Portland Investment Counsel Inc. (Re), 2023 CanLII 105758

November 13, 2023

(the Jurisdiction)

AND

(the Filer)

AND

(as defined below)

DECISION

Background

The Ontario Securities Commission (the OSC) has received an application from the Filer on behalf of itself and Portland Private Income Fund, Portland Private Income LP and any other existing or future investment fund that is not and will not be a reporting issuer, that is or will be organized under the laws of the Province of Ontario or another jurisdiction of Canada, and that is or will be managed by the Filer and invests or will invest in underlying funds (collectively, the Funds) as part of its investment strategy, under the securities legislation of the Jurisdictions (the Legislation), to request relief from section 2.2, section 2.4, paragraph 5.1(2)(a) and paragraph 5.1(2)(b) of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) on behalf of the Filer.

In accordance with Part 4 of Multilateral Instrument 11-102 Passport System (MI 11-102) and section 3.6 of National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions (NP 11-203), the OSC has been selected as the principal regulator (the Principal Regulator) for the purposes of this application, as the head office of the Filer is in Burlington, Ontario.

In accordance with subsection 4.7(2) of MI 11-102, the Filer gives notice to the Principal Regulator pursuant to paragraph 4.7(1)(c) of MI 11-102 that the requested relief is to be relied upon by the Filer in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, Northwest Territories, Nunavut and Yukon (together with Ontario, the Jurisdictions).

The Filer and the Funds, request a decision under the Legislation, pursuant to section 17.1 of NI 81-106, exempting the Funds from:

(a) the requirement in section 2.2 of NI 81-106 that the Funds file their audited annual financial statements and auditor’s report (the Annual Financial Statements) on or before the 90^th day after the applicable Fund’s most recently completed financial year (the Annual Filing Deadline);

(b) the requirement in paragraph 5.1(2)(a) of NI 81-106 that the Funds deliver to securityholders their Annual Financial Statements and auditor’s report by the Annual Filing Deadline (the Annual Delivery Requirement);

(c) the requirement in section 2.4 of NI 81-106 that the Funds file their unaudited interim financial report (the Interim Financial Statements) on or before the 60^th day after the applicable Fund’s most recently completed interim period (the Interim Filing Deadline); and

(d) the requirement in paragraph 5.1(2)(b) of NI 81-106 that the Funds deliver to securityholders their Interim Financial Statements by the Interim Filing Deadline (the Interim Delivery Requirement);

(collectively, the Exemption Sought).

Interpretation

Terms defined in National Instrument 14-101 – Definitions, NI 81-102 or in MI 11-102 have the same meaning if used in this decision, unless otherwise defined herein.

Representations

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

The Filer

The Filer is a corporation incorporated under the laws of Ontario, with its registered head office located in Burlington, Ontario.
The Filer is currently registered as follows:

(a) in the provinces of Alberta, Newfoundland and Labrador, Ontario and Quebec in the category of investment fund manager;

(b) in each of the provinces and territories of Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Ontario, Prince Edward Island, Quebec and Saskatchewan as an adviser in the category of portfolio manager;

(c) in each of the provinces and territories of Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island, Quebec and Saskatchewan as a dealer in the category of exempt market dealer; and

(d) in Ontario, the Filer was registered as a dealer in the category of mutual fund dealer but requested the surrender of such registration on September 22, 2023.

The Filer is the trustee and investment fund manager of the Portland Private Income Fund (the Trust).
The Filer is the investment fund manager of the Portland Private Income LP (the Partnership).
The Filer is not in default of securities legislation in any Jurisdiction.

The Trust

The Trust is a trust formed under the laws of the Province of Ontario.
The Trust is a “mutual fund” for purposes of the Legislation.
Units of the Trust are offered for sale on a continuous basis to qualified investors in all provinces and territories of Canada pursuant to exemptions from the prospectus requirements under National Instrument 45-106 – Prospectus Exemptions (NI 45-106).
The Trust is not a reporting issuer in any province or territory of Canada.
The Trust is not in default of securities legislation in any Jurisdiction.
The Trust has a financial year-end of December 31.
The Trust seeks to achieve its investment objective by investing all, or substantially all, of its net assets in the Partnership. The Partnership invests in Underlying Funds as described under The Partnership below. Although, the Trust intends to invest all, or substantially all, of its assets in the Partnership, the Filer may, from time to time, determine that the Trust may make direct investments and when doing so, it will apply the investment strategies similar to the Partnership.
The net asset value of the Trust is determined on a monthly basis in accordance with the Trust’s declaration of trust.
The holdings of the Trust invested in securities of the Partnership and any direct investments in the Underlying Funds may be disclosed in the Trust’s annual financial statements and interim financial reports.
As of September 29, 2023, approximately sixty-two percent of the Trust’s assets were invested, indirectly through the Partnership, in Third-Party Underlying Funds.
The declaration of trust of the Trust permits the annual financial statements and auditor’s report and the interim financial reports of the Trust to be filed and delivered in accordance with securities legislation.

The Partnership

The Partnership is a limited partnership formed under the laws of the Province of Ontario and is managed by the Filer.
The Partnership is a “mutual fund” for purposes of the Legislation.
Units of the Partnership are offered for sale on a continuous basis to qualified investors in all provinces and territories of Canada pursuant to exemptions from the prospectus requirements under NI 45-106.
The Partnership is not a reporting issuer in any province or territory of Canada.
The Partnership is not in default of securities legislation in any jurisdiction.
The Partnership may invest in a portfolio of private and public securities, including investment funds, exchange-traded funds and mutual funds. Investment funds, exchange-traded fund and mutual funds are collectively referred to as the Underlying Funds.
The net asset value of the Partnership is determined on a monthly basis in accordance with the Partnership’s limited partnership agreement.
Securities of the Partnership are typically redeemable monthly.
The holdings by the Partnership of securities of the Underlying Funds are disclosed in the financial statements of the Partnership.
The Partnership and the Underlying Funds may have varying financial year-ends and may be subject to a variety of financial reporting deadlines. Currently, each of the Partnership and the Underlying Funds have a financial year-end of December 31^st.
The majority of the Underlying Funds currently invested in by the Partnership are managed by entities unrelated to the Filer (the Third-Party Underlying Funds).
As of September 29, 2023, approximately sixty percent of the Partnership’s assets were invested in Third-Party Underlying Funds.
The Filer believes that investments by the Partnership in the Underlying Funds offer benefits not available through a direct investment in the companies, other issuers or assets held by the Underlying Funds.

Financial Statement Filing and Delivery Requirements

Section 2.2 and paragraph 5.1(2)(a) of NI 81-106 require the Funds to file and deliver their Annual Financial Statements by the Annual Filing Deadline. As each of the Funds have a financial year-end of December 31, they have a filing and delivery deadline of March 31.
Section 2.4 and paragraph 5.1(2)(b) of NI 81-106 require the Funds to file and deliver their Interim Financial Statements by the Interim Filing Deadline. As each of the Funds have an interim period-end of June 30, they have an interim filing and delivery deadline of August 29.
Section 2.11 of NI 81-106 provides an exemption from the filing requirements of the Annual Financial Statements and the Interim Financial Statements if, among other things, the Funds deliver such statements and reports in accordance with Part 5 of NI 81-106 by the Annual Filing Deadline and the Interim Filing Deadline, as applicable.
The delivery requirements for the Annual Financial Statements and the Interim Financial Statements for Underlying Funds do not always match up with the Annual Delivery Requirement and the Interim Delivery Requirement, as applicable, and in any event, do not allow the Funds, the Filer and auditor, as applicable, an appropriate amount of time to prepare the required financial statements and reports of the Funds.
In order to formulate an opinion on the financial statements on the Funds, the Fund’s auditor requires audited financial statements of the respective Underlying Funds in order to audit the information contained in the applicable Fund’s financial statements.
The auditor of the Funds has advised the Filer that they may be unable to express an unmodified audit opinion in accordance with subsection 2.7(2) of NI 81-106 if the audited financial statements of the Underlying Funds are not completed and available to the Funds sufficiently in advance of the Annual Filing Deadline and Annual Delivery Requirement.
In recent years, a higher percentage of each Fund has been invested directly or indirectly in Underlying Funds, which has caused the Filer and the Funds to proactively address this reporting timing issue by obtaining the Exemption Sought.
The Funds will notify their respective securityholders, to the extent they have not already done so, that they have received and intend to rely on relief from the Annual Filing Deadline and Annual Delivery Requirement and the Interim Filing Deadline and the Interim Delivery Requirement.
The Underlying Funds are, or will be, suitable and desirable investments for the applicable Fund. The Funds and Underlying Funds may have financial reporting deadlines that are not aligned with the filing and delivery deadlines contemplated by NI 81-106 and that are applicable to the Funds. In addition, even if such reporting deadlines are aligned, they do not allow for sufficient time for the Filer, the Funds and the auditor of the Funds, as applicable, to prepare the applicable financial statements and reports in a manner to meet the deadlines set out in NI 81-106.
Since a higher percentage of each Fund’s portfolio has been, directly or indirectly, allocated to Underlying Funds in recent years, the Filer believes that reporting timing discrepancies may occur more frequently for the foreseeable future. Accordingly, the Filer and Funds are proactively addressing this reporting timing issue.
The Funds therefore seek an extension of the Annual Filing Deadline and Annual Delivery Requirement to permit delivery on or before 180 days of the applicable Fund’s year-end, to enable the Fund’s auditor to first receive the audited financial statements and reports of the relevant Underlying Funds, as applicable, so as to be able to prepare the Fund’s audited financial statements and auditor’s report.
The Funds therefore seek an extension of the Interim Filing Deadline and Interim Delivery Requirement to permit delivery on or before 120 days of the applicable Fund’s most recently completed interim period, to enable the Fund to first receive the interim financial statements and reports of the relevant Underlying Funds, as applicable, so as to be able to prepare the Fund’s interim financial reports.
Owing to the Funds direct or indirect investment in Underlying Funds, apart from the timing challenges imposed by producing audited financial statements and interim financial reports in accordance with the Annual Filing Deadline and the Interim Filing Deadline, the delivery of such financial statements and reports prepared within the applicable time frames could be detrimental to investors, as such statements and reports would necessarily be based on estimates which are subject to change. Such rationale is equally applicable to the audited annual financial statements, as it is to the interim financial reports. In the Filer’s view, under such circumstances, investors are better served by having annual financial statements and interim financial delivered: (i) in the case of audited annual financial statements, on or before 180 days following the Fund’s year-end rather than the Annual Filing Deadline; and (ii) in the case of interim financial reports, on or before 120 days following the Fund’s most recent interim period rather than the Interim Filing Deadline.
If the Exemption Sought is granted, an updated offering memorandum will be provided to investors of the applicable Fund, or such investors will be otherwise notified, that: (i) Annual Financial Statements for the applicable Fund will be delivered to each investor on or before 180 days of the applicable Fund’s financial year-end; and (ii) Interim Financial Statements for the applicable Fund would be delivered to each investor on or before 120 days following the end of each interim period of the applicable Fund.
For the reasons set forth above, it is submitted that it would not be prejudicial to the public interest for the Exemption Sought to be granted.

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 for so long as:

The Fund has a financial year ended December 31.
The investment objective of the Trust is to invest all, or substantially all, of its net assets in the Partnership. However, from time to time, instead of investing in the Partnership, the Trust may make direct investments, and when doing so, it will apply the investment strategies similar to the Partnership. The Partnership invests a portion of its net assets in the securities of Underlying Funds.
The Trust invests the majority of its assets in the Partnership. The Partnership invests a portion of its net assets in the securities of Underlying Funds.
No less than 30% of the total assets of a Fund at the time such Fund makes the initial investment: (i) in the case of a direct investment, in Underlying Fund(s), as applicable; and (ii) in the case of an indirect investment, in the applicable Partnership (or other investment entity) that will invest in Underlying Fund(s), as applicable, and in any case that are invested, directly or indirectly, in investment entities that have financial reporting periods that end on December 31 of each year and are subject to laws of their jurisdictions, or applicable exemptive relief, that require that their Annual Financial Statements be delivered between 90 and 180 days of their financial year end and their Interim Financial Statements be delivered between 60 and 120 days of their most recent interim period.
The offering memorandum of the applicable Fund provided to prospective investors, in the case of an existing Fund, will be updated to disclose, and in the case of a new Fund, will disclose:

(a) the Annual Financial Statements of the Fund may be filed and delivered on or before the 180^th day after the Fund’s most recently completed financial year-end; and

(b) the Interim Financial Statements of the Fund may be filed and delivered on or before the 120^th day after the Fund’s most recently completed interim period.

On behalf of the Funds, the Filer will disclose to the respective Fund’s investors that such Fund has received and intends to rely on relief from the Annual Filing Deadline, the Interim Filing Deadline, the Annual Delivery Requirement and the Interim Delivery Requirement under section 2.2, section 2.4, paragraph 5.1(2)(a) and paragraph 5.1(2)(b) of NI 81-106.
The Trust’s declaration of trust and the Partnership’s limited partnership agreement will permit the Annual Financial Statements of the applicable Fund and Interim Financial Statements of the applicable Fund to be filed and delivered in accordance with the Exemption Sought.
None of the Funds is a reporting issuer in any Jurisdiction, and the Filer is a corporation incorporated under the laws of the Province of Ontario and has the necessary registrations to carry out its operations in each jurisdiction of Canada in which it operates.
The conditions in section 2.11 of NI 81-106 will be met, except for subsection 2.11(b), and:

(a) the Annual Financial Statements will be delivered to the applicable Fund’s investors in accordance with Part 5 of NI 81-106 on or before the 180th day after the applicable Fund’s most recently completed financial year-end; and

(b) the Interim Financial Statements will be delivered to the applicable Fund’s investors in accordance with Part 5 of NI 81-106 on or before the 120th day after the applicable Fund’s most recently completed interim period.

This decision will terminate within one year of the coming into force of any amendment to NI 81-106 or other rule that substantially modifies how the Annual Filing Deadline, the Interim Filing Deadline, the Annual Delivery Requirement or the Interim Delivery Requirement applies in connection with mutual funds under the Legislation.

“Darren McKall”

Darren McKall

Manager, Investment Funds & Structured Products Branch

Ontario Securities Commission

Application #: 2023/0518

SEDAR+ #: 6037540