March 5, 2025
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 Yorkville Asset Management Inc.
(the Filer)
Decision
Background
The principal regulator in the Jurisdiction has received an application (the Application) from the Filer with respect to Yorkville Health Care Fund, an existing collective investment scheme managed by the Filer (the Top Issuer), with respect to investments by the Top Issuer in Southbridge Health Care LP (the Existing Underlying Investment) as well as investment funds or other collective investment schemes that are, or will be, managed by the Filer or an affiliate of the Filer (the Future Underlying Investments and, together with the Existing Underlying Investment, the Underlying Investments), for a decision under the securities legislation (Legislation) of the Jurisdiction exempting the Filer (or an affiliate of the Filer that may act as a manager or portfolio adviser to the Top Issuer in the future), 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 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 the Application; and
(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories, and Nunavut (collectively, together with the Jurisdiction, the Canadian Jurisdictions).
Defined Terms
Unless expressly defined herein, terms in this Application have the respective meanings given to them in National Instrument 14-101 Definitions, MI 11-102, NI 31-103, and National Instrument 81-102 Investment Funds (NI 81-102).
Representations
This decision is based on the following facts represented by the Filer:
The Filer
The Filer is a corporation formed under the laws of Ontario with its head office located in Toronto, Ontario. The Filer is registered as an investment fund manager in the province of Ontario and as an exempt market dealer and as an adviser in the category of portfolio manager in the provinces of Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, and Saskatchewan.
The Filer is the manager and portfolio adviser of the Top Issuer. An affiliate of the Filer may be a manager or portfolio adviser to the Top Issuer in the future.
The Filer (or an affiliate of the Filer) is or will be the manager and/or portfolio adviser of each Underlying Investment.
The Filer is not a reporting issuer in any of the Jurisdictions and is not in default of securities legislation in any of the Jurisdictions.
The Top Issuer
The Top Issuer is formed as a trust under the laws of Ontario.
The Top Issuer is not a reporting issuer under the securities legislation of any Jurisdiction.
The securities of the Top Issuer are distributed solely to investors pursuant to exemptions from the prospectus requirements in accordance with the Legislation. The Top Issuer has an offering memorandum or statement of investment policies and guidelines that is provided or made available to investors.
The investment objective of the Top Issuer is to generate stable cash distributions and achieve capital appreciation. The Top Issuer was created to provide investors with exposure to the healthcare industry, including the long-term care industry, retirement home industry, and other health care-related businesses.
The Top Issuer not an "investment fund" issuer as defined in the Legislation.
Subject to the conditions set out in the constating documents governing the Top Issuer, units of the Top Issuer are redeemable on demand by the holders thereof on the last day of each calendar month.
To the extent that the Top Issuer wishes to invest in an Underlying Investment, the investment objective and strategies of such Top Issuer will permit it to do so.
The Top Issuer is not in default of securities legislation in any of the Jurisdictions.
The Underlying Investments
The Top Issuer currently invests a portion of its assets in the Existing Underlying Investment.
The long-term and short-term investment objectives of the Existing Underlying Investment are to generate stable cash distributions and achieve capital appreciation. The investment strategy of the Existing Underlying Investment is to, directly or indirectly, acquire ownership of long-term care homes, retirement homes, and other elderly care residences.
The Existing Underlying Investment invests all or substantially all of its net assets in securities or other interests of underlying subsidiaries that hold equity or debt interests in long-term care homes, retirement homes, and other health care related businesses owned and operated by the subsidiaries.
The Existing Underlying Investment is not an "investment fund" issuer as defined in the Legislation. The future Underlying Investments may or may not be "investment fund" issuers as defined in the Legislation.
The Top Issuer may invest from time to time in Future Underlying Investments that provide exposure to the healthcare industry, including the long-term care industry, retirement home industry, and other health care related businesses in accordance with its investment objectives.
The Existing Underlying Investment is not in default of the securities legislation of any of the Jurisdictions.
Each Underlying Investment is or will be formed as a limited partnership, trust, or corporation governed by the laws of a jurisdiction in Canada or a foreign jurisdiction.
The Future Underlying Investments are not, or will not be, reporting issuers in any of the Jurisdictions. Securities of the Underlying Investments are, or will be, distributed solely to investors in Canada pursuant to exemptions from the prospectus requirements in accordance with the Legislation.
Reasons for the Exemption Sought
The Top Issuer's investment in the Existing Underlying Investment is structured in a manner that does not result in a "responsible person" of the Filer (or an affiliate of the Filer) or an associate of a "responsible person", as that term is defined in NI 31-103, being a partner, officer, or director of the Existing Underlying Investment.
The Filer is seeking to eliminate certain redundancies and effect other changes such that the Top Issuer's existing and future Underlying Investments may be structured in a manner that would result in a "responsible person" of the Filer (or an affiliate of the Filer) or an associate of a "responsible person" being a partner, officer, or director of an Underlying Investment. The Exemption Sought would permit the Filer to streamline and reduce the administrative burden and inefficiency of the current structure of the Top Issuer's existing and future Underlying Investments, but would not otherwise change the nature of the Top Issuer's investment in the Existing Underlying Investment.
The Top Issuer allows or will allow investors in the Top Issuer to obtain indirect exposure to the investment portfolios of Underlying Investments and their investment strategies through direct or indirect investments by the Top Issuer in securities of the Underlying Investments (each, a Fund-on-Fund Structure).
Paragraph 13.5(2)(a) of NI 31-103 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.
A "responsible person" of the Filer (or an affiliate of the Filer) or an associate of a "responsible person", as that term is defined in NI 31-103, may be a partner, officer, or director of an Underlying Investment, including, for greater certainty, an officer and/or director of the general partner of an Underlying Investment where the Underlying Investment is structured as a limited partnership.
A Fund-on-Fund Structure may result in the Top Issuer directly or indirectly investing in an Underlying Investment 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.
In the absence of the Exemption Sought, the Filer (or its affiliate) would be precluded from causing the Top Issuer to directly or indirectly invest in an Underlying Investment in these circumstances unless the consent of each investor in the Top Issuer is obtained. The Top Issuer has a large number of investors and, as a result, obtaining the consent of each such investor is not practical.
Generally
An investment by the Top Issuer in an Underlying Investment will only be made if the investment is, or will be, compatible with the investment objectives of the Top Issuer and allows, or will allow, the Top Issuer to obtain exposure to asset classes in which the Top Issuer may otherwise invest directly.
The Filer believes that the investment by the Top Issuer in an Underlying Investment will provide the Top Issuer with an efficient and cost-effective manner to obtain exposure to diversified alternative and private asset classes, which are generally not available through collective investment schemes or investment funds that are reporting issuers or through direct investment. The Top Issuer will gain access to the expertise of the portfolio adviser or manager of the applicable Underlying Investment as well as to the investment strategies and asset classes of the Underlying Investment.
Each Underlying Investment is, or will be, managed and/or advised by the Filer or an affiliate of the Filer. The Filer, or an affiliate of the Filer, calculates or will calculate a net asset value (NAV) or fair market value (FMV), which will be used for the purposes of determining the purchase and redemption price of any securities of the Underlying Investments purchased by the Top Issuer.
The Existing Underlying Investment produces 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 Filer expects to have access to audited financial statements prepared in respect of most underlying assets that are invested in by the Underlying Investments.
The Filer does not anticipate that any management fees or incentive fees are or will be payable by the Top Issuer with respect to an investment in an Underlying Investment that, to a reasonable person, would duplicate a fee payable by an Underlying Investment for the same services.
The Filer does not anticipate that any sales fees or redemption fees would be payable by the Top Issuer in relation to its purchases or redemptions of securities of an Underlying Investment, unless the Top Issuer redeems its securities of an Underlying Investment during a lock-up period, in which case an early redemption fee or deduction from the redemption proceeds may apply.
In all cases, the Filer manages, or the Filer (or its affiliate) will manage, the liquidity of the Top Issuer having regard to the redemption features of the corresponding Underlying Fund(s) to ensure that it can meet redemption requests from investors of the Top Issuer.
The Existing Underlying Investment is valued monthly and redeemable monthly, subject to a lock-up period and limitations on redemptions and deductions to the redemption proceeds depending on the timing and amounts being redeemed.
The value of the underlying portfolio assets and liabilities of the Existing Underlying Investment is determined by SGGG Fund Services Inc., which is arm's length to the Filer and the Underlying Investments, on a monthly basis. Similar third-party valuations will be carried out in respect of the underlying portfolio assets and liabilities of each Future Underlying Investment.
Investments in securities by the Top Issuer in an Underlying Investment will be effected at an objective price. The Filer's (or its affiliate's) policies and procedures provide, or will provide, that an objective price, for this purpose, will be the FMV or NAV per security of the applicable class or series of the Underlying Investment.
The Top Issuer's investment in an Underlying Investment will be disclosed in the Top Issuer's offering memorandum or other disclosure document.
An investment in the Underlying Investments represents the business judgement of a responsible person uninfluenced by considerations other than the best interests of the investors in the Top Issuer.
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) securities of the Top Issuer are distributed in Canada solely to investors pursuant to exemptions from the prospectus requirements in the Legislation;
(b) the investment by the Top Issuer in an Underlying Investment will be compatible with the investment objective of the Top Issuer;
(c) at the time of purchase by the Top Issuer of securities of an Underlying Investment, either the Underlying Investment holds no more than 10% of its NAV in securities of other investment funds or the Underlying Investment:
(i) has adopted a fundamental investment objective to track the performance of an investment fund or similar investment product;
(ii) purchases or holds securities of investment funds that are "money market funds" (as defined in NI 81-102); or
(iii) purchases or holds securities that are "index participation units" (as defined in NI 81-102) issued by an investment fund;
(d) in respect of an investment by the Top Issuer in an Underlying Investment, no sales fees or redemption fees will be paid as part of the investment in the Underlying Investment, unless the Top Issuer redeems its securities of an Underlying Investment during a lock-up period, in which case an early redemption fee or deduction from the redemption proceeds may apply;
(e) in respect of an investment by the Top Issuer in an Underlying Investment, no management fees or incentive fees will be payable by the Top Issuer that, to a reasonable person, would duplicate a fee payable by an Underlying Investment for the same services;
(f) the securities of an Underlying Investment held by the Top Issuer will not be voted at any meeting of the securityholders of the Underlying Investment, except that the Top Issuer may arrange for the securities of the Underlying Investment it holds to be voted by the beneficial holders of securities of the Top Issuer;
(g) the offering memorandum or statement of investment policies and guidelines, where available, or other disclosure document of the Top Issuer shall be provided to each new investor in the Top Issuer prior to their purchase of securities of the Top Issuer, and will disclose the following information at the next update of such document:
(i) that the Top Issuer may purchase securities of one or more Underlying Investments;
(ii) that the Filer, or an affiliate of the Filer, is the manager of both the Top Issuer and the Underlying Investment(s); and
(iii) the fees, expenses, and any performance or special incentive distributions payable by the Underlying Investment(s) in which the Top Issuer invests; and
(h) the Top Issuer will invest in, and redeem, securities of each Underlying Investment at the FMV or NAV of the applicable securities of the Underlying Investment, which will be based on the valuation of the applicable portfolio assets to which the Underlying Investment has exposure, independently determined by an arm's length third party.
"Darren McKall"
Darren McKall
Manager, Investment Management Division
ONTARIO SECURITIES COMMISSION
Application #2024/0439
SEDAR Project# 6159261