October 31, 2024
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 Brandes Investment Partners & Co.
(the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer, on behalf of each Fund (as defined below), for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation):
(a) revoking the Previous Decision (as defined below); and
(b) a decision exempting T. Rowe Price Global Allocation Fund and any other existing and future mutual fund managed by the Filer or an affiliate of the Filer (each a Fund and collectively, the Funds) that is subject to National Instrument 81-102 Investment Funds (NI 81-102) from the following provisions of NI 81-102 in order to permit each Fund to purchase or hold a security of one or more Underlying Funds, which are not mutual funds subject to NI 81-102 and which are not reporting issuers in a Jurisdiction:
(i) paragraph 2.5(2)(a) to permit each Fund to purchase and/or hold securities of one or more Underlying Funds even though the Underlying Funds are not, or will not be, subject to NI 81-102; and
(ii) paragraph 2.5(2)(c) to permit each Fund to purchase and/or hold securities of one or more Underlying Funds even though the Underlying Funds are not, or will not be, reporting issuers in any Jurisdiction
(collectively, 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 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 each of the other provinces and territories of Canada (together with Ontario, the Jurisdictions).
Interpretation
Terms defined in MI 11-102, NI 81-102 and National Instrument 14-101 Definitions have the same meaning if used in this decision, unless otherwise defined.
Existing Underlying Funds means T. Rowe Price Dynamic Global Bond Fund and T. Rowe Price Multi-Strategy Total Return Fund, each of which is an investment company subject to the Investment Company Act in good standing with the United States Securities and Exchange Commission that is not managed by, or advised by, the Filer or an affiliate of the Filer and is advised by T. Rowe Price.
Future Underlying Funds means any other existing or any future investment company subject to the Investment Company Act in good standing with the United States Securities and Exchange Commission that is not managed by, or advised by, the Filer or an affiliate of the Filer and is advised by T. Rowe Price.
Investment Company Act means the United States Investment Companies Act of 1940.
Previous Decision means the decision dated February 23, 2023 granting relief to T. Rowe Price Global Allocation Fund to invest up to 10% of its net asset value in securities of T. Rowe Price Dynamic Global Bond Fund.
T. Rowe Price means T. Rowe Price Associates, Inc. or an affiliate thereof.
T. Rowe Price Canada means T. Rowe Price (Canada), Inc.
Underlying ETFs means any Future Underlying Fund that is, or will be, an exchange-traded fund whose securities (i) are not, or will not be, index participation units and (ii) are, or will be, listed for trading on a recognized exchange in the United States.
Underlying Funds means the Existing Underlying Funds and the Future Underlying Funds (including the Underlying ETFs), and each an Underlying Fund.
Representations
This decision is based on the following facts represented by the Filer:
The Filer
The Filer is a corporation incorporated under the laws of Nova Scotia with its registered head office in Toronto, Ontario. The Filer operates under the retail trade name Bridgehouse Asset Managers.
The Filer is registered as: (a) an investment fund manager in Ontario, Québec, and Newfoundland and Labrador; (b) as a portfolio manager in each of the Jurisdictions; (c) as an exempt market dealer in each of the Jurisdictions; and (d) as a commodity trading manager in Ontario.
The Filer or an affiliate of the Filer acts or will act as the investment fund manager of a Fund.
The Filer is not in default of securities legislation is any of the Jurisdictions.
The Funds
Each Fund is, or will be, a “mutual fund” as defined in the Securities Act (Ontario).
Securities of each Fund are, or will be, qualified for distribution in some or all of the Jurisdictions under a prospectus prepared and filed in accordance with National Instrument 81-101 Mutual Fund Prospectus Disclosure or National Instrument 41-101 General Prospectus Requirements, as applicable.
Each Fund is, or will be, a reporting issuer in some or all of the Jurisdictions and is or will be subject to NI 81-102, subject to any relief therefrom granted by the securities regulatory authorities.
The existing Funds are not in default of securities legislation in any Jurisdiction.
T. Rowe Price Canada acts as the sub-advisor of T. Rowe Price Global Allocation Fund and acts or will act as the sub-advisor of each other Fund. T. Rowe Price Canada is currently registered as a portfolio manager and exempt market dealer in each of Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador (where it is also registered as an investment fund manager), Nova Scotia, Ontario (where it is also registered as an investment fund manager), Prince Edward Island, Québec (where it is also registered as an investment fund manager) and Saskatchewan.
The Underlying Funds
Each Underlying Fund is, or will be, an investment company subject to the Investment Company Act in good standing with the United States Securities and Exchange Commission (the SEC).
Each Underlying Fund is, or will be, considered to be an “investment fund” and a “mutual fund” within the meaning attributed to those terms in the Securities Act (Ontario).
Each Underlying Fund offers, or will offer, its securities to the public in the United States pursuant to a prospectus filed with the SEC.
The Underlying Funds are, or will be, subject to requirements/ industry standards relating to reporting, fund governance and investment restrictions in the U.S. that are comparable to those in the Canadian regulations that are applicable to conventional mutual funds or alternative mutual funds.
The securities of an Underlying ETF do not, or will not, meet the definition of an index participation unit in NI 81-102 because the purpose of the Underlying ETF is not, or will not be, to:
(a) hold the securities that are included in a specified widely quoted market index in substantially the same proportion as those securities are reflected in that index; or
(b) invest in a manner that causes the Underlying ETF to replicate the performance of that index.
- The securities of any Underlying ETF are, or will be, listed on a recognized exchange in the United States and the market for them is, or will be, liquid because it is, or will be, supported by designated brokers. As a result, the Filer expects a Fund to be able to dispose of such securities through market facilities in order to raise cash, including to fund the redemption requests of its securityholders.
The Previous Decision and Exemption Sought
The Filer obtained the Previous Decision to permit T. Rowe Price Global Allocation Fund to invest up to 10% of its net asset value, in the aggregate, taken at market value at the time of the purchase, in securities of T. Rowe Price Dynamic Global Bond Fund.
The Filer has requested the Exemption Sought in order to permit T. Rowe Price Global Allocation Fund and each other Fund to invest up to 10% of its net asset value, in the aggregate, taken at market value at the time of the purchase, in securities of T. Rowe Price Dynamic Global Bond Fund, T. Rowe Price Multi-Strategy Total Return Fund and/or any other Underlying Fund.
T. Rowe Price Global Allocation Fund is based on an existing T. Rowe Price strategy called the “T. Rowe Price Global Allocation” strategy. T. Rowe Price has had experience managing this specific strategy since June 2013 and manages this strategy in a mutual fund format in the United States and a SICAV format in Europe.
The T. Rowe Price Global Allocation strategy uses an active asset allocation strategy in conjunction with fundamental research to select individual investments. T. Rowe Price allocates a fund’s assets among various asset classes and market sectors based on its assessment of U.S. and global economic and market conditions, interest rate movements, industry and issuer conditions and business cycles, and other relevant factors. Under normal conditions, a fund’s portfolio will consist of approximately 60% stocks; 30% bonds, money market securities, and other debt instruments; and 10% alternative investments (each as a percentage of the fund’s net assets). The fund may also gain exposure to specific asset classes through the use of certain types of derivatives or by investing in other T. Rowe Price managed investment funds that focus their investments in a given asset class. T. Rowe Price may adjust the fund’s portfolio and overall risk profile by making tactical decisions to overweight or underweight particular asset classes or sectors based on its outlook for the global economy and securities markets, as well as by adjusting the fund’s overall derivatives exposure and allocations to alternative investments. The fund expects to normally invest approximately half of its equity investments in U.S. stocks and half in international stocks. When deciding upon overall allocations to stocks, T. Rowe Price examines relative values and prospects among growth-and value-oriented stocks, small to large-cap stocks, and stocks of companies involved in activities related to commodities and other real assets, as well as by evaluating economic conditions affecting the U.S. and international developed and emerging markets.
In either the U.S. mutual fund format or the SICAV format, T. Rowe Price will invest up to 10% of the relevant fund’s assets in T. Rowe Price Dynamic Global Bond Fund (or in the case of the SICAV, the underlying SICAV equivalent to this Underlying Fund) in order to gain exposure to a global fixed income mandate, which requires a large amount of capital to be managed effectively. The Previous Decision was obtained to implement the same approach for T. Rowe Price Global Allocation Fund by investing up to a maximum of 10% of the Fund’s total assets in T. Rowe Price Dynamic Global Bond Fund.
The T. Rowe Price Global Allocation strategy has shifted its asset mix to include the assets held by T. Rowe Price Multi-Strategy Total Return Fund. Similar to the rationale for the Previous Decision, T. Rowe Price Canada would like to obtain the Exemption Sought to pursue the same strategy for the Canadian fund as it does for the U.S. and SICAV formats in the U.S. and Europe, respectively, which will invest up to 10% of the relevant fund’s assets in this Underlying Fund (or in the case of the SICAV, the underlying SICAV equivalent to this Underlying Fund) in order to gain exposure to a multi-strategy mandate, which requires a large amount of capital to be managed effectively.
The T. Rowe Price Global Allocation strategy may change in the future, given that it tactically changes asset allocations and sectors, and the most efficient manner to obtain exposure to any new strategy may be by investing in an Underlying Fund. Accordingly, it is desirable for T. Rowe Price to have flexibility to invest in other Underlying Funds in the future.
Additionally, if T. Rowe Price becomes the sub-advisor of future Funds managed by the Filer or an affiliate of the Filer, it would like the flexibility to be able to utilize Underlying Funds in those investment strategies for the purposes of obtaining uniform investment exposure for its Canadian funds and efficiency in such fund structures.
Each existing Fund is, and each future Fund will be, permitted, in accordance with its investment objectives and investment strategies, to invest in securities of Underlying Funds.
An investment by a Fund in securities of one or more Underlying Funds will represent the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Fund and will be made in accordance with the investment objective of the Fund.
In T. Rowe Price Canada’s view, there does not exist other investment options for T. Rowe Price Global Allocation Fund that would provide the same or comparable benefits that investing in the Existing Underlying Funds provides while fulfilling the Fund’s objective.
Additionally, it is expected that in the future, allowing a Fund to obtain exposure to a particular asset class or sector by doing so through one or more Underlying Fund may be the best and most efficient investment option to fulfill the Fund’s objective.
Absent the Exemption Sought, an investment by a Fund in one or more Underlying Funds would:
(a) be prohibited by paragraphs 2.5(2)(a) of NI 81-102 because the Underlying Funds are not subject to NI 81-102;
(b) be prohibited by paragraph 2.5(2)(c) of NI 81-102 because the Underlying Funds are not a reporting issuer in any Jurisdiction; and
(c) not qualify for the exception in paragraph 2.5(3)(a) of NI 81-102 because the securities of the Underlying Funds are not index participation units.
The Benefits of a Fund Investing in the Underlying Funds
- The key benefits of a Fund investing in the Underlying Funds are greater choice, improved portfolio diversification and potentially enhanced returns. For example:
(a) an investment in an Underlying Fund will provide the Fund with access to specialized knowledge, expertise and/or analytical resources of the investment adviser to the Underlying Fund;
(b) investing through an Underlying Fund provides a potentially better risk profile, diversification and improved liquidity/tradability than direct holdings of asset classes to which the Underlying Funds provides exposure; and
(c) in the case of the Existing Underlying Funds, the investment strategies of the Underlying Funds offer significantly broader exposure to asset classes, sectors and markets than those available in the existing Canadian market.
The Filer submits that having the option to allocate a limited portion of a Fund’s assets to one or more Underlying Fund will increase diversification opportunities and may improve the Fund’s overall risk/reward profile.
An investment in an Underlying Fund by a Fund is an efficient and cost effective alternative to obtaining exposure to securities held by the Underlying Fund rather than purchasing those securities directly in the Fund.
An investment in one or more Underlying Funds by a Fund should pose limited investment risk to the Fund because the Underlying Funds are, or will be, subject to the Investment Company Act, subject to any exemption therefrom that may in the future be granted by the applicable securities regulatory authority.
An investment in an Underlying Fund by a Fund will otherwise comply with section 2.5 of NI 81-102, including that:
(a) no Underlying Fund will hold more than 10% of its net asset value in securities of another investment fund unless the Underlying Fund (a) is a clone fund, as defined in NI 81-102, or (b) in accordance with NI 81-102, purchases or holds securities (i) of a money market fund, as defined in NI 81-102, or (ii) that are index participation units issued by an investment fund; and
(b) no Fund will pay management or incentive fees which to a reasonable person would duplicate a fee payable by an Underlying Fund for the same service.
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) the investment by a Fund in securities of an Underlying Fund is in accordance with the investment objectives of the Fund;
(b) a Fund does not purchase securities of an Underlying Fund if, immediately after the purchase, more than 10% of the net asset value of such Fund, in aggregate, taken at market value at the time of the purchase, would consist of securities of one or more Underlying Funds or any other underlying fund that is not subject to NI 81-102 and not a reporting issuer in any Jurisdiction;
(c) securities of each Underlying ETF are listed on a recognized exchange in the United States;
(d) the Underlying Fund is, immediately before the purchase by a Fund of securities of the Underlying Fund, an investment company subject to the Investment Company Act in good standing with the SEC; and
(e) the prospectus of each Fund discloses, or will disclose in the next renewal of its prospectus following the date of this decision, in the investment strategy section, the fact that such Fund has obtained the Exemption Sought to permit investments in one or more Underlying Funds on the terms described in this decision.
“Darren McKall”
Darren McKall
Manager, Investment Management Division
Ontario Securities Commission
Application #2024/0560
SEDAR+ #6187053