Kilgour Williams Capital Incorporated (Re), 2025 CanLII 52301

June 5, 2025

IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction)

AND

IN THE MATTER OF

KILGOUR WILLIAMS CAPITAL INCORPORATED (the Filer)

AND

THE FUNDS (as defined below)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption from subparagraph 13.5(2)(b)(iii) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) which prohibits a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as an adviser, to purchase or sell a security from or to the investment portfolio of an investment fund for which a responsible person acts as an adviser, to permit the Filer to carry out Inter-Fund Trades (as defined below) of Private Debt Securities (as defined below) between the Funds (as defined below) (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 British Columbia, Alberta, Manitoba and Québec.

Interpretation

Terms defined in National Instrument 14-101 Definitions, MI 11-102 and NI 31-103 have the same meaning in this decision unless otherwise defined. The following terms have the following meanings:

Existing Pooled Funds means KiWi Business Credit Fund L.P.; KiWi Business Credit Fund – Registered Eligible; KiWi Private Credit Fund L.P.; and KiWi Private Credit Fund – Registered Eligible, none of which is a reporting issuer;

Existing Offshore Funds means KiWi Alternative Income Master Fund a segregated account of Emerging Manager Platform (2) Ltd.; and KiWi Alternative Income US Feeder Fund, none of which is a reporting issuer;

Funds means, collectively, the Pooled Funds and the Offshore Funds;

Inter-Fund Trade means the purchase or sale of securities between Funds;

Offshore Funds means the Existing Offshore Funds and any future investment fund organized under the laws of a jurisdiction outside of Canada that is not a reporting issuer of which the Filer or an affiliate of the Filer acts as the portfolio manager; and

Pooled Funds means the Existing Pooled Funds and any future investment fund that is not a reporting issuer, of which the Filer or an affiliate of the Filer acts as investment fund manager and portfolio manager.

Representations

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

The Filer

1. The Filer is a corporation existing under the laws of the Province of Ontario with its head office in Toronto, Ontario.

2. The Filer is registered as an investment fund manager in the provinces of Ontario, Newfoundland and Labrador, and Québec, and as a restricted portfolio manager in the provinces of Ontario, Québec, and Alberta and as an exempt market dealer in the provinces of Ontario, Québec, British Columbia, Alberta, Manitoba, and Newfoundland and Labrador.

3. The Filer’s restricted portfolio manager registration is subject to, among other things, the condition that its activities are limited to advising funds comprised of commercial loan portfolios, commercial and consumer loan portfolios, mortgage loan portfolios, or asset backed securities portfolios where each investor in the funds is an “accredited investor” as defined in National Instrument 45-106 Prospectus Exemptions (NI 45-106), a "permitted client" as defined in NI 31-103, or a "Family, friend, or business associate" or “Founder, control person and family” as provided in NI 45-106.

4. The Filer is, or will be, the investment fund manager and/or portfolio manager of the Pooled Funds. The Filer, or an affiliate of the Filer, will be the portfolio manager of the Offshore Funds and will provide certain investment administrative services to the Offshore Funds.

5. The Filer or an affiliate is, or will be, a “responsible person” (as that term is defined in NI 31-103) acting as an adviser to each Fund.

6. The Filer and each existing Fund is not in default of securities legislation in the Jurisdiction.

The Pooled Funds

7. Each of the Pooled Funds is, or will be, an open-ended or closed-ended investment fund established as a limited partnership or a trust under the laws of a jurisdiction of Canada.

8. None of the Pooled Funds is, or will be, a reporting issuer in any jurisdiction of Canada.

9. The securities of the Pooled Funds are, or will be, distributed on a private placement basis pursuant to available prospectus exemptions.

The Offshore Funds

10. Each of the Offshore Funds is, or will be, an open-ended or closed-ended investment fund established as a segregated cell or account of a corporation, a corporation, a limited partnership or a trust under the laws of a jurisdiction located outside of Canada.

11. None of the Offshore Funds is, or will be, a reporting issuer in any of the jurisdictions of Canada.

12. The securities of the Offshore Funds are, or will be, distributed on a private placement basis to investors resident in one or more jurisdictions of Canada and/or investors resident outside of Canada on a basis which is exempt from the requirement to prepare and file prospectus in such jurisdictions.

Private Debt

13. Each Investment Policy Statement of the Existing Pooled Funds and Existing Offshore Funds limits the Fund’s investments to marketplace originated secured loans to SME borrowers, investments in pooled investment vehicles which invest in marketplace originated loans, and cash and cash equivalents. The Filer, on behalf of the Existing Pooled Funds and the Existing Offshore Funds, acquires loans originated by online marketplace lending platforms which are not affiliated with the Filer or the Funds. The Filer or an affiliate may establish and/or manage similar Funds in the future which hold loans and other private debt securities.

14. Accordingly, to the extent consistent with the investment objective of a Pooled Fund or an Offshore Fund, the investment portfolio of a Pooled Fund or an Offshore Fund does or may include private debt securities and loans (or a portion of a loan) in respect of which the bid and ask price is not readily available given the limited number of investors/lenders and the limited amount of trading involved (Private Debt Securities).

Inter-Fund Trades

15. The Filer wishes to be permitted to cause any Fund to engage in Inter-Fund Trades in respect of Private Debt Securities for the following reasons:

(a) The Filer wishes to consolidate the Private Debt Securities portfolios that are currently held in multiple existing Funds that have substantially similar investment objectives and policies but differing structures or jurisdictions of organization into a single Fund (the Master Fund) further to which each other Fund would access the returns of a portfolio of Private Debt Securities by holding interests in the Master Fund which held the consolidated portfolio. The Filer considers that a consolidated portfolio of Private Debt Securities should have greater inherent liquidity including access to bank financing, materially enhanced diversification, greater operational efficiency and therefore lower administrative and operating costs, stronger purchasing power, and will allow the Filer greater oversight;

(b) The Filer may establish other Funds in the future that hold portfolios of Private Debt Securities and may similarly wish to consolidate those portfolios into the Master Fund.

16. The Filer is prohibited by subparagraph 13.5(2)(b)(iii) of NI 31-103 from causing the Funds to engage in Inter-Fund Trades of Private Debt Securities because the Filer or an affiliate, is or will be, a “responsible person” acting as an adviser who has access to, or participates in formulating, investment decisions made on behalf of each of the Funds.

17. Pursuant to section 6.1 of National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107), a Fund is exempted from the restriction in paragraph 13.5(2)(b)(iii) of NI 31-103 and accordingly permitted to engage in Inter-Fund Trades of securities with another Fund that is an investment fund managed by the Filer or an affiliate of the Filer, if certain conditions are met, including that the bid and ask price of the security is readily available and that the transaction be executed at the “current market price of the security” (as defined in NI 81-107).

18. The Filer is unable to rely on the exemption in section 6.1 of NI 81-107 to effect the Inter-Fund Trades of Private Debt Securities between the Funds because:

(a) the Private Debt Securities are not commonly traded in secondary markets, do not have an external pricing source, and accordingly do not have readily available bid and ask quotes; and

(b) transactions involving Private Debt Securities cannot be executed at the “current market price of the security” (as defined in NI 81-107).

19. As such, absent the Exemption Sought, the Filer is prohibited by subparagraph 13.5(2)(b)(iii) of NI 31-103 from carrying out an Inter-Fund Trade of Private Debt Securities on behalf of a Fund.

Controls

20. Each Fund will only purchase Private Debt Securities pursuant to an Inter-Fund Trade that are consistent with, or necessary to meet the investment objectives of the Fund. Each Fund will only sell Private Debt Securities pursuant to an Inter-Fund Trade if the Filer has determined that disposing of such securities is appropriate for the Fund.

21. All decisions to purchase or sell Private Debt Securities pursuant to an Inter-Fund Trade will be made based on the judgment of responsible persons uninfluenced by considerations other than the best interests of the Funds.

22. The Filer has, or will have, policies and procedures in place to address any potential conflicts of interest that may arise as a result of Inter-Fund Trades in respect of Private Debt Securities and the Filer will be able to appropriately deal with any such conflicts.

23. The Filer, on behalf of each Pooled Fund, has, or will have, established an independent review committee (the IRC) consistent with section 3.7 of NI 81-107. The IRC of each Pooled Fund is, or will be, expected to comply with the standard of care set out in section 3.9 of NI 81-107. As specified in its Charter, the IRC will perform tasks additional to its primary role of reviewing conflict of interest matters that are referred to it by the Filer in respect of the Pooled Funds. Such additional tasks will include, among others, reviewing conflicts of interest as they apply to the Offshore Funds.

24. The Filer will refer the Inter-Fund Trades in respect of Private Debt Securities involving a Fund to the IRC of such Fund.

25. Prior to any Fund making a purchase or sale of Private Debt Securities pursuant to an Inter-Fund Trade:

(a) the IRC of the Fund will approve the transaction in accordance with section 5.2(2) of NI 81-107;

(b) the Filer will comply with section 5.1 of NI 81-107;

(c) the Filer and the IRC of the Fund will comply with section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with the transaction; and

(d) the value attributed to Private Debt Securities in connection with the Inter-Fund Trade will be determined by the Valuation Agent (as defined below) through the use of the Valuation Models (as defined below).

26. All Inter-Fund Trades will comply with paragraphs (e) and (g) of subsection 6.1(2) and with subsection 6.1(2.1) of NI 81-107.

Valuation

27. With respect to Private Debt Securities to be purchased or sold pursuant to an Inter-Fund Trade:

(a) Market quotations are not publicly available for the value or prices of the Private Debt Securities. The Filer has, or will have, engaged an independent, third-party valuation agent on behalf of the Funds (the Valuation Agent). The Valuation Agent uses, or will use, valuation models and methodologies (the Valuation Models) specifically for Private Debt Securities to determine fair value. The Valuation Models' basic methodology is to create a Markov chain for each loan with distinct states and distinct probabilities of a transition from state to state at each cash flow. The Valuation Models are calibrated using statistical analyses of actual historical loan performance data. Price is calculated as the net present value, at prevailing interest rates, of the discounted probability-weighted future states. In practice, there is a valuation haircut for delinquent loans, with more severely delinquent loans receiving a greater reduction in price;

(b) The fair value of each Private Debt Security is the deterministic result of a mathematical model administered by an unrelated third party. The Filer will not complete an Inter-Fund Trade unless and until a fair value determination is received from the Valuation Agent;

(c) The Valuation Models used to determine the prices at which Private Debt Securities are purchased or sold by a Fund in connection with an Inter-Fund Trade are also used to calculate the net asset value for the purpose of the issue price or redemption price of units or shares of the Funds, as applicable;

(d) A public accounting firm that is registered with the Canadian Public Accountability Board is, or will be, retained to act as auditor of each Fund (the Auditor) and will carry out an audit, in accordance with generally accepted auditing standards, of the annual financial statements of each Fund. The annual financial statements will be prepared in accordance with International Financial Reporting Standards. The Auditor will be independent of the Funds, the Filer and its affiliates, and the Valuation Agent.

Compensation

28. The Filer and its affiliates will receive no remuneration with respect to any purchase or sale of Private Debt Securities in connection with an Inter-Fund Trade.

Record Keeping

29. For each purchase or sale of Private Debt Securities, the Filer keeps, or will keep, written records for the applicable financial year of each Fund. These records do, or will, reflect details of the Private Debt Securities received or delivered by the applicable Fund and the value assigned to such Private Debt Securities during the period. These records are, or will be, retained for five years after the end of the applicable financial year of each Fund, the most recent two years in a reasonably accessible place.

Disclosure

30. The Filer will disclose in the offering documents of each Fund that Inter-Fund Trades of Private Debt Securities among the Funds may occur from time to time, and also disclose how the price of such Private Debt Securities is determined and the valuation procedure for such Private Debt Securities.

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 Inter-Fund Trade is consistent with the investment objectives of each Fund involved in the trade;

(b) the Filer refers an Inter-Fund Trade involving a Fund to the IRC of that Fund in the manner contemplated by section 5.1 of NI 81-107 and the Filer and the IRC of the Fund comply with section 5.4 of NI 81-107 in respect of any standing instructions the IRC provides in connection with the Inter-Fund Trade;

(c) the IRC of each Fund has approved the Inter-Fund Trade in respect of the Fund in accordance with the terms of subsection 5.2(2) of NI 81-107;

(d) the Inter-Fund Trade complies with paragraphs (e) and (g) of subsection 6.1(2) and with subsection 6.1(2.1) of NI 81-107;

(e) the Inter-Fund Trade is executed at the fair value of the Private Debt Security, as determined by the third-party Valuation Agent utilizing the Valuation Models;

(f) prior to effecting its first Inter-Fund Trade of Private Debt Securities on behalf of the Funds in reliance on this decision, the Filer will:

(i) for existing investors in the Funds, send a written notice disclosing:

A. that the Funds may engage in Inter-Fund Trades of Private Debt Securities from time to time,

B. how the price of such Private Debt Securities is determined,

C. the valuation procedure for such Private Debt Securities,

D. that the Filer is relying on this decision, and

E. a summary of the conditions of this decision, and

(ii) for new investors in the Funds, include the disclosure described in (i) in the offering documents of each Fund; and

(g) each Fund prepares financial statements on an annual basis, in accordance with Canadian generally accepted accounting principles applicable to publicly accountable enterprises that:

(i) present the portfolio assets of the Funds, including the Private Debt Securities, at fair value, as defined in IFRS 13 Fair Value Measurement, as the same may be amended or replaced from time to time, and

(ii) are audited by the Auditor in accordance with Canadian generally acceptable auditing standards.

“Darren McKall”

Darren McKall

AVP, Investment Management Division

Ontario Securities Commission

Application No. 2025/0269