In the Matter of SLGI Asset Management Inc. et al., 2022 CanLII 58178

June 30, 2022

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

SLGI Asset Management Inc. (SLGI)

and

Sun Life Capital Management (Canada) Inc. (SLC)

and

the Top Funds

(as defined below)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from SLGI and SLC and their affiliates (each a Filer, and collectively, the Filers) on behalf of the Top Funds, for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation):

1. exempting the Top Funds from the restrictions in the Legislation (the Related Issuer Investment Restrictions) which prohibit:

(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 securityholder;

(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 securityholder 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);

2. exempting each Filer that is an adviser to a Public Fund from the restriction in paragraph 13.5(2)(a) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) that 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);

3. exempting each Filer from the requirement to prepare a report with respect to the Public Funds, in accordance with the requirements of the Legislation, of every transaction of purchase or sale of securities with any related person or company (the Reporting Relief),

in the case of each of paragraphs 1, 2 and 3, to permit each Top Fund to invest in securities of the Underlying Investments (as defined below); and

4. exempting each Public Fund from the restrictions in paragraphs 2.5(2)(a) and (c) of National Instrument 81-102 Investment Funds (NI 81-102) that prohibit a mutual fund that is a reporting issuer from investing in securities of an underlying investment fund that is not subject to NI 81-102 and is not a reporting issuer, to permit the Public Fund to invest a portion of its assets in securities of Underlying Private Funds (as defined below) (the Public Fund-on-Private Fund Relief).

The Related Issuer Relief, the Consent Requirement Relief, the Reporting Relief and the Public Fund-on-Private Fund Relief are collectively referred to, as the Exemption Sought.

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 Filers have 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, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Yukon and Nunavut (together with Ontario, the Jurisdictions).

Interpretation

Terms defined in MI 11-102, NI 31-103, National Instrument 14-101 Definitions, NI 81-102 and National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107) have the same meaning if used in this decision, unless otherwise defined.

CCM Fund means SLC Management Canadian Commercial Mortgage Fund;

Existing Public Funds means each investment fund managed by a Filer as at the date of this decision that is a reporting issuer subject to NI 81-102;

Existing Underlying Investment means each of the PFI Funds and the CCM Fund;

Future Public Funds means each investment fund that will be managed by a Filer after the date of this decision, other than the Existing Public Funds, and that will be a reporting issuer subject to NI 81-102;

Future Underlying Investment means each collective investment vehicle that will be managed by a Filer after the date of this decision, other than the Existing Underlying Investments, and that will not be a reporting issuer or an investment fund;

Long PFI Fund means SLC Management Long Term Private Fixed Income Plus Fund;

Mid PFI Fund means SLC Management Private Fixed Income Plus Fund;

PFI Funds means the Short PFI Fund, the Mid PFI Fund and the Long PFI Fund;

Private Funds means the investment funds managed by a Filer as at and after the date of this decision that are not, and will not be, reporting issuers;

Public Funds means the Existing Public Funds and the Future Public Funds;

Short PFI Fund means SLC Management Short Term Private Fixed Income Plus Fund;

Top Funds means the Public Funds and the Private Funds;

Underlying Investment means each Existing Underlying Investment and each Future Underlying Investment; and

Underlying Private Funds means the Private Funds in which the Public Funds invest.

Representations

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

The Filers

1. Each of SLC and SLGI is a corporation incorporated under the laws of Canada.

2. Each of SLC and SLGI has a head office located in Toronto, Ontario and is a wholly-owned indirect subsidiary of Sun Life Financial Inc. (SLF).

3. SLGI is registered: (a) under the securities legislation of Ontario, Québec, and Newfoundland and Labrador as an investment fund manager, (b) under the securities legislation of Ontario as a mutual fund dealer, (c) under the securities legislation of Ontario as a portfolio manager, and (d) under the Commodity Futures Act (Ontario) as a commodity trading manager.

4. SLC is registered (a) under the securities legislation of each Jurisdiction as an investment fund manager, (b) under the securities legislation of each Jurisdiction as an exempt market dealer, (c) under the securities legislation of each Jurisdiction as a portfolio manager, and (d) under the Commodity Futures Act (Ontario) as a commodity trading manager.

5. SLGI is the investment fund manager and portfolio manager of the Existing Public Funds and may, in the future, be the investment fund manager and/or portfolio manager of Private Funds.

6. SLC is the investment fund manager and portfolio manager of existing Private Funds.

7. Each Filer is, or will be, a “responsible person” of a Top Fund, as that term is defined in NI 31-103.

8. The Filers are not in default of securities legislation in any Jurisdiction.

The Top Funds

9. Securities of each Public Fund are, or will be, qualified for distribution in one or more of the Jurisdictions and distributed to investors pursuant to a prospectus prepared in accordance with National Instrument 81-101 Mutual Fund Prospectus Disclosure or National Instrument 41-101 General Prospectus Requirements, as applicable.

10. Each Public Fund is, or will be, a reporting issuer under the securities legislation of one or more Jurisdictions.

11. Securities of each Private Fund are, or will be, distributed solely to investors pursuant to exemptions from the prospectus requirements in accordance with National Instrument 45-106 Prospectus Exemptions (NI 45-106) and the Legislation.

12. No Private Fund will be a reporting issuer under the securities legislation of any Jurisdiction.

13. The Existing Top Funds are not in default of the securities legislation of any Jurisdiction.

14. A Top Fund may wish to invest in securities of one or more of the Underlying Investments and/or Underlying Private Funds, provided the investment is consistent with the Top Fund’s investment objectives and strategies.

15. SLGI has established an independent review committee (an IRC) in order to review conflict of interest matters pertaining to its management of the Public Funds as required by NI 81-107.

The Underlying Private Funds

16. Each Underlying Private Fund is, or will be, an investment fund, as such term is defined under the Legislation.

17. Securities of each Underlying Private Fund are, or will be, distributed solely to investors pursuant to exemptions from the prospectus requirements in accordance with NI 45-106 and the Legislation.

18. No Underlying Private Fund is, or will be a, reporting issuer under the securities legislation of any Jurisdiction.

19. SLC is the manager of existing Underlying Private Funds. A Filer will be the manager of future Underlying Private Funds.

20. Each Underlying Private Fund that is a mutual fund complies, or will comply, with the investment requirements applicable to prospectus-qualified mutual funds, as set out in Parts 2 and 4 of NI 81-102, including the restrictions relating to illiquid assets (section 2.4 of NI 81-102) and investments in other investment funds (section 2.5 of NI 81-102), for so long as it is held by a Public Fund.

21. Each Underlying Private Fund that is a non-redeemable investment fund complies, or will comply, with the investment requirements applicable to prospectus-qualified non-redeemable investment funds, as set out in Parts 2 and 4 of NI 81-102, including the restrictions relating to illiquid assets (section 2.4 of NI 81-102) and investments in other investment funds (section 2.5 of NI 81-102), for so long as it is held by a Public Fund.

22. An investment in an Underlying Private Fund by a Public Fund will not expose the investors of the Public Fund to any investment strategies or risks that they are not currently exposed to by virtue of holding securities of the Public Funds.

23. Each Underlying Private Fund will comply with Part 14 of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106), including the obligation to calculate net asset value (NAV) every business day if it uses specified derivatives or sells securities short, or weekly if it does not use specified derivatives or sell securities short, for so long as it is held by a Public Fund.

24. In the case of Underlying Private Funds that are mutual funds, securities will be redeemable at least quarterly at a redemption price equal to the relevant NAV per security on the redemption date. In the case of Underlying Private Funds that are non-redeemable investment funds, securities will be redeemable on a periodic basis at a redemption price equal to the relevant NAV per security, but may be subject to lock-up periods, early redemption penalties, and/or other limitations on redemptions, depending on the amount redeemed.

The Underlying Investments

25. The Existing Underlying Investments are collective investment vehicles established as limited partnerships under the laws of Ontario. Future Underlying Investments may be structured as limited partnerships, trusts or corporations governed by the laws of Canada or of a Jurisdiction or of a foreign jurisdiction.

26. Securities of each Underlying Investment are, or will be, distributed solely to investors pursuant to exemptions from the prospectus requirements in accordance with NI 45-106 and the Legislation.

27. No Underlying Investment will be a reporting issuer under the securities legislation of any Jurisdiction.

28. SLC is the manager of the Existing Underlying Investments. A Filer will be the manager of Future Underlying Investments.

29. Each general partner (each a GP and collectively, the GPs) of an Existing Underlying Investment is a wholly-owned indirect subsidiary of SLF and is an affiliate of the Filers.

30. The investment objectives and investment strategies of the Existing Underlying Investments are as follows:

(a) Short PFI Fund: The Short PFI Fund seeks to achieve total return by providing income while preserving capital, by investing primarily in a diverse portfolio of short term private and public fixed income and floating rate assets. The Short PFI Fund seeks to take advantage of pricing inefficiencies often found in the private fixed income market. Examples of investments include secured and unsecured loans to large corporate borrowers; debt financing of real assets, which may include real property and infrastructure, with access to stable and enduring cash flow streams through the monetization of contractual payments or through loans secured by cash flow generating real assets that are difficult to replicate; loans to mid-market companies that tend to have limited access to public capital markets generally with strong equity sponsorship, where transactions provide access to diverse fixed and floating rate private investment opportunities across North America and select developed markets overseas; and investments in securitized lease/loan obligations supported by well diversified pools of assets such as manufacturing equipment and transportation assets with added levels of credit enhancement. The Short PFI Fund considers investment opportunities from a range of developed markets, including Canada and the United States. The Short PFI Fund also invests in a wide range of securities available in public fixed income markets (Public Assets) to seek to neutralize exposure to unintended risks relative to the Short PFI Fund’s guidelines and to support ongoing cash flow management. Positions in Public Assets work in conjunction with core private fixed income and floating rate asset positions to reflect SLC’s fundamental credit research views and SLC’s forecasts for interest rates, yield curves, and credit sectors/industries. The Short PFI Fund may also invest in government treasury bills and government guaranteed bonds maturing in less than one year, demand deposits, bankers’ acceptances and short term bank paper or short term corporate paper issued by Canadian companies (Money Market Instruments).

(b) Mid PFI Fund: The Mid PFI Fund seeks to achieve total return by providing income while preserving capital over the long term, by investing primarily in a diverse portfolio of private and public fixed income assets. The Mid PFI Fund seeks to take advantage of pricing inefficiencies often found in the private fixed income market. Examples of investments include long term debt financing for power projects such as hydro, wind, co-generation and solar; public private partnership (P3) infrastructure projects including hospitals, bridges, roads, detention facilities, court houses and public transit systems; senior secured and unsecured loans to high credit quality large corporate borrowers; debt financing of real assets, which may include real property, with access to stable and enduring cash flow streams through the monetization of contractual payments or through loans secured by cash flow generating real assets that are difficult to replicate; senior loans to mid-market companies which generally do not access the public debt markets; and investments in securitized lease/loan obligations supported by well diversified pools of assets such as manufacturing equipment and transportation assets with added levels of credit enhancement. The Mid PFI Fund considers investment opportunities from a range of developed markets, including Canada and the United States. The Mid PFI Fund also invests in a wide range of Public Assets to seek to achieve positive active returns, neutralize exposure to unintended risks relative to the Mid PFI Fund’s benchmark, enhance liquidity and manage the Mid PFI Fund’s duration. Positions in Public Assets work in conjunction with core private fixed income and floating rate asset positions to reflect SLC’s fundamental credit research views and SLC’s forecasts for interest rates, yield curves, and credit sectors/industries. The Mid PFI Fund may also invest in Money Market Instruments.

(c) Long PFI Fund: The Long PFI Fund seeks to achieve total return by providing income while preserving capital over the long term, by investing primarily in a diverse portfolio of long term private and public fixed income assets. The Long PFI Fund seeks to take advantage of pricing inefficiencies often found in the private fixed income market. Examples of investments include long term infrastructure debt financing for power projects such as hydro, wind, co-generation and solar; public private partnership (P3) infrastructure projects including hospitals, bridges, roads, detention facilities, court houses and public transit systems; long term senior secured and unsecured loans to corporate borrowers; debt financing of real assets, which may include real property, with access to stable and enduring cash flow streams through the monetization of contractual payments or through loans secured by cash flow generating real assets that are difficult to replicate; and infrastructure debt financing of long term care facilities. A material portion of the Long PFI Fund’s private assets are expected to benefit from strong government sponsorship. The Long PFI Fund considers investment opportunities from a range of developed markets, including Canada and the United States. The Long PFI Fund also invests in a wide range of Public Assets to seek to achieve positive active returns, neutralize exposure to unintended risks relative to the Long PFI Fund’s benchmark, enhance liquidity and manage the Long PFI Fund’s duration. Positions in Public Assets work in conjunction with core private fixed income asset positions to reflect SLC’s fundamental credit research views and SLC’s forecasts for interest rates, yield curves, and credit sectors/industries. The Long PFI Fund may also invest in Money Market Instruments.

(d) CCM Fund: The CCM Fund seeks to provide income while preserving capital over the long term, by investing primarily in a portfolio of first mortgage loans secured by properties located in Canada. The CCM Fund invests primarily in a portfolio of fixed-rate first mortgage loans secured by high quality income-producing office, retail, industrial and multi-family rental properties located in Canadian urban markets. The CCM Fund invests in mortgage loans to qualified, financially-strong borrowers with expertise in the ownership, management and operation of commercial real estate and/or multi-family rental properties and which loans are secured by properties located in growing metropolitan areas (typically with populations in excess of 100,000). The mortgage loans are diversified by geographic region and by property type. The CCM Fund may also invest in Money Market Instruments and public fixed income bonds issued by governments or corporations.

31. The Underlying Investments are not, and will not be, investment funds as such term is defined under the Legislation.

32. The Underlying Investments are, or will be, operated in a manner similar to how the Filers operate their investment funds. The Underlying Investments are, or will be, administered by SLC or an affiliate of a Filer and their assets are, or will be, managed by SLC or an affiliate, acting as portfolio manager. SLC or an affiliate calculates, or causes to be calculated, a NAV which is, or will be, used for the purposes of determining the purchase and redemption price of the securities of the Underlying Investments.

33. The underlying private fixed income assets of the PFI Funds are independently valued on a monthly basis by one or more entities that are at arm’s length to SLC and its affiliates. Similar independent valuation is or will be carried out in respect of the underlying portfolio assets of each Future Underlying Investment and each Underlying Private Fund that invests more than 20% of its assets in private fixed income investments.

34. On a monthly basis, the underlying mortgage assets of the CCM Fund are valued by SLC in accordance with section III(2.5) of National Policy 29 Mutual Funds Investing in Mortgages (NP 29), as if the CCM Fund were subject to that policy. The CCM Fund determines the value of each mortgage by discounting the expected future cash flows using a current market interest rate applicable to financial instruments with similar yield, credit quality and maturity characteristics as the mortgage. Valuation inputs typically include yields on benchmark government bonds and risk-adjusted spreads from current lending activities or loan issuances. A similar valuation is or will be carried out in respect of the underlying portfolio assets of each Future Underlying Investment and each Underlying Private Fund that invests in mortgages.

35. To the extent any Future Underlying Investment or future Underlying Private Fund holds assets (other than mortgages) that cannot be readily disposed of through market facilities on which public quotations in common use are widely available at an amount that at least approximates the amount at which the portfolio asset is valued in calculating the net asset value of the Underlying Private Fund, it will obtain a value from an independent third party valuator for such investments.

36. Each Underlying Investment produces, or will produce, audited financial statements on an annual basis, in accordance with generally accepted accounting principles with a qualified auditing firm as the auditor of those financial statements. The Filers will have access to audited financial statements prepared in respect of each Underlying Investment made by a Top Fund.

37. No Top Fund will actively participate in the business or operations of an Underlying Investment.

Investments by Top Funds in the Underlying Investments and Underlying Private Funds

38. Each investment by a Top Fund in an Underlying Investment will only be made if the investment is compatible with the investment objectives of the Top Fund. Each investment by a Public Fund in an Underlying Private Fund will only be made if the investment is compatible with the investment objectives of the Public Fund.

39. Because the Underlying Investments are not “investment funds” under the Legislation, an investment by a Top Fund in an Underlying Investment is not subject to the fund-on-fund requirements in sections 2.5 and 2.5.1 of NI 81-102, but is otherwise subject to the limits prescribed by the Related Issuer Investment Restrictions from which the Filers are requesting relief.

40. Paragraph 2.5(2)(a) of NI 81-102 prohibits a Public Fund from investing in the Underlying Private Funds as the Underlying Private Funds are not subject to NI 81-102 and paragraph 2.5(2)(c) of NI 81-102 prohibits a Public Fund from investing in the Underlying Private Funds as the Underlying Private Funds are not reporting issuers in any Jurisdiction.

41. Each Filer believes that the investment by a Top Fund in an Underlying Investment or Underlying Private Fund will provide the Top Fund with an efficient and cost-effective manner of pursuing portfolio diversification and asset diversification instead of purchasing the assets of each Underlying Investment or Underlying Private Fund directly. The Top Funds will gain access to the investment expertise of the portfolio manager to the underlying assets of each Underlying Investment or Underlying Private Fund, as well as to their investment strategies and asset classes.

42. Investments by a Top Fund in an Underlying Investment or Underlying Private Fund will be effected at an objective price. The Filers’ policies and procedures provide that an objective price, for this purpose, will be the NAV per security of the applicable class or series of the Underlying Investment or Underlying Private Fund, as applicable.

43. A Top Fund will not invest in an Underlying Investment or Underlying Private Fund unless the portfolio manager of the Top Fund believes that the liquidity of the Top Fund’s portfolio is adequately managed through other strategies.

44. Each Public Fund will not invest more than 10% of its NAV, at the time of purchase, in securities of any Underlying Investment, in compliance with section 2.1 of NI 81-102 and it will not invest in securities of any Underlying Investment that represent, at the time of purchase, more than 10% of the securities of such Underlying Investment, in compliance with section 2.2 of NI 81-102.

45. If the Exemption Sought is granted, each Public Fund will not invest more than 10% of its NAV, at the time of purchase, in securities of Underlying Private Funds.

46. The Public Funds will also comply with section 2.4 of NI 81-102 with respect to illiquid investments and each Filer expects to include an investment by a Public Fund in an Underlying Investment or Underlying Private Fund in its basket of illiquid securities for the purposes of this section.

47. Each Private Fund will not invest more than 20% of its NAV, at the time of purchase, in securities of an Underlying Investment.

48. Each Private Fund will not invest in securities of an Underlying Investment that represents, at the time of purchase, more than 15% of the securities of the Underlying Investment.

49. Each Public Fund is, or will be, valued and redeemable daily. Each Private Fund is, or will be, valued at least monthly, and redeemable at least quarterly, but may be subject to lock-up periods, early redemption penalties, and/or other limitations on redemptions, depending on the amount redeemed.

Generally

Related Issuer Relief

50. Subject to compliance with section 2.2 of NI 81-102 in respect of the Public Funds, the amount invested from time to time in an Underlying Investment by a Top Fund, together with one or more other Top Funds, may exceed 20% of the outstanding voting securities of the Underlying Investment. This may result by reason of a group of Top Funds providing initial investments into the Underlying Investment on the start-up of the Underlying Investment or for other investment reasons. Accordingly, each Top Fund could, together with one or more other Top Funds, become a “substantial securityholder” of an Underlying Investment within the meaning of the Legislation, further to which a Top Fund would be prohibited under the Related Issuer Investment Restriction from knowingly purchasing and holding securities of the Underlying Investment. The Top Funds are, or will be, “related investment funds”, as such term is defined in the Legislation by virtue of common management by a Filer.

51. In addition, from time to time, an officer or director of a Filer or an associate of any of them may own more than 10% of an Underlying Investment and may accordingly have a “significant interest” in an Underlying Investment within the meaning of the Legislation, further to which a Top Fund would be prohibited under the Related Issuer Investment Restriction from knowingly purchasing and holding securities of the Underlying Investment.

52. Further, from time to time, a person or company who is a substantial security holder of a Top Fund or a Filer may have a “significant interest” in an Underlying Investment within the meaning of the Legislation, further to which a Top Fund would be prohibited under the Related Issuer Investment Restriction from knowingly purchasing or holding securities of the Underlying Investment.

53. Each Filer does not anticipate that any fees or sales charges would be incurred, directly or indirectly, by a Top Fund with respect to an investment in an Underlying Investment that, to a reasonable person, would duplicate a fee payable by the Top Fund to a Filer or its investors.

54. In the absence of the Related Issuer Relief, each Top Fund would be prohibited by the Related Issuer Investment Restrictions from investing in the Underlying Investments. Specifically, a Top Fund would be prohibited from (i) becoming a substantial securityholder of an Underlying Investment, together with other Top Funds and (ii) investing in an Underlying Investment in which an officer or director of a Filer, or a person or company who is a substantial securityholder of the Top Fund or a Filer, has a significant interest.

Reporting Relief

55. Pursuant to section 117(1)1 of the Legislation, every management company shall, in respect of each investment fund that is a reporting issuer to which it provides services or advice, file a report of every transaction of purchase or sale of securities between the investment fund and any related person or company within 30 days after the end of the month in which it occurs (the Reporting Requirement).

56. In the absence of the Reporting Relief, each Filer, acting as the management company of the Public Funds, would be required to file a report of every purchase and sale of securities of the Underlying Investments by the Public Funds within 30 days after the end of the month in which such purchase or sale occurs.

57. It would be costly and time-consuming for the Public Funds to comply with the Reporting Requirement.

58. NI 81-106 requires the Public Funds to prepare and file annual and interim management reports of fund performance that include a discussion of transactions involving related parties to the Public Funds. Such disclosure is similar to that required under the Reporting Requirement and fulfills its objective to inform investors in the Public Fund about the transactions involving related parties to the Public Fund.

Consent Requirement Relief

59. Paragraph 13.5(2)(a) of NI 31-103 prohibits a Filer, as the registered adviser of a Top Fund, from knowingly causing a Top Fund to purchase a security of an Underlying Investment in which a responsible person or an associate of a responsible person is a partner, director or officer, unless (i) the fact is disclosed to the client and (ii) the written consent of the client to purchase is obtained before the purchase.

60. To the extent an officer or director of a Filer, as registered adviser to a Top Fund, is also a limited partner in an Underlying Investment or is a director or officer of the GP to an Underlying Investment, the registered adviser is prohibited from making the Top Fund purchase the security of the Underlying Investment, without client disclosure and consent.

61. Further, a “responsible person” includes an affiliate of the registered adviser who has access to, or participates in, formulating an investment decision made on behalf of a Top Fund or advice to be given to a Top Fund.

62. Each GP is a responsible person because each is an affiliate of the Filers and has access to, or participates in, formulating an investment decision made on behalf of a Top Fund or advice to be given to a Top Fund. Due to the nature of being a GP to an Underlying Investment, each GP will know, prior to the investment being made, whether or not a Top Fund proposes to make an investment in the Underlying Investment for which it acts as GP. It is expected that the GP of any Future Underlying Investment that is structured as a limited partnership will be a “responsible person”.

63. It is expected that certain other responsible persons, or associates of responsible persons, of the registered adviser to a Top Fund may be partners, directors or officers of one or more Underlying Investments or directors or officers of one or more GPs in the future.

64. Because of the above relationships, a Filer, that acts as a portfolio manager, may not cause a Top Fund to invest in an Underlying Investment without disclosure to the “client” and the prior written consent of the “client” to the investment. In accordance with the Companion Policy to NI 31-103, disclosure of the relationships to the “client” is required to be made to, and written consent obtained from, each investor in the Top Fund.

65. The Private Funds can obtain such consent in the subscription agreement or other documentation signed by each investor at the time of investment, and thus no exemption is sought where a Filer is acting as registered adviser to a Private Fund. However, obtaining such consent is not practical in the circumstances of the Public Funds, given the diffuse nature of the ownership of the Public Funds.

Public Fund-on-Private Fund Relief

66. Paragraph 2.5(2)(a) of NI 81-102 prohibits a Public Fund from investing in the Underlying Private Funds as the Underlying Private Funds are not subject to NI 81-102 and paragraph 2.5(2)(c) of NI 81-102 prohibits a Public Fund from investing in the Underlying Private Funds as the Underlying Private Funds are not reporting issuers in any Jurisdiction.

67. Since the Underlying Private Funds are not reporting issuers and are not subject to NI 81-102, the Public Funds are unable to rely upon the exemption codified under subsection 2.5(7) of NI 81-102, for investments by reporting issuer investment funds in other reporting issuer investment funds, to invest in the Underlying Private Funds.

General

68. Since the Underlying Investments are not reporting issuers and are not “investment funds” pursuant to the Legislation, they are not subject to NI 81-102 and therefore the Public Funds are unable to rely upon the exemption codified under subsection 2.5(7) of NI 81-102, for investments by reporting issuer investment funds in other reporting issuer investment funds, to invest in the Underlying Investments.

69. In addition, since the Underlying Investments are not “investment funds” pursuant to the Legislation, the Private Funds are unable to rely upon the exemption codified under subsection 2.5.1 of NI 81-102 for investments by non-reporting issuer investment funds in other investment funds, to invest in the Underlying Investments.

70. The Private Funds are able to rely upon the exemption codified under subsection 2.5.1 of NI 81-102 for investments by non-reporting issuer investment funds in other investment funds, to invest in other Private Funds, and thus no exemption is sought for such investments.

71. Subsection 6.2(3) of NI 81-107 provides an exemption for investment funds (including investment funds that are not reporting issuers) from the “investment fund conflict of interest investment restrictions” (as defined in NI 81-102) for purchases of related issuer securities if the purchase is made on an exchange. However, the exemption in subsection 6.2(3) of NI 81-107 does not apply to purchases of non-exchange-traded securities and therefore does not apply to purchases of an Underlying Investment or Underlying Private Fund by a Top Fund.

72. A Top Fund’s investment in an Underlying Investment or Underlying Private Fund will represent the business judgment of a responsible person uninfluenced by considerations other than the best interests of the Top Fund.

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:

(a) an investment by a Public Fund in an Underlying Investment or Underlying Private Fund will be compatible with the investment objective and strategy of such Public Fund and included as part of the calculation for the purposes of the illiquid asset restriction in section 2.4 of NI 81-102;

(b) an investment by a Private Fund in an Underlying Investment will be compatible with the investment objective and strategy of such Private Fund;

(c) at the time of the purchase by a Top Fund of securities of an Underlying Investment, the Underlying Investment holds no more than 10% of its NAV in securities of other investment funds, unless the Underlying Investment:

(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) at the time of the purchase by a Public Fund of securities of an Underlying Private Fund, the Underlying Private Fund holds no more than 10% of its NAV in securities of other investment funds, unless the Underlying Private 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;

(e) no sales or redemption fees will be payable as part of the investment by a Top Fund in the securities of an Underlying Investment or Underlying Private Fund, unless the Top Fund redeems its securities of an Underlying Investment or Underlying Private Fund during a lock-up period, in which case an early redemption fee may be payable by the Top Fund;

(f) no management fees or incentive fees will be payable by a Top Fund for investing in an Underlying Investment or Underlying Private Fund that, to a reasonable person, would duplicate a fee payable by the Underlying Investment or Underlying Private Fund for the same service;

(g) the securities of an Underlying Investment or Underlying Private Fund held by a Top Fund will not be voted at any meeting of the securityholders of the Underlying Investment or Underlying Private Fund, except that the Top Fund may arrange for the securities of the Underlying Investment or Underlying Private Fund it holds to be voted by the holders of securities of the Top Fund;

(h) where applicable, a Public Fund’s investment in an Underlying Investment or Underlying Private Fund will be disclosed to investors in such Public Fund’s quarterly portfolio holding reports, financial statements and/or fund facts/ETF facts documents;

(i) the prospectus of a Public Fund will disclose in the next renewal or amendment thereto following the date of this decision, the fact that the Public Fund may invest in an Underlying Investment or Underlying Private Fund, which is an investment vehicle managed by a Filer or an affiliate of a Filer;

(j) an offering memorandum or other disclosure document of a Private Fund will be provided to each new investor in a Private Fund prior to the investor’s purchase of securities of the Private Fund, and will disclose the following information at the next update of such document following the date of this decision:

(i) that the Private Fund may purchase securities of one or more Underlying Investments;

(ii) the fact that a Filer or an affiliate of a Filer is the investment fund manager and/or portfolio manager of the Private Fund and an affiliate of a Filer is the portfolio manager of the Underlying Investments; and

(iii) that each Filer does not anticipate any fees or sales charges would be incurred, directly or indirectly, by the Private Fund with respect to an investment in an Underlying Investment that, to a reasonable person, would duplicate a fee payable by the Private Fund to a Filer or its investors;

(k) the IRC of each Public Fund will review and provide its approval, including by way of standing instructions, prior to the purchase of an Underlying Investment or Underlying Private Fund in accordance with section 5.2(2) of NI 81-107;

(l) the manager of the Public Funds complies with section 5.1 of NI 81-107 and the manager and the IRC of the Public Funds comply with section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with the transactions;

(m) if the IRC becomes aware of an instance where the manager of a Public Fund, did not comply with the terms of a decision evidencing the Exemption Sought, or a condition imposed by Legislation or the IRC in its approval, the IRC of the Public Fund will, as soon as practicable, notify in writing the securities regulatory authority or regulator in the jurisdiction of the head office of the Public Fund’s manager;

(n) where an investment is made by a Public Fund in an Underlying Investment or Underlying Private Fund, the annual and interim management reports of fund performance for the Public Fund will disclose the name of the Underlying Investment or Underlying Private Fund, as the case may be, and the fact that it is a related party to the manager of the Public Fund;

(o) where an investment is made by a Top Fund in an Underlying Investment or Underlying Private Fund, the records of portfolio transactions maintained by the Top Fund will include, separately for every portfolio transaction effected by a Top Fund by a Filer, the name of the Underlying Investment or Underlying Private Fund, as the case may be, being a related person in which an investment is made;

(p) each Top Fund will invest in, and redeem, its investment in each Existing Underlying Investment and existing Underlying Private Fund at the NAV per security of the Existing Underlying Investment or existing Underlying Private Fund, which will be based on the valuation of the portfolio assets in which the Existing Underlying Investment or existing Underlying Private Fund invests and,

(i) in the case of each Existing Underlying Investment or existing Underlying Private Fund that invests in assets that cannot be readily disposed of through market facilities on which public quotations in common use are widely available at an amount that at least approximates the amount at which the portfolio asset is valued in calculating the NAV of the Existing Underlying Investment or existing Underlying Private Fund, the NAV will be independently determined by an arm’s length third party; and

(ii) in the case of each Existing Underlying Investment or existing Underlying Private Fund that invests in mortgages, the NAV will be determined in accordance with NP 29, as if the Existing Underlying Investment or Existing Underlying Private Fund were subject to that policy;

(q) Each Underlying Private Fund complies with Parts 2 and 4 of NI 81-102 and Part 14 of NI 81-106 for so long as it is held by a Public Fund; and

(r) a Top Fund will invest in a Future Underlying Investment or future Underlying Private Fund only where:

(i) in the case of a Future Underlying Investment, it is structured in similar ways to the Existing Underlying Investments, including where an affiliate is the administrator and/or GP of the Future Underlying Investment;

(ii) any Future Underlying Investment or future Underlying Private Fund, which invests in assets (other than mortgages) that cannot be readily disposed of through market facilities on which public quotations in common use are widely available at an amount that at least approximates the amount at which the portfolio asset is valued in calculating NAV, will calculate its NAV based on a valuation for such assets that is independently determined by an arm’s length third party;

(iii) any Future Underlying Investment or future Underlying Private Fund, which invests in mortgages, will calculate its NAV in accordance with NP 29, as if the Future Underlying Investment or future Underlying Private Fund were subject to that policy; and

(iv) the Top Fund is provided with the audited annual financial statements of the Future Underlying Investment or future Underlying Private Fund, as applicable.

"Darren McKall"

Darren McKall

Manager, Investment Funds and Structured Products

Ontario Securities Commission

Application # 2022/0228; SEDAR #3379926