Desjardins Global Asset Management Inc. (Re), 2024 CanLII 17010

February 9, 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 Desjardins Global Asset Management Inc. and Desjardins Investments Inc. (the Filers)

Decision

Background

The principal regulator in the Jurisdiction has received an application (the Application) from the Filers on their own behalf and on behalf of each existing investment fund that is a reporting issuer and to which National Instrument 81-102 respecting Investment Funds (NI 81-102) and National Instrument 81-107 respecting Independent Review Committee for Investment Funds (NI 81-107) apply, for which a Filer or an affiliate of a Filer acts as manager, (the Existing 81-102 Funds), and each investment fund to be established in the future, that will be a reporting issuer and to which NI 81-102 and NI 81-107 will apply, for which a Filer or an affiliate of a Filer will act as manager, (the Future 81-102 Funds and together with the Existing 81-102 Funds the 81-102 Funds), which invest or will invest in DGAM Global Private Infrastructure Fund II, L.P. (the Master Infrastructure Fund) and DGAM Global Private Infrastructure Fund, L.P. (the Feeder Infrastructure Fund and collectively with the Master Infrastructure Fund, the Infrastructure Funds) (the Proposed Investment), for a decision under the securities legislation of the Jurisdiction (the Legislation) pursuant to:

1. section 113 of the Securities Act (Ontario) (the OSA) exempting the 81-102 Fund from the restriction contained in section 111(2) of the OSA, and the corresponding sections in the securities legislation applicable in the Other Jurisdictions (as defined below), which prohibit an investment fund from knowingly making an investment in:

(a) any person or company who is a substantial security holder of the investment fund, its management company or its distribution company;

(b) any person or company in which the investment fund, alone or together with one or more related investment funds, is a substantial security holder; or

(c) an issuer in which any of the following has a significant interest:

(i) any officer or director of the investment fund, its management company or distribution company or an associate of any of them, or

(ii) any person or company who is a substantial security holder of the investment fund, its management company or its distribution company;

(the Local Investment Restrictions)

2. section 117(2) of the OSA, exempting the Filers with respect to the 81-102 Funds from the requirement contained in subsection 117(1) of the OSA, and the corresponding sections in the securities legislation applicable in the Other Jurisdictions, which require every management company, in respect of each investment fund to which it provides services or advice, to prepare and file a report prepared in accordance with the requirements of the Legislation of every transaction of purchase or sale of securities between the investment fund and any related person or company (the Local Reporting Requirements);

in order to allow the 81-102 Funds to make the Proposed Investment (the Exemptions Sought).

Under the Process of Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

a) the Ontario Securities Commission (the OSC) is the principal regulator for the Application, and

b) the Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 respecting Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, New Brunswick, Nova Scotia and Newfoundland and Labrador (collectively, the Other Jurisdictions and together with the Jurisdiction, the Jurisdictions).

Interpretation

Terms defined in the Legislation, MI 11-102 and National Instrument 14-101 respecting Definitions have the same meaning if used in this decision, unless otherwise defined.

Representations

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

DGAM

1. Desjardins Global Asset Management Inc. (DGAM) is a corporation incorporated under the Business Corporation Act (Québec).

2. DGAM’s head office is located at 1 Complexe Desjardins, 20th Floor, South Tower, Montréal, Québec, Canada, H5B 1B2.

3. DGAM is a member of a group of entities which fall under Fédération des caisses Desjardins du Québec’s (FCDQ) umbrella (the Desjardins Group), a financial services cooperative established under the Act respecting financial services cooperatives (Québec) and is a wholly-owned indirect subsidiary of FCDQ. As such, DGAM is an affiliate of DII (as defined below).

4. DGAM is registered as portfolio manager (PM) and as exempt market dealer in all jurisdictions of Canada. DGAM is also registered as investment fund manager in Alberta, Manitoba, Ontario, Québec, Nova Scotia and Newfoundland and Labrador. In addition, DGAM is registered as adviser in Manitoba, commodity trading manager in Ontario and as derivatives portfolio manager in Québec.

5. DGAM, or an affiliate of DGAM, is, or will be, the PM of the 81-102 Funds. DGAM, or an affiliate of DGAM, is, or will be, the investment fund manager of the 81-102 Funds that are exchange-traded funds (ETFs).

6. The Infrastructure Funds are managed and advised by DGAM.

7. An officer and/or director of DGAM, or an affiliate of DGAM, may have a “significant interest” (as such term is defined in section 110(2)(a) of the OSA in an Infrastructure Fund from time to time. A person or company who is a substantial security holder of an 81-102 Fund, DGAM, or an affiliate of DGAM, may also have a significant interest in an Infrastructure Fund from time to time.

8. The proposed investment structure may also result in an 81-102 Fund investing in an Infrastructure Fund in which a responsible person or an associate of a responsible person is a partner, officer or director, or performs a similar function or occupies a similar position.

9. DGAM is not a reporting issuer in any jurisdiction of Canada.

10. DGAM is not in default of the legislation in any jurisdiction of Canada.

DII

11. Desjardins Investments Inc. (DII) is a corporation incorporated under the Business Corporation Act (Québec).

12. DII’s head office is located at 1 Complexe Desjardins, 25th Floor, South Tower, Montréal, Québec, Canada, H5B 1B2.

13. DII is a member of the Desjardins Group and is a wholly-owned indirect subsidiary of FCDQ. As such, DII is an affiliate of DGAM.

14. DII, or an affiliate of DII, will be the investment fund manager and the promoter of the 81-102 Funds.

15. DII, or an affiliate of DII, will be the registrar and transfer agent of the 81‑102 Funds, other than the 81-102 Funds that are ETFs.

16. DII is duly registered as an investment fund manager in Québec, Ontario and Newfoundland and Labrador.

17. DII is not a reporting issuer in any jurisdiction of Canada.

18. DII is not in default of the legislation in any jurisdiction of Canada.

The 81-102 Funds

19. Each 81-102 Fund is, or will be, an “investment fund” to which NI 81-102 applies, as such term is defined under the Legislation.

20. Each 81-102 Fund has, or will have, as applicable, a prospectus, a simplified prospectus, ETF facts, and/or fund facts, prepared in accordance with National Instrument 41-101 respecting General Prospectus Requirements or National Instrument 81-101 respecting Mutual Fund Prospectus Disclosure, as applicable.

21. Securities of each 81-102 Fund are, or will be, qualified for distribution in one or more Jurisdictions and therefore each 81-102 Fund is or will be a reporting issuer in those Jurisdictions.

22. None of the Existing 81-102 Funds are in default of the legislation in any jurisdiction of Canada.

23. To the extent that an 81-102 Fund wishes to invest in an Infrastructure Fund, its investment objective and strategies will permit such an investment.

24. No 81-102 Fund will actively participate in the business or operations of the Infrastructure Funds.

25. Each 81-102 Fund is subject to NI 81-107 and the Filers have established an independent review committee (an IRC) in order to review conflict of interest matters pertaining to the 81-102 Funds as required by NI 81-107.

The Infrastructure Funds

26. The Master Infrastructure Fund is an investment vehicle established as a limited partnership governed under the laws of the Province of Quebec. The general partner of the Master Infrastructure Fund is DGAM Global Private Infrastructure II Inc., a wholly-owned subsidiary of DGAM.

27. The investment objective of the Infrastructure Funds is to achieve favourable risk-adjusted returns over the long-term by assembling a diversified portfolio of infrastructure assets through direct, co-investment and fund investments.

28. The Feeder Infrastructure Fund seeks to achieve such investment objective by investing all or substantially all its assets in the Master Infrastructure Fund.

29. The Master Infrastructure Fund seeks to invest (i) directly in infrastructure assets, (ii) directly in infrastructure assets, pursuant to a transaction lead by a third-party co-investor, and (iii) indirectly in infrastructure assets through investments in one or more infrastructure fund managed by third-party managers.

30. The Master Infrastructure Fund seeks to invest in essential infrastructure assets in the energy, transportation, telecommunication, social infrastructure, utility and other infrastructure subsectors. The Master Infrastructure Fund targets a global diversification with a focus toward Canada and the United States and prioritizes jurisdictions that are politically stable, and have mature legal, regulatory, tax and accounting frameworks.

31. The Feeder Infrastructure Fund is a feeder vehicle set up for tax purposes and established as a limited partnership governed under the laws of the Province of Quebec. The general partner of the Feeder Infrastructure Fund is DGAM Global Private Infrastructure Inc., a wholly-owned subsidiary of DGAM.

32. The Infrastructure Funds are not considered to be “investment funds” (as such term is defined under the Legislation) but, in certain respects, operate in a manner similar to an investment fund. The Infrastructure Funds are administered by DGAM, as manager. Their assets are managed by DGAM, as PM. The net asset value that is used for purposes of determining the purchase and redemption price of an interest in the Infrastructure Funds is calculated quarterly by a party that is independent of the Filers.

33. Each Infrastructure Fund is not a reporting issuer in any jurisdiction of Canada. Interests in the Infrastructure Funds are sold pursuant to exemptions from the prospectus requirements in accordance with National Instrument 45-106 – Prospectus Exemptions.

34. The Infrastructure Funds are not in default of the legislation of any jurisdiction of Canada.

35. The investments of the Infrastructure Funds which consist primarily of infrastructure assets (or in the case of the Feeder Infrastructure Fund, interests in the Master Infrastructure Fund) are primarily illiquid and the interests of the Infrastructure Funds will therefore have limited liquidity.

36. The Infrastructure Funds are valued and redeemable quarterly.

37. The value of the portfolio assets of the Master Infrastructure Fund is independently determined on a quarterly basis by one or more internationally recognized accounting firms and/or appraisal firms that is arm's length to the Filers, the Infrastructure Funds, and all other investment funds or vehicles managed by DGAM (Independent Appraiser). The value of the portfolio assets is determined on the basis of, among others, documents such as audited financial statements, models or valuations of the portfolio assets. The value of the portfolio assets of the Master Infrastructure Fund may be refreshed by an Independent Appraiser during an interim period if DGAM determines that a significant valuation event has occurred. The auditor of the Infrastructure Funds will not act as an Independent Appraiser. The Feeder Infrastructure Fund invests in the Master Infrastructure Fund at the net asset value of the Master Infrastructure Fund, which is based on the valuation prepared by the Independent Appraiser.

Fund-on-Underlying Fund Structure

38. The 81-102 Funds will not invest directly in the Master Infrastructure Fund; all investments by the 81-102 Funds in the Infrastructure Funds will be made by way of an investment in the Feeder Infrastructure Fund.

39. An investment by an 81-102 Fund in the Feeder Infrastructure Fund will be compatible with the investment objective and strategies of the 81-102 Fund.

40. The Feeder Infrastructure Fund directly acquires and holds interests of the Master Infrastructure Fund. The Feeder Infrastructure Fund is not considered to be an “investment fund” (as such term is defined under the Legislation).

41. The majority of the assets of the Feeder Infrastructure Fund are invested in the Master Infrastructure Fund. The remainder of the Feeder Infrastructure Fund’s portfolio is liquid, comprised of cash and cash equivalents.

42. The Feeder Infrastructure Fund is redeemable on a quarterly basis. Interests held in the Feeder Infrastructure Fund is considered an “illiquid asset” within the meaning of NI 81-102.

43. If the Exemptions Sought are granted, an 81-102 Fund will acquire securities of the Infrastructure Funds, in compliance with section 2.4 of NI 81-102. As a result, an 81‑102 Fund will not be able to purchase an interest of the Infrastructure Funds if, immediately after purchase, more than 10% of the net asset value of the 81-102 Fund would be made up of “illiquid assets”.

44. The IRC of the 81-102 Funds will review and provide its approval, including by way of standing instructions, for the purchase of interests of the Infrastructure Funds by the 81‑102 Funds, in accordance with section 5.2(2) of NI 81-107.

The Local Investment Restrictions

45. An 81-102 Fund will not invest in an Infrastructure Fund if, immediately after the purchase, the 81-102 Fund would hold securities representing more than 10% of: (i) the votes attaching to the outstanding voting securities of the Infrastructure Fund; or (ii) the outstanding equity securities of the Infrastructure Fund.

46. The amount invested from time to time in an Infrastructure Fund by an 81-102 Fund, together with one or more other 81-102 Funds (collectively, the Other 81-102 Funds), may exceed 20% of the outstanding voting securities of such Infrastructure Fund. As a result, an 81-102 Fund could, together with one or more Other 81-102 Funds, become a substantial security holder of an Infrastructure Fund. Each 81-102 Fund and the Other 81-102 Funds are “related investment funds”, as such term is defined in section 106(1) of the OSA by virtue of common management by the Filers.

47. The Proposed Investments structure may result in an 81-102 Fund investing in an Infrastructure Fund, in which an officer or a director of the Filers or an affiliate thereof has a significant interest and/or an 81-102 Fund investing in an Infrastructure Fund in which a person or company who is a substantial security holder of the 81-102 Fund, the Filers or an affiliate thereof has a significant interest.

48. The Filers do not anticipate that any fees or sales charges would be incurred by an 81-102 Fund with respect to an investment in an Infrastructure Fund.

49. In the absence of relief from the Local Investment Restriction, each 81-102 Fund would be precluded from purchasing and holding securities of an Infrastructure Fund.

The Local Reporting Requirements

50. According to the Local Reporting Requirements, every management company shall, in respect of each investment fund 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.

51. In the absence of relief from the Local Reporting Requirement, the Filers, or an affiliate of the Filers acting as the management company (as defined in the applicable securities laws) of the 81-102 Funds would be required to file a report of every purchase and sale of securities of the Infrastructure Fund by the 81-102 Funds or every purchase or sale effected by the 81-102 Funds through any related person or company with respect to which the related person or company received a fee either from the 81-102 Funds or from the other party to the transaction or from both within 30 days after the end of the month in which such purchase or sale occurs.

52. It would be costly and time-consuming for the 81-102 Funds to comply with the Local Reporting Requirement, the costs of which will ultimately be borne by the investors.

53. National Instrument 81-106 – Investment Fund Continuous Disclosure requires the 81 102 Funds to prepare and file annual and interim management reports of fund performance that include a discussion of transactions involving related parties to the 81-102 Funds. Such disclosure is similar to that required under the Local Reporting Requirement and fulfills its objective to inform the general public about the transactions involving related parties to the 81‑102 Funds.

Generally

54. Subsection 6.2(3) of NI 81-107 provides an exemption for investment funds 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 Infrastructure Fund by an 81-102 Fund.

55. An 81-102 Fund’s investment in an Infrastructure Fund will represent the business judgment of a responsible person uninfluenced by considerations other than the best interests of the 81-102 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 Exemptions Sought are granted provided that:

(a) an investment by an 81-102 Fund in an Infrastructure Fund will be included as part of the calculation for the purposes of the illiquid asset restriction in section 2.4 of Regulation 81-102;

(b) at the time of each investment, the purchase is consistent with, or is necessary to meet, the investment objective of the Fund and represents the business judgment of the portfolio adviser of the 81-102 Fund uninfluenced by considerations other than the best interests of the 81-102 Fund and is in fact in the best interests of the 81-102 Fund;

(c) the PM of the 81-102 Funds remains subject to suitability obligations when investing in the Infrastructure Funds;

(d) in respect of an investment by an 81-102 Fund in an Infrastructure Fund, no sales or redemption fees will be paid as part of the investment in the Infrastructure Fund;

(e) in respect of an investment by an 81-102 Fund in an Infrastructure Fund, no management fees or incentive fees will be payable by the 81-102 Fund that, to a reasonable person, would duplicate a fee payable by an Infrastructure Fund for the same service;

(f) in respect of an investment by an 81-102 Fund in an Infrastructure Fund, no incentive or additional remuneration will be provided to the portfolio manager of the 81-102 Fund;

(g) an 81-102 Fund will not invest at the net asset value of the Infrastructure Funds unless the net asset value of the Infrastructure Funds is independently calculated by an arm's length third party and the annual financial statements of the Infrastructure Funds are audited and made available to the 81-102 Fund.

(h) where applicable, an 81-102 Fund’s investment in an Infrastructure Fund will be disclosed to investors in such 81-102 Fund’s quarterly portfolio holding reports, financial statements and/or fund facts/ETF facts documents;

(i) the prospectus of the 81-102 Fund discloses, or will disclose in the next renewal or amendment thereto following the date of a decision evidencing the Exemptions Sought, the fact that the 81-102 Fund may invest in an Infrastructure Fund, which are investment vehicles managed by DGAM, the nature of the conflict of interest and how it is mitigated or avoided, the approximate or maximum percentage of the net asset value that is intended to be invested in the Infrastructure Fund, and the fees and expenses payable;

(j) the IRC of the 81-102 Fund will review and provide its approval, including by way of standing instructions, prior to the purchase of securities of an Infrastructure Fund by the 81-102 Fund, in accordance with section 5.2(2) of NI 81-107;

(k) the manager of the 81-102 Fund complies with Section 5.1 of NI 81-107 and the manager and the IRC of the 81-102 Fund comply with Section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with the transactions;

(l) where an investment is made by an 81-102 Fund in an Infrastructure Fund, the annual and interim management reports of fund performance for the 81-102 Fund disclose the name of the related person in which an investment is made, being an Infrastructure Fund;

(m) where an investment is made by an 81-102 Fund in an Infrastructure Fund, the records of portfolio transactions maintained by the 81-102 Fund include, separately for every portfolio transaction effected by an 81-102 Fund through any affiliate of a Filer, the name of the related person in which an investment is made, being an Infrastructure Fund;

(n) the securities of an Infrastructure Fund held by a 81-102 Fund will not be voted at any meeting of the security holders of the Infrastructure Fund, except that the 81-102 Fund may arrange for the securities of the Infrastructure Fund it holds to be voted by the beneficial holders of securities of the 81-102 Fund;

(o) If the IRC becomes aware of an instance where a Filer or an affiliate of a Filer, in its capacity as manager of an 81-102 Fund, did not comply with the terms of this decision, or a condition imposed by the Legislation or the IRC in its approval, the IRC of the 81 102 Fund will, as soon as practicable, notify in writing the securities regulatory authority or regulator in the jurisdiction under which the 81-102 Fund is organized; and

(p) DGAM will provide upon request to the Canadian securities regulatory authorities concerned the particulars of any investments made in reliance on the Exemptions Sought.

“Darren McKall”

Darren McKall

Manager, Investment Funds and Structured Products

Ontario Securities Commission

Application # 2023/0580

SEDAR+ # 6051395

Headnote (for Passport Decision signed by OSC)

National Policy 11-203 - Process for Exemptive Relief Applications in Multiple Jurisdictions – Relief from conflict of interest/self-dealing and reporting provisions in sections and sections 111 and 117 of the Securities Act (Ontario) to facilitate investment by investment funds subject to NI 81-102 into a related limited partnership that is not a reporting issuer – relief not required in filer's principal regulator's jurisdiction - relief subject to certain conditions

Applicable Legislative Provisions

National Policy 11-203 - Process for Exemptive Relief Applications in Multiple Jurisdictions

Securities Act (Ontario) R.S.O. 1990, Ch 5, sections 111, 113 and 117.