or other affiliates of the Filer will be entitled to receive incentive fees with respect to one or more series of securities of the Initial Underlying Fund.
Securities of the Underlying Funds may be offered for sale in any jurisdiction in Canada pursuant to prospectus exemptions under NI 45-106 or in other jurisdictions subject to available prospectus exemptions and applicable laws.
No Underlying Fund will be a reporting issuer in any jurisdiction in Canada.
Each Underlying Fund will have separate investment objectives, strategies and/or restrictions.
The investment objectives of the Initial Underlying Fund, as a value oriented, long/short equity and commodity hedge fund, is to provide an investment vehicle for high-net-worth investors to augment their own portfolio returns, through long-term capital appreciation, uncorrelated with major North American markets by seeking out undervalued special situations.
Each Underlying Fund may invest up to 100% of assets in liquid securities with a target, under normal market conditions of less than 10% of illiquid securities. While the Underlying Funds will not be restricted from purchasing and holding illiquid assets (as defined in National Instrument 81-102 Investment Funds (“81-102”), the Filer or an affiliate will manage the portfolio of each Underlying Fund to ensure that there is sufficient liquidity to provide for redemptions of securities by securityholders of the Top Funds in accordance with the redemption provisions thereof. Up to 90% of the securities held by the Initial Underlying Fund are considered liquid investments.
Securities of the Initial Underlying Fund will not be “qualified investments” under the Income Tax Act (Canada) and will not be eligible for investment by tax-free savings accounts (“TFSAs”) and trusts governed by registered retirement savings plans, registered education savings plans, deferred profit-sharing plans and registered disability savings plans (collectively “Tax Deferred Plans”) each as defined in the Income Tax Act (Canada).
Fund-on-Fund Structure
The Initial Top Fund is, and Future Top Funds will be, created by the Filer to allow investors in the Top Funds to obtain indirect exposure to the investment portfolio of the Initial Underlying Fund or Future Underlying Funds and their investment strategies through direct investments by the Top Funds in securities of the Underlying Funds (the Fund-on-Fund Structure).
The Initial Top Fund was formed as a trust for the purpose of accessing a broader base of investors, such as those seeking to hold their investments in TFSAs, Tax Deferred Plans and other investors that may not wish to invest directly in limited partnerships such as the Initial Underlying Fund for tax or other considerations.
The Fund-on-Fund Structure permits the Filer to manage a single portfolio of assets for both a Top Fund and each Underlying Fund that the Top Fund holds in a single investment structure. Managing a single pool of assets provides economies of scale which is expected to provide additional benefits to securityholders of the Top Funds and Underlying Funds, including more favourable pricing and transaction costs on portfolio trades, increased access to investments where there is a minimum subscription or purchase amount and greater administrative efficiency.
Any investment by a Top Fund in an Underlying Fund will be aligned with the investment objectives, investment restrictions, risk profile and other principal terms of the Top Fund.
Investing in the Underlying Funds will allow the Top Funds to achieve their investment objectives in a cost-efficient manner and will not be detrimental to the interests of other securityholders of the Underlying Funds.
No Underlying Fund will be a Top Fund in a Fund-on-Fund Structure.
A Top Fund and any corresponding Underlying Fund will have the same valuation and redemption dates.
An investment in an Underlying Fund by a Top Fund is, or will be, effected at an objective price, which will be the net asset value (NAV) per security of the applicable class or series of the applicable Underlying Fund, calculated in accordance with section 14.2 of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106), as if that section applied to the Underlying Fund.
The Top Funds and Underlying Funds 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 applicable to them.
The amounts invested, from time to time, in an Underlying Fund by one or more of the Top Funds or other related investment funds may exceed 20% of the outstanding voting securities of that Underlying Fund. Accordingly, each Top Fund could, either alone or together with one or more funds managed by the Filer or an affiliate, become a substantial securityholder of an Underlying Fund.
In addition, the Fund-on-Fund Structure may result in a Top Fund investing in (i) an Underlying Fund in which an officer or director of the Top Fund, of the Filer or of any associate of them, has a significant interest, and/or (ii) an Underlying Fund where a person or company who is a substantial securityholder of the Top Fund or the Filer, has a significant interest.
Currently, there is no officer or director of any Top Fund, such Top Fund’s management company, or its distribution company, or any associate of them, who has a significant interest in the Initial Underlying Fund, however, there may be circumstances in the future which may cause them to have a significant interest.
Requested Relief
In the absence of the Related Issuer Relief, the Top Funds would be constrained by the investment restrictions in Canadian securities legislation in terms of the degree to which they could implement the Fund-on-Fund Structure. Specifically, the Top Funds would be prohibited from: (i) becoming substantial securityholders of the Underlying Funds, either alone or together with related investment funds; and (ii) a Top Fund investing in an Underlying Fund in which an officer or director of the Top Fund’s management company has a significant interest and/or a Top Fund investing in an Underlying Fund in which a person or company who is a substantial securityholder of the Top Fund or the Top Fund’s management company, has a significant interest.
In the absence of the Consent Relief, each Top Fund would be precluded from investing in one or more Underlying Funds unless the specific fact is disclosed to securityholders of the Top Fund and the written consent of the securityholders of the Top Fund to the investment is obtained prior to the purchase, since an officer and/or a director of the Filer, who may be considered a “responsible person” (as per subsection 13.5(1) of NI 31-103) or an associate of a responsible person may also be a partner, officer and/or director of the general partner of an Underlying Fund where the Underlying Fund is a limited partnership.
Under a decision dated December 20, 2019, the Filer and the Top Funds were granted relief from the restrictions in the Legislation that prohibit an investment fund from knowingly making and holding an investment in any person or company in which the investment fund, alone or together with one or more related investment funds, is a substantial securityholder, for the purpose of effecting the Fund-on-Fund Structure (the Current Relief). The Current Relief is not as broad as the Requested Relief as it does not include the more comprehensive Related Issuer Relief sought in this application and the Consent Relief. The Filer seeks the Revocation in order to revoke the Current Relief and replace it with a decision granting the Requested Relief.
A Top Fund’s investment in an Underlying Fund represents the business judgment of responsible persons uninfluenced by considerations other than the best interests of the investors in the Top Funds.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make its decision.
The decision of the principal regulator under the Legislation is that:
the Revocation of the Current Relief is granted; and
the Related Issuer Relief and the Consent Relief are granted provided that:
(a) securities of a Top Fund are distributed in Canada solely pursuant to exemptions from the prospectus requirement under applicable securities legislation;
(b) the investment by a Top Fund in an Underlying Fund is compatible with the investment objectives of the Top Fund;
(c) an investment in an Underlying Fund by a Top Fund will be effected at an objective price, calculated in accordance with section 14.2 of NI 81-106;
(d) a Top Fund will not invest in an Underlying Fund that is not a reporting issuer unless the Underlying Fund prepares annual audited financial statements for the Underlying Fund’s most recently completed financial year and interim financial statements for the Underlying Fund’s most recently completed interim period;
(e) no Top Fund will purchase or hold a security of an Underlying Fund unless at the time of purchasing securities of the Underlying Fund, the Underlying Fund holds no more than 10% of its NAV in securities of other mutual funds, unless the Underlying Fund:
(i) is a clone fund (as defined in NI 81-102);
(ii) purchases or holds securities of a ‘money market fund’ (as defined in NI 81-102); or
(iii) purchases or holds securities that are ‘index participation units’ (as defined in NI 81-102) issued by an investment fund;
(f) 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;
(g) 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 that, to a reasonable person, would duplicate a fee payable by an investor in the Top Fund, other than brokerage fees incurred for the purchase or sale of an index participation unit issued by an investment fund;
(h) 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 that the Top Fund holds of the Underlying Fund to be voted by the beneficial owners of the securities of the Top Fund who are not the Filer or an officer, director or substantial securityholder of the Filer;
(i) when purchasing and/or redeeming securities of an Underlying Fund, the Filer shall as investment fund manager of the applicable Top Fund and Underlying Fund, act honestly, in good faith and in the best interests of the Top Fund and the Underlying Fund, respectively, and shall exercise the care and diligence that a reasonably prudent person would exercise in comparable circumstances;
(j) a disclosure document, including an offering memorandum where available, of a Top Fund shall be provided to each investor in a Top Fund prior to the time of investment, and will disclose:
(i) that the Top Fund may purchase securities of one or more applicable Underlying Funds;
(ii) that the Filer is the investment fund manager and portfolio manager of both the Top Fund and the Underlying Funds;
(iii) the approximate or maximum percentage of net assets of the Top Fund that is intended to be invested in securities of the Underlying Funds;
(iv) the fees, expenses and any performance or special incentive distributions payable by the Underlying Funds in which the Top Fund invests;
(v) the process or criteria used to select the Underlying Funds, if applicable;
(vi) for each officer, director and/or substantial securityholder of the Filer or of the Top Fund that has a significant interest in an applicable Underlying Fund, and for the officers and directors and substantial securityholders who together in aggregate hold a significant interest in an applicable Underlying Fund, the approximate amount of the significant interest they hold, on an aggregate basis, expressed as a percentage of the applicable Underlying Fund’s NAV, and the potential conflicts of interest which may arise from such relationship;
(vii) that investors are entitled to receive from the Filer or its affiliate, on request and free of charge, a copy of the prospectus, offering memorandum or other similar disclosure document of the Underlying Funds, if available; and
(viii) that investors are entitled to receive from the Filer or its affiliate, on request and free of charge, the annual audited financial statements and interim financial reports relating to the Underlying Funds in which the Top Fund invests; and
(k) the Filer shall annually inform investors in a Top Fund of their right to receive from the Filer, as applicable, on request and free of charge, a copy of the offering memorandum or other similar disclosure document of each Underlying Fund, if available, and the annual audited financial statements and interim financial reports relating to each Underlying Fund in which the Top Fund invests.
The Consent Relief:
“Darren McKall”
Darren McKall Manager, Investment Funds and Structured Products Ontario Securities Commission
The Revocation and the Related Issuer Relief:
“Craig Hayman” “Cecilia Williams”
Craig Hayman Cecilia Williams Commissioner Commissioner Ontario Securities Commission Ontario Securities Commission
App. No. 2021/0014 & 2021/0163