Focus Asset Management Ltd. (Re), 2025 CanLII 18074

March 7, 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 FOCUS ASSET MANAGEMENT LTD. (the Filer)

AND

THE FOCUS FUND (the Fund)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Fund for a decision under the securities legislation of the Jurisdiction (the Legislation) exempting the Fund from:

a) the requirement in section 2.2 of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) that the Fund file its audited annual financial statements and auditor's report on or before the 90th day after the 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 Fund deliver to securityholders its audited 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 Fund file its interim financial report on or before the 60th day after the 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 Fund deliver to securityholders its interim financial report by the Interim Filing Deadline (the Interim Delivery Requirement);

(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 subsection 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 Canadian Jurisdictions).

Definitions

Unless expressly defined herein, terms used have the respective meanings given to them in MI 11-102, National Instrument 14-101 Definitions, National Instrument 81-102 Investment Funds and NI 81-106.

Representations

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

1. The Filer is a corporation incorporated under the laws of the Province of Ontario. The Filer's head office is located in Toronto, Ontario.

2. The Filer is registered in the categories of investment fund manager, portfolio manager and exempt market dealer in Ontario; and in the categories of investment fund manager and portfolio manager in Quebec and Newfoundland and Labrador; and in the categories of portfolio manager and exempt market dealer in Alberta and British Columbia; and registered in the category of portfolio manager in Manitoba, Nova Scotia, and Saskatchewan.

3. The Filer is the investment fund manager, portfolio manager and exempt market dealer of the Fund.

4. The Filer is not a reporting issuer in any of the Canadian Jurisdictions and is not in default of securities legislation in any of the Canadian Jurisdictions.

The Fund

5. The Fund is a trust formed under the laws of the Province of Ontario.

6. The Fund is a "mutual fund" for purposes of the Legislation.

7. The Fund was created on October 7, 2009, under the name "FAM Balanced Fund", and in January 2023, the Fund formally changed its name to "The Focus Fund" and changed its investment strategy from investing in individual securities to a fund-on-fund strategy.

8. Units of the Fund are offered for sale on a continuous basis to qualified investors in the Canadian Jurisdictions pursuant to exemptions from the prospectus requirements under the Legislation or National Instrument 45-106 -- Prospectus Exemptions (NI 45-106).

9. The Fund is not a reporting issuer in any of the Canadian Jurisdictions.

10. The Fund is not in default of securities legislation in any of the Canadian Jurisdictions.

11. The Fund has a financial year-end of December 31.

12. The investment objective of the Fund is to provide investors with an opportunity to diversify their investments in order to achieve security of capital and a reasonable rate of return through capital appreciation, income or both. The Fund currently aims to achieve its investment objective by investing substantially all its assets in other investment funds under common management by the Filer (the Underlying Funds).

The Underlying Funds

13. As at December 31, 2024, the Fund invests in units of the following Underlying Funds, which investments are consistent with the Fund's investment objectives and strategies:

a. Focus Credit Opportunities Fund (Class N) = 25.0%

b. Focus Fixed Income Fund (Class N) = 11.2%

c. Focus Core Equity Fund (Class N) = 20.1%

d. Focus International Equity Fund (Class N) = 15.1%

e. Focus Absolute Return Fund = 5.4%

f. Focus Infrastructure LP Fund = 8.3%

g. Focus Private Debt LP Fund = 3.1%

h. Focus Real Estate LP Fund = 4.2%

i. Cash & Equivalents = 7.5%

14. The Underlying Funds are investment funds domiciled in Canada whose securities are offered to investors in one or more of the Canadian Jurisdictions pursuant to prospectus exemptions under the Legislation or NI 45-106.

15. The Underlying Funds have the same financial year-end as the Fund, but may not all be subject to the same financial reporting deadlines as the Fund because certain of the Underlying Funds may be organized under the laws of a Canadian jurisdiction where NI 81-106 does not apply to a mutual fund that is not a reporting issuer. In those cases, the financial reporting deadlines applicable to the Underlying Funds are stipulated in the Underlying Funds' constating documents and/or their contractual agreements with investors.

16. The Underlying Funds currently have the same auditor as the Fund.

17. The Underlying Funds seek to achieve their respective investment objectives by investing in securities of companies or other issuers directly and/or indirectly through investment funds managed by third-party investment fund managers (Third-Party Funds).

18. As the Underlying Funds and the Fund have a common auditor, a misalignment in the financial reporting deadlines of the Underlying Funds and the Fund is not at issue. The issue rests with the Third-Party Funds, with different auditors, having the same financial deadline as the Fund, as described further below.

Third-Party Funds

19. The Third-Party Funds are investment funds as defined under the Legislation whose securities are offered to investors in one or more of the Canadian Jurisdictions pursuant to prospectus exemptions under the Legislation or NI 45-106. Not all Third-Party Funds are domiciled in Canada.

20. As at December 31, 2024, three of the Underlying Funds, being the Focus Private Debt LP Fund, Focus Real Estate LP Fund and Focus Infrastructure LP Fund, invested substantially all their assets in various Third-Party Funds providing exposure to private market assets. The Fund's indirect investments in those Third-Party Funds, through the Underlying Funds, accounted for approximately 15% of the Fund's total assets as at December 31, 2024.

21. Most of the Third-Party Funds currently indirectly held by the Fund through the Underlying Funds are subject to the same financial reporting deadlines as the Fund.

22. The Third-Party Funds do not share the same auditor as the Fund and the Underlying Funds.

23. The Filer believes that the Fund's investments in securities of the Underlying Funds and indirect investments in securities of the Third-Party Funds offer benefits not available through direct investment in the companies, other issuers or assets held by the Underlying Funds and Third-Party Funds.

Financial Statement Filing and Delivery Requirements

24. Generally, section 2.2 and paragraph 5.1(2)(a) of NI 81-106 require the Fund to file and deliver its audited annual financial statements and auditor's report by the Annual Filing Deadline. As the Fund's financial year-end is December 31, the Fund has a filing and delivery deadline of March 31.

25. Section 2.4 and paragraph 5.1(2)(b) of NI 81-106 require the Fund to file and deliver its interim financial reports by the Interim Filing Deadline. As the Fund's interim period-end is June 30, it has an interim filing and delivery deadline of August 29.

26. Section 2.11 of NI 81-106 provides an exemption from the filing requirements of the audited annual financial statements and auditor's report, and interim financial reports under sections 2.2 and 2.4 respectively if, among other things, the Fund delivers such statements and reports in accordance with Part 5 of NI 81-106 by the Annual Filing Deadline and Interim Filing Deadline, as applicable.

27. In order to formulate an opinion on the financial statements of the Fund, the Fund's auditor requires audited financial statements of the respective Underlying Funds as at the date of the financial-year end of the Fund in order to audit the information contained in the Fund's financial statements. However, the audit of the financial statements of Underlying Funds that hold securities of the Third-Party Funds cannot be completed until such Underlying Funds obtain the audited financial statements of the Third-Party Funds.

28. As the Third-Party Funds currently held by the Underlying Funds are considered Level 2 assets in accordance with IFRS – Fair Value Measurement issued by the International Accounting Standards Board, their value must be confirmed by the Underlying Funds with reference to the Third-Party Funds' audited financial statements before the auditor of the Underlying Funds and the Fund can complete the respective audits of the financial statements of the Underlying Funds and the Fund.

29. In most cases, the Third-Party Funds do not provide their audited financial statements to the Underlying Funds until March 31st, causing the Underlying Funds to be unable to produce their audited financial statements to the Fund in time to meet the Fund's same financial reporting deadline of March 31st.

30. Given the different auditors of the Third-Party Funds, the Underlying Funds will in most cases be unable to obtain the audited annual financial statements and auditor's reports, and interim financial reports, of the Third-Party Funds sooner than the deadline for filing such statements and reports of the Third-Party Funds and, in all cases, no sooner than other securityholders of the Third-Party Funds receive the financial statements and reports of the Third-Party Funds.

31. The auditor of the Fund has advised the Filer that, given the Fund's material indirect exposure to private market assets held by the Third-Party Funds whose value must be confirmed by reference to their audited financial statements, they may be unable to express an unmodified audit opinion in accordance with subsection 2.7(3) of NI 81-106 if the respective audited financial statements of the Third-Party Funds and Underlying Funds are not completed and available sufficiently in advance of the Fund's Annual Filing Deadline and Annual Delivery Requirement.

32. As a result, the Fund will not be able to meet each Annual Filing Deadline and Annual Delivery Requirement and each Interim Filing Deadline and Interim Delivery Requirement. The Filer expects this timing delay in the completion of the audited annual financial statements and unaudited interim financial reports of the Fund to occur every year for the foreseeable future.

33. The Fund therefore seeks an extension of the Annual Filing Deadline and Annual Delivery Requirement to permit delivery within 120 days of the Fund's year-end to (i) enable the relevant Underlying Funds to receive the audited annual financial statements and auditor's reports of the Third-Party Funds so as to be able to prepare the Underlying Funds' audited annual financial statements and auditor's report, and (ii) in turn, enable the Fund to receive the audited annual financial statements and auditor's reports of the Underlying Funds so as to be able to prepare the Fund's audited annual financial statements and auditor's report.

34. The Fund therefore seeks an extension of the Interim Filing Deadline and Interim Delivery Requirement to permit delivery within 90 days of the Fund's most recently completed interim period, to enable (i) the relevant Underlying Funds to first receive the interim financial reports of the Third-Party Funds so as to be able to determine the net asset value of the Underlying Funds and prepare the Underlying Funds' interim financial reports and (ii) the Fund to first receive the interim financial reports of the Underlying Funds so as to be able to determine the net asset value of the Fund and prepare the Fund's interim financial reports.

35. If the Exemption Sought is granted, the Fund will notify (the Notice) its securityholders that (i) it has received and intends to rely on relief from the Annual Filing Deadline and Annual Delivery Requirement and the Interim Filing Deadline and the Interim Delivery Requirement and (ii) securityholders may request a redemption as described below.

36. If the Exemption Sought is granted, securityholders of the Fund may, within 2 business days from the date of the Notice, redeem their units of the Fund at the greater of: (a) the net asset value of the units of the Fund held (the Redemption Value); or (b) the original purchase price of the units of the Fund held (the Original Purchase Value).

37. The Filer will reimburse the Fund if the Original Purchase Value exceeds the Redemption Value.

38. If the Exemption Sought is granted, the Filer will provide an updated offering memorandum for the Fund to prospective investors disclosing that: (i) audited annual financial statements and auditor's reports for the Fund will be delivered to each investor on or before 120 days of the Fund's financial year-end, and (ii) unaudited interim financial reports for the Fund will be delivered to each investor on or before 90 days following the end of each interim period of the 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) The Fund has a financial year end of December 31;

(b) The Fund's investment strategy is to invest its assets primarily in securities of one or more Underlying Funds whose investment objectives are compatible with the Fund's investment objectives;

(c) No less than 15% of the total assets of the Fund as at its financial year end of December 31 are invested in one or more Underlying Funds that invest substantially all their assets in one or more Third-Party Funds that have financial reporting periods that end on December 31 of each year and that are subject to laws of their respective jurisdiction, or have constating documents or contractual obligations that require the annual financial statements of the Third-Party Funds to be delivered within 90 days of their financial year-ends and interim financial statements to be delivered within 60 days of their most recent interim period;

(d) The offering memorandum provided to prospective investors of the Fund after the date of this decision discloses that:

(i) the Annual Financial Statements for the Fund will be filed and delivered on or before the 120th day after the Fund's most recently completed financial year; and

(ii) the Interim Financial Statements for the Fund will be filed and delivered on or before the 90th day after the Fund's most recently completed interim period;

(e) The Fund sends a Notice to its existing securityholders that (i) notifies them that the Fund has received and intends to rely on relief from the filing and delivery requirements under section 2.2, section 2.4, paragraph 5.1(2)(a) and paragraph 5.1(2)(b) of NI 81-106, and (ii) describes the material terms and conditions of this relief;

(f) The Fund is not a reporting issuer in any of the Canadian Jurisdictions, and the Filer has the necessary registrations to carry out its operations in each of the Canadian Jurisdictions in which it operates;

(g) The conditions in section 2.11 of NI 81-106 will be met, except for subsection 2.11(b), and:

(i) the Annual Financial Statements will be delivered to securityholders of the Fund in accordance with Part 5 of NI 81-106 on or before the 120th day after the Fund's most recently completed financial year; and

(ii) the Interim Financial Statements will be delivered to securityholders of the Fund in accordance with Part 5 of NI 81-106 on or before the 90th day after the Fund's most recently completed interim period.

(h) This decision terminates within one year of the coming into force of any amendment to NI 81-106 or other rule that modifies how the Annual Filing Deadline, Annual Delivery Requirement, Interim Filing Deadline or Interim Delivery Requirement applies in connection with investment funds that are not reporting issuers.

"Darren McKall" Darren McKall Manager, Investment Management Division Ontario Securities Commission

Application #2024/0687; SEDAR+ #6212132