Waypoint Investment Partners Inc. (Re), 2021 CanLII 56416

Waypoint Investment Partners Inc. (Re)

June 29, 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 Waypoint Investment Partners Inc. (the Filer)

Decision

Background

The principal regulator in the Jurisdiction has received an application (the Application) from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) exempting the Filer from the prohibitions in subsections 13.5(2)(b)(ii) and (iii) 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, from purchasing or selling a security from or to the investment portfolio of an associate of a responsible person, or from or to the investment portfolio of an investment fund for which a responsible person acts as an adviser, in order to permit:

(a) Waypoint All Weather Alternative Fund (the Existing Fund) and any future investment funds of which the Filer is the manager and to which National Instrument 81-102 Investment Funds (NI 81-102) applies (each a Future Fund and, collectively with the Existing Fund, the Funds and each a Fund) to purchase securities from or sell securities to another Fund;

(b) A fully managed account for which the Filer acts or will act as portfolio manager (each, a Managed Account and, collectively, the Managed Accounts) to purchase securities from or sell securities to a Fund (the transactions referred to in paragraphs (a) to (b) are referred to collectively herein as the Inter-Fund Trades);

(c) the Inter-Fund Trades to be executed at the last sale price, as defined in the Universal Market Integrity Rules of the Investment Industry Regulatory Organization of Canada, prior to the execution of the trade (the Last Sale Price) in lieu of the closing sale price (the Closing Sale Price) contemplated by the definition of “current market price of the security” in Section 6.1(1)(a)(i) of National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107) on that trading day where the securities involved in the Inter-Fund Trade are exchange-traded securities (which term shall include Canadian and foreign exchange-traded securities); and

(d) in-specie subscriptions and redemptions by a Managed Account in a Fund (each such subscription or redemption, an In-Specie Transfer).

The relief requested in paragraphs (a) to (c) is collectively, the Inter-Fund Relief, the relief requested in paragraph (d) is the In-Specie Relief, collectively with the Inter-Fund 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) 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 Ontario, the Canadian Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 – Definitions, NI 81-102, NI 81-107, NI 31-103 or the securities legislation of Ontario have the same meaning in this Application (unless otherwise defined herein).

Representations

This decision is based on the following facts represented by the Filer:

General

1. The Filer is a corporation formed under the laws of Ontario with its head office located in Toronto, Ontario. The Filer is registered as an investment fund manager in the provinces of Ontario, Quebec and Newfoundland and Labrador and as an adviser in the category of portfolio manager and as an exempt market dealer in each of the provinces of Canada.

2. The Filer is, or will be, the investment fund manager of the Funds and the portfolio manager for the Funds and the Managed Accounts.

3. Each Fund is, or will be, established under the laws of Ontario or Canada as an investment fund that is a trust, a class of shares of a mutual fund corporation or limited partnership and is, or will be, a reporting issuer in one or more of the Canadian Jurisdictions.

4. The securities of each Fund are, or will be, qualified for distribution in one or more of the Canadian Jurisdictions under, as applicable, a prospectus, simplified prospectus, annual information form, fund facts and/or ETF facts, prepared and filed in accordance with the securities legislation of such Canadian Jurisdictions. Each Fund is, or will be, subject to the provisions of NI 81-102.

5. The Filer and the Existing Fund are not in default of the securities legislation of any Canadian Jurisdiction.

6. The Filer offers discretionary investment management services to investors in Canada through the Managed Accounts (each a Managed Account Client).

7. Each Managed Account Client has entered into, or will enter into, a written agreement (an Investment Management Agreement) whereby the client appoints the Filer to act as portfolio manager in connection with an investment portfolio of the client with full discretionary authority to trade in securities for the Managed Account without obtaining the specific consent of the client to execute each trade.

Inter-Fund Trades

8. The Filer wishes to be able to permit Inter-Fund Trades of portfolio securities between a Fund and another Fund or a Managed Account.

9. Section 13.5(2)(b) of NI 31-103 restricts a Fund or a Managed Account from entering into Inter-Fund Trades.

10. Because of the various investment objectives and investment strategies utilized by the Funds and Managed Accounts, it may be appropriate for the different investment portfolios to acquire or dispose of the same securities through the same trading system via an Inter-Fund Trade, rather than with a third party. The Filer has determined that there are significant benefits to be achieved by the Funds and Managed Accounts if the potential counterparties are expanded to include other Funds. These benefits include lower trading costs, reduced market disruption and quicker execution as well as simpler and more reliable compliance procedures.

11. The Filer has also determined that it would be in the interests of the Funds and Managed Accounts to receive the Inter-Fund Relief because making Funds and Managed Accounts subject to the same set of rules governing the execution of Inter-Fund Trades will result, in connection with the execution of transactions on behalf of Funds and Managed Accounts, in:

(a) cost and timing efficiencies; and

(b) less complicated and more reliable compliance procedures, as well as simplified and more efficient monitoring of same for the Filer.

12. Each Inter-Fund Trade will be consistent with the investment objectives of the relevant Fund or Managed Account, as applicable.

13. At the time of an Inter-Fund Trade, the Filer will have in place policies and procedures to enable the Funds and the Managed Accounts to engage in Inter-Fund Trades.

14. The Filer has established an independent review committee (IRC) in respect of the Existing Fund in accordance with NI 81-107. Any Future Fund will also become part of the mandate of the IRC.

15. Inter-Fund Trades involving a Fund will be referred to the IRC of such Fund under section 5.2(1) of NI 81-107, and the Filer, as the manager of the Funds, and the IRC of the Funds will comply with section 5.4 of NI 81-107 in respect of any standing instruction the IRC provides in connection with the Inter-Fund Trade. The IRC of the Funds will not approve an Inter-Fund Trade involving a Fund unless it has made the determination set out in section 5.2(2) of NI 81-107.

16. Prior to engaging in Inter-Fund Trades on behalf of a Managed Account, each Investment Management Agreement or other documentation in respect of each Managed Account will contain authorization from the client for the portfolio manager of the Managed Account to engage in Inter-Fund Trades.

17. Subsection 6.1(4) of NI 81-107 provides relief from Section 13.5(2)(b), but only if, among other conditions, both sides of the inter-fund trade are investment funds managed by the same manager, both are subject to NI 81-107 and the transaction is executed at Closing Sale Price.

18. The Filer cannot rely on the exemption codified under subsection 6.1(4) of NI 81-107 unless each party to the transaction is a reporting issuer, which will not be the case for Managed Accounts, and the Inter-Fund Trade occurs at the “current market price of the security” which, in the case of exchange-traded securities, includes the Closing Sale Price but not the Last Sale Price.

19. The Filer considers that it would be in the best interests of the Funds and Managed Accounts, as applicable, if an Inter-Fund Trade could be made at the Last Sale Price prior to the execution of the trade, in lieu of the Closing Sale Price, as this will result in the trade being done at the price which is closest to the price at the time the decision to make the trade is made.

20. Generally, the following procedures or other similar procedures will be followed when entering into Inter-Fund Trades if the Inter-Fund Relief is granted:

(a) the portfolio manager of the Filer will request the approval of the Chief Compliance Officer of the Filer or his or her designated alternate to execute a purchase or sale of a security by a Fund or a Managed Account as an Inter-Fund Trade;

(b) upon receipt of the required approval, the portfolio manager of the Filer will deliver the trading instructions to a trader on a trading desk of the Filer;

(c) upon receipt of the trade instructions and the required approval, the trader on the trading desk will execute the trade as an Inter-Fund Trade in accordance with the requirements of paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107 provided that, for exchange-traded securities, the Inter-Fund Trade may be executed at the Last Sale Price of the security in lieu of the Closing Sale Price; and

(d) the policies applicable to the trading desk of the Filer will require that all orders are to be executed on a timely basis.

In-Specie Transfers

21. Investments in individual securities may not be appropriate in certain circumstances for a Managed Account Client. Consequently, the Filer may, where authorized under the applicable Investment Management Agreement, from time to time, invest the assets in a Managed Account in securities of any one or more of the Funds in order to give such Managed Account Client the benefit of asset diversification and economies of scale regarding minimum commission charges on portfolio trades and generally to facilitate portfolio management.

22. The Filer may wish a Managed Account to deliver or receive portfolio securities in respect of a purchase or redemption, respectively, of units or shares of a Fund (Fund Securities).

23. Prior to engaging in In-Specie Transfers on behalf of a Managed Account, each Investment Management Agreement or other documentation will contain the authorization of the Managed Account Client for the portfolio manager of the Managed Account to engage in In-Specie Transfers.

24. The only cost which will be incurred by a Managed Account or Fund for an In-Specie Transfer is a nominal administrative charge levied by the custodian of the relevant Fund in recording the trades, and any commission charged by the dealer executing the trade.

25. The Filer, as manager of the Funds, will value the securities transferred under an In-Specie Transfer on the same valuation day on which the purchase price or redemption price of the Fund Securities of a Fund is determined. With respect to the purchase of Fund Securities of a Fund, the securities transferred to a Fund under an In-Specie Transfer in satisfaction of the purchase price of those Fund Securities will be valued as if the securities were portfolio assets of the Fund, as contemplated by section 9.4(2)(b)(iii) of NI 81-102. With respect to the redemption of Fund Securities of a Fund, the securities transferred to a Managed Account in satisfaction of the redemption price of those Fund Securities will have a value equal to the amount at which those securities were valued in calculating the net asset value per security used to establish the redemption price of the Fund Securities of the Fund, as contemplated by section 10.4(3)(b) of NI 81-102.

26. The valuation of any illiquid securities which would be the subject of an In-Specie Transfer will be carried out according to the Filer's policies and procedures for the fair valuation of portfolio securities, including illiquid securities. Should any In-Specie Transfer contemplated specifically by the Requested Relief involve the transfer of an “illiquid asset” (as defined in NI 81-102), the Filer will obtain at least one quote for the asset from an independent arm’s length purchaser or seller, immediately before effecting the In-Specie Transfer. If any illiquid securities are the subject of an In-Specie Transfer, the illiquid securities will be transferred on a basis that fairly represents the portfolio of the Managed Account or Fund.

27. In-Specie Transfers will be subject to (i) compliance with the written policies and procedures of the Filer respecting In-Specie Transfers that are consistent with applicable securities legislation, and (ii) the oversight of the Chief Compliance Officer of the Filer to ensure that the transaction represents the business judgment of the Filer acting in its discretionary capacity with respect to the Managed Account, uninfluenced by considerations other than the best interests of the Managed Account.

Regulatory framework and reasons for the Requested Relief

28. As the Filer is, or will be, the portfolio manager of the Funds and is, or will be, the portfolio manager of the Managed Accounts, the Filer would be considered a “responsible person” within the meaning of NI 31-103.

29. As the Filer is, or may be in the future, the trustee of a Fund which is organized as a trust, each such Fund may be an “associate” of the Filer, and therefore an “associate” of a “responsible person” within the meaning of NI 31-103.

30. Absent the grant of the Inter-Fund Relief and the In-Specie Relief, the Filer could be precluded by paragraphs 13.5(2)(b)(i) and (ii) of NI 31-103 from effecting the Inter-Fund Trades and In-Specie Transfers in such circumstances. Pursuant to these restrictions,

(a) a Fund or a Managed Account, as applicable, may be restricted from making Inter-Fund Trades with another Fund if:

(i) the other Fund is an associate of a responsible person, which will be the case on each occasion that the other Fund is structured as a trust and the Filer is the trustee of the Fund; or

(ii) a responsible person of the Fund or of the Managed Account, as applicable, is an adviser to the other Fund, which will be the case for each other Fund.

(b) a Managed Account, as applicable, may be restricted from making In-Specie Transfers with a Fund if:

(i) the Fund is an associate of a responsible person, which will be the case on each occasion that the Fund is structured as a trust and the Filer is the trustee of the Fund; or

(ii) a responsible person of the Managed Account is an adviser to the Fund, which will be the case for each Fund.

31. The Filer has determined that it will be in the best interests of the Funds and the Managed Accounts to obtain the Requested Relief.

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:

(a) the Inter-Fund Relief is granted provided that:

(i) the Inter-Fund Trade is consistent with the investment objectives of the Fund or Managed Account, as applicable;

(ii) the Filer refers the Inter-Fund Trade to the IRC of the Fund involved in the manner contemplated by section 5.1 of NI 81-107 and the Filer and the IRC of the Fund comply with section 5.4 of NI 81-107 in respect of any standing instructions the IRC provides in connection with the Inter-Fund Trade;

(iii) the IRC of each Fund has approved the Inter-Fund Trade in respect of the Fund in accordance with the terms of subsection 5.2(2) of NI 81-107; and

(iv) the Inter-Fund Trade complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107 except that for purposes of paragraph (e) of subsection 6.1(2) of NI 81-107 in respect of exchange-traded securities, the current market price of the securities may be the Last Sale Price; and

(v) if the Inter-Fund Trade is with a Managed Account, the Investment Management Agreement or other documentation in respect of the Managed Account authorizes the Inter-Fund Trade and the authorization has not been revoked:

(b) the In-Specie Transfer Relief is granted provided that:

(i) the IRC of the Fund has approved the In-Specie Transfer in accordance with the terms of section 5.2 of NI 81-107;

(ii) the Filer and the IRC of the Fund comply with section 5.4 of NI 81-107 in respect of any standing instructions the IRC provides in connection with the In-Specie Transfer;

(iii) the Filer obtains the prior written consent of the client of the Managed Account before it engages in the In-Specie Transfer and the authorization has not been revoked;

(iv) if the transaction is the purchase of Fund Securities of a Fund by a Managed Account:

(1) the Fund would, at the time of payment, be permitted to purchase the portfolio securities;

(2) the portfolio securities are acceptable to the Filer, as portfolio manager of the Fund and consistent with the Fund’s investment objectives;

(3) the value of the portfolio securities is equal to the issue price of the Fund Securities of the Fund for which they are used as payment, valued as if the securities were portfolio assets of that Fund;

(4) the account statement next prepared for the Managed Account describes the portfolio securities delivered to the Fund and the value assigned to such securities; and

(v) if the transaction is the redemption of Fund Securities of a Fund by a Managed Account:

(1) the portfolio securities are acceptable to the Filer as portfolio manager of the Managed Account and consistent with the Managed Account’s investment objectives;

(2) the value of the portfolio securities is equal to the amount at which those securities were valued by the Fund in calculating the net asset value per Fund Security used to establish the redemption price;

(3) the holder of the Managed Account has not provided notice to terminate its Investment Management Agreement with the Filer;

(4) the account statement next prepared for the Managed Account describes the portfolio securities delivered to the Managed Account and the value assigned to such securities;

(vi) the Fund keeps written records of all In-Specie Transfers in a financial year of the Fund, reflecting details of the portfolio securities delivered to the Fund (in the case of purchases of Fund Securities by a Managed Account) and by the Fund (in the case of redemptions of Fund Securities by a Managed Account) and the value assigned to such securities, for at least five years after the end of the financial year, the most recent two years in a reasonably accessible place;

(vii) Filer does not receive any compensation in respect of any purchase or redemption of Fund Securities of a Fund, and in respect of any delivery of securities further to an In-Specie Transfer, the only charge paid by the Managed Account or Fund, if any, is a nominal administrative charge levied by the custodian in recording the trade and any commission charged by the dealer executing the trade; and

(viii) should any In-Specie Transfer involve the transfer of an “illiquid asset” (as defined in NI 81-102) the Filer will obtain at least one quote for the asset from an independent arm’s length purchaser or seller, immediately before effecting the In-Specie Transfer (as contemplated by commentary #7 to section 6.1 of National Instrument 81-107 Independent Review Committee for Investment Funds).

“Darren McKall”__________________________

Darren McKall, Manager Investment Funds & Structured Products Branch Ontario Securities Commission

Application #2021/0306