Scheduled outage for OSC Electronic Filing Portal on Thursday, April 25, 2024 from 6:00 to 11:00 pm (EST)
NexGen Financial Limited Partnership - s. 3.1 of OSC Rule 31-501 Registrant Relationships
Headnote
Decision pursuant to section 3.1 of OSC Rule 31-501 Registrant Relationships (the Rule), providing relief from subsection 1.1(1) of the Rule, so that certain directors and/or officers may be registered with both the applicant and related registrants.
Rule Cited
OSC Rule 31-501 Registrant Relationships.
IN THE MATTER OF
ONTARIO SECURITIES COMMISSION
RULE 31-501 (the Rule)
MADE UNDER THE SECURITIES ACT,
R.S.O. 1990, CHAPTER S.5, AS AMENDED (the Act)
AND
IN THE MATTER OF
NEXGEN FINANCIAL LIMITED PARTNERSHIP
ORDER
(Section 3.1 of the Rule)
UPON the application (the Application) of NexGen Financial Limited Partnership (the Applicant), to the Ontario Securities Commission (the Commission or OSC) for an order pursuant to subsection 3.1 of the Rule providing that the Applicant be exempt from the requirement in section 2.1(e) of the Rule that the Applicant disclose to its customers the details of the Related Registrants and the policies and procedures adopted to minimize the conflict of interests resulting from such relationships;
AND UPON considering the Application and the recommendation of staff of the Commission;
AND UPON the Applicant having represented to the Commission that:
1. The Applicant is a limited partnership formed under the laws of the Province of Ontario having its head office in Toronto, Ontario. The Applicant is registered as an adviser in the categories of investment counsel and portfolio manager and as a dealer in the categories of mutual fund dealer and limited market dealer.
2. The Applicant is the manager, trustee, and the promoter of the NexGen Funds, a group of open end-mutual funds established under the laws of Ontario, whose securities will be distributed through independent dealers and brokers in certain Canadian jurisdictions, including Ontario, pursuant to a simplified prospectus and annual information form.
3. On May 5, 2006, the Applicant completed a private placement (the Private Placement) of preferred limited partnership units, subordinated debentures, and options to acquire limited partnership units to various investors (the Investors).
4. Pursuant to the terms of the Private Placement, the Investors and the Applicant entered into a stakeholders agreement (the Agreement), whereby the Investors were entitled to nominate to the board of directors of NexGen Limited, the general partner of the Applicant, more than a majority of its members (the Investor Nominees). Certain of the Investor Nominees (Individual Dual Registrants) are directors and officers of existing registrants in the Province of Ontario (the Related Registrants), which registrants are associated or affiliated with an Investor. No Investor Nominee is registered as a salesperson under securities legislation.
5. The Applicant filed through the National Registration Database the submissions (absent this application) to effect registration of each of the Individual Dual Registrants as a director of NexGen Limited and an Individual Dual Registrant also as the Chairman.
6. The Related Registrants include the following entities: (i) Cidel Financial Group Inc. (CFG); (ii) Newport Securities LP and Newport Investment Counsel Inc; (iii) Covington Capital Corporation and (iv) VL Advisors Inc.
7. With the exception of the investment by the Investor, Newport Partners Private Growth LP 1, no Investor or Related Registrant is a "principal shareholder" of the Applicant. Rather, the application of the Rule has been triggered through each of the Investors nominating their respective Individual Dual Registrant to the board of directors of the General Partner. Such a role is limited to strategic oversight of the business of the Applicant and does not involve or require the involvement and participation in the day to day operational and management aspects of the business. To the extent that an Individual Dual Registrant receives that information in the course of his or her duties as a director, that information will be subject to the Policies and Procedures.
In respect of Newport Partners Private Growth LP I, although it is a "principal shareholder" of the Applicant as a result of its ownership of approximately 37% of the preferred limited partnership units of the Applicant, Newport Partners Private Growth LP I does not possess any additional rights under the Agreement as a result of that ownership. As noted below, all fundamental matters relating to the Applicant require the approval of 66.6% of the Applicant investors, including the Investors, calculated on a fully diluted basis.
8. The Investors include numerous institutional investors, with no individual investment exceeding approximately 18% of the voting securities of the Applicant on a fully diluted basis. In addition, pursuant to the Agreement, certain fundamental matters affecting the Applicant require the approval of 66.6% of all Applicant investors, including the Investors.
9. The majority of the Investors are institutional investors, whose business may involve the making of investments in private and public entities from time to time either for their own benefit or for that of an affiliate or associate. Depending on the particular circumstances, a condition of their investment may typically require that the Investor be given the right to elect a nominee to the board of directors of the investee entity (as is the case with the Applicant), to ensure that the Investor is kept apprised of company matters.
10. The Applicant will adopt adequate policies and procedures to minimize the potential for conflict of interest resulting from the registrant relationships as required by section 2.1(d) of the Rule.
11. Item 11 of National Instrument 81-101 - Mutual Fund Prospectus Disclosure (NI 81-101) respecting conflicts of interest requires the NexGen Funds to disclose in the annual information form all investors who hold in excess of 10% of the voting securities of the Applicant. In addition, pursuant to Item 10 of NI 81-101, the NexGen Funds are required to disclose the respective directors of the Applicant, including the five year employment history of each of such directors, which would include the Investor Nominees.
IT IS ORDERED THAT subsection 2.1(e) of the Rule shall not apply to the Applicant so that the Individual Dual Registrants can be registered as directors and/or officers with both the Applicant and the Related Registrants, as contemplated in the Agreement.
September 1, 2006
"Donna Leitch"