Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from the mutual fund conflict of interest investment restrictions in ss. 111(2)(b) and 111(3) of the Securities Act (Ontario) to allow a pooled fund that is a "mutual fund in Ontario" and future related pooled funds established in Canada and under common management, to invest 100% of their assets in an underlying offshore entity -- relief granted on conditions analogous to fund-of-fund structures, based on specific facts.

Applicable Legislative Provisions

Securities Act (Ontario), R.S.O. 1990, c. S.5, as am., ss. 111(2)(b), 111(3) and 113.

January 8, 2013

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

IFM (US) INVESTMENT ADVISOR, LLC AND

IFM GLOBAL INFRASTRUCTURE (CANADA) G.P. INC.

(the Filers)

AND

IN THE MATTER OF

IFM GLOBAL INFRASTRUCTURE (CANADA) L.P.

(the Fund)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filers, on behalf of the Fund, for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that provisions of the Legislation that restrict a mutual fund from knowingly making and holding an investment in a person or company in which the mutual fund, alone or together with one or more related mutual funds, is a substantial security holder (the Investment Restriction) shall not apply to the Fund or to other mutual funds that are offered pursuant to a prospectus exemption, which are established by Industry Funds Management Pty Ltd. (IFM Ltd.) or an affiliate of IFM Ltd. from time to time, for the purpose of investing in IFM Global Infrastructure Fund, and managed by IFM (US) Investment Advisor, LLC or an affiliate (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 section 4.7(1) of Multilateral Ontario Securities Commission 11 102 Passport System (MI 11 102) is intended to be relied upon in Alberta (the Non-Principal Jurisdiction).

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 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:

The Fund

1. The Fund is a limited partnership established under the laws of Ontario.

2. The general partner of the Fund, IFM Global Infrastructure (Canada) G.P. Inc. (the General Partner), is a corporation established under the laws of British Columbia.

3. The Fund is not a reporting issuer within the meaning of applicable securities legislation in any jurisdiction of Canada. Securities of the Fund are sold in Canada pursuant to exemptions from the prospectus requirements in accordance with National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106).

4. The General Partner is not a reporting issuer within the meaning of applicable securities legislation in any jurisdiction of Canada.

5. The General Partner is a wholly-owned subsidiary of IFM Ltd. IFM Ltd. is wholly-owned by a group of Australian pension funds and is headquartered in Melbourne, Australia, with offices in Sydney as well as in London, United Kingdom, and New York, United States of America. IFM Ltd. and its affiliates develop and manage investment products across the asset classes of infrastructure, private equity, debt investments and listed equities for institutional investors around the world. As at March 31, 2012, IFM Ltd. and its affiliates managed approximately U.S. $35 billion worldwide on behalf of institutional investors.

6. An affiliate of the General Partner, IFM (US) Investment Advisor, LLC (the Affiliate) is registered under applicable securities legislation in Ontario as an investment fund manager and as a dealer in the category of exempt market dealer in Ontario, Alberta and British Columbia.

7. The Affiliate will act as the investment fund manager of the Fund pursuant to a management agreement with the General Partner. The engagement of the Affiliate will be subject to the supervision, direction, oversight and review of the General Partner.

8. The Affiliate is organized under the laws of the State of Delaware and is registered as an investment adviser with the Securities Exchange Commission in the United States of America.

9. The Affiliate is a wholly-owned subsidiary of Industry Funds Management (US) LLC (IFM US), which in turn, is wholly-owned by IFM Ltd. IFM US provides back office and administration services to the Affiliate.

10. Neither the Fund, Future Canadian Fund, nor the Affiliate is in default of securities legislation in any jurisdiction of Canada. Neither the Affiliate nor IFM (US) is in default of securities legislation in the United States of America.

The Master Fund

11. The exclusive purpose of the Fund is to act as a means for Canadian institutional investors to invest solely and exclusively in the units of a master infrastructure trust domiciled in the Cayman Islands, the IFM Global Infrastructure Fund (the Master Fund). The limited partnership agreement of the Fund requires that all proceeds received by the Fund in exchange for securities of the Fund are to be invested solely in the securities of the Master Fund. In this respect, investments by the Fund into the Master Fund use a fund-on-fund structure common to certain fund investments in the exempt market.

12. The Master Fund is not an 'investment fund' as defined under Canadian securities laws because it expects to exercise or seek control of its underlying assets or to become actively involved in the management of its investee companies or underlying assets by membership on the board of such companies or taking controlling equity positions in respect of the underlying infrastructure assets. The Master Fund invests in infrastructure assets and companies located around the world, with a focus on the developed economies of Europe and North America. Funds established for institutional investors in countries other than Canada (Other Funds) also invest in securities of the Master Fund. As at March 31, 2012, the Master Fund was valued at approximately $3.8 billion. The Master Fund currently has one class/series of units outstanding.

13. Securities of the Master Fund are not offered for sale to the general public, but are offered, through investment in the Canadian Funds or the Other Funds, to institutional investors who typically conduct significant due diligence before making an investment. Financial information about the Master Fund, including its net asset value which is the basis for the price of its securities, is provided to existing and potential investors primarily by way of offering memorandum and financial statements.

14. The Master Fund is managed by IFM Ltd.

15. From time to time IFM Ltd. or its affiliates may establish other mutual funds (the Future Canadian Funds) to enable Canadian institutional investors to invest in the Master Fund. The Fund and the Future Canadian Funds (collectively, the Canadian Funds) are or will be under common management as they will be managed by either the Affiliate or an affiliate of the Affiliate.

16. Similar to the Fund, the sole purpose of the Future Canadian Funds will to be enable Canadian institutional investors to invest solely and exclusively in the units of the Master Fund. IFM Ltd., as manager of the Master Fund, does not permit direct investment into the Master Fund.

17. Securities of the Canadian Funds are or will only be sold to accredited investors, as defined in NI 45-106. None of the Canadian Funds will be reporting issuers in Canada.

18. The Fund is a "mutual fund in Ontario" under the Legislation. The Future Canadian Funds will be mutual funds. The securities of each Canadian Fund are or will be sold in Canada pursuant to exemptions from the prospectus requirements in accordance with NI 45-106. Each Canadian Fund will not be involved in the management or operation of the Master Fund or the underlying investments of the Master Fund.

19. The value of the portfolio assets of the Master Fund is, and will continue to be, independently determined by internationally recognized accounting firms/and/or appraisal firms (the Independent Appraisers) who independently value the portfolio assets of the Master Fund on a quarterly basis. Such quarterly valuations may be refreshed by an Independent Appraiser within a quarter on the occurrence of a significant valuation event. The valuations of the Master Fund are disseminated to the Affiliate or General Partner on a quarterly basis.

20. The Independent Appraisers are rotated on three-year intervals. The auditor(s) of the Master Fund will not act as an Independent Appraiser.

21. Each Canadian Fund and each Other Fund will invest in the Master Fund at the net asset value of the Master Fund which is based on the valuation of the portfolio assets by the Independent Appraisers.

The Investment Restriction

22. The Investment Restriction in the Legislation would prohibit the Fund or a Future Canadian Fund from knowingly making and holding an investment in a person or company in which the mutual fund, alone or together with one or more related mutual funds, is a "substantial security holder" (as defined in the Legislation).

23. The Other Funds currently invest in the Master Fund and are under common management with management of the Filer. The Other Funds are not domiciled in Canada nor are they reporting issuers in Canada, but have been established by IFM Ltd. for investors around the world for the purpose of investing in the Master Fund. Each Other Fund is a mutual fund within the definition in the Act.

24. As a consequence of investments by the Canadian Funds in the Master Fund, a Canadian Fund, any combination of Canadian Funds, or any combination of Canadian Funds and Other Funds as a group, will be a "substantial security holder" (as defined in the Legislation) of the Master Fund. This is because each Canadian Fund, alone or in combination with other Canadian Funds or Other Funds, is expected to own more than 20% of the outstanding securities of the Master Fund.

25. The Filers are seeking relief from the Investment Restriction to permit the Fund, along with the Future Canadian Funds, to act as Canadian mutual funds devoted to investing solely in the Master Fund.

26. Securities of the Fund and the Future Canadian Funds are or will be valued and redeemable quarterly. Securities of the Master Fund are or will be valued and redeemable quarterly, subject to such valuation being refreshed by an Independent Appraiser within a quarter on the occurrence of a significant valuation event. The General Partner has discretion to limit or suspend redemptions of the Fund in the circumstances described in the Fund's offering memorandum.

27. The Fund and each Future Canadian Fund will have valuation and redemption dates which match the valuation and redemption dates of the Master Fund.

28. Offering memoranda will be produced for each of the Fund and each Future Canadian Fund. Pursuant to the Exemption Sought, each offering memorandum produced in respect of the Fund or a Future Canadian Fund will:

(a) be provided to all investors of that fund; and

(b) disclose:

(i) that a Canadian Fund will solely purchase securities of the Master Fund;

(ii) that the Master Fund is managed by IFM Ltd. or an affiliate of IFM Ltd.;

(iii) that all of the net assets of the Canadian Fund will be invested in securities of the Master Fund;

(iv) the circumstances under which the General Partner in respect of the Fund, or the general partner of any Future Canadian Fund, has or will have discretion to limit or suspend redemptions from the Fund or Future Canadian Fund; and

(v) that investments by a Canadian Fund in the Master Fund should be considered as generally illiquid.

29. Securityholders of the Fund or a Future Canadian Fund have or will have access to copies of such fund's interim financial statements and audited annual financial statements. The financial statements of the Fund or each Future Canadian Fund will disclose its holdings of the securities of the Master Fund and the net asset value of the Master Fund.

30. Securityholders of the Fund or a Future Canadian Fund will receive, on request and free of charge, a copy of the most recent annual financial statement of the Master Fund and any interim financial statements of the Master Fund, after the date of its most recent annual financial statements.

31. An investment in the Master Fund by the Fund or a Future Canadian Fund will be made in such a manner as to avoid the duplication of management fees and incentive fees. No management or incentive fees will be paid by the Fund or a Future Canadian Fund.

32. No sales or redemption fees are, or will be, payable by the Fund or a Future Canadian Fund in relation to its purchase or redemption of securities of the Master Fund that, to a reasonable person, would duplicate a fee payable by an investor in the Fund or Future Canadian Fund.

33. The Fund or any Future Canadian Fund does not, and will not, vote the securities they hold of the Master Fund unless the Affiliate or an affiliate of the Affiliate, in its discretion and in its capacity as investment fund manager of the Fund or Future Canadian Fund, has sought and received instructions from the beneficial owners of securities of the Fund or Future Canadian Fund concerning how their proportionate number of securities of the Master Fund are to be voted and the securities of the Master Fund are voted in accordance with such instructions.

34. In the absence of the Exemption Sought, the Fund or a Future Canadian Fund would be precluded from purchasing or holding securities of the Master Fund due to the Investment Restriction.

35. The Filers submit that the investment in securities of the Master Fund by the Fund or the Future Canadian Funds, constitute a class of investment that represents the business judgment of responsible persons uninfluenced by considerations other than the best interest of the Canadian Funds since the sole purpose of the Canadian Funds is to enable Canadian institutional investors to invest in the Master Fund. Such purpose will be clearly disclosed to prospective investors in each Fund's offering memorandum.

Decision

Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

The decision of the Decision Maker under the Legislation is that the Exemption Sought is granted provided that:

(a) securities of the Canadian Funds are sold in Canada solely pursuant to exemptions from the prospectus requirements in accordance with NI 45-106;

(b) no management or incentive fees are payable by a Canadian Fund that, to a reasonable person, would duplicate a fee payable by the Master Fund for the same service;

(c) no sales or redemption fees are, or will be payable by a Canadian Fund in relation to its purchase or redemption of securities of the Master Fund, that to a reasonable person, would duplicate a fee payable by an investor in the Canadian Fund;

(d) a Canadian Fund will not vote the securities it holds of the Master Fund unless the Affiliate or an affiliate of the Affiliate, in its capacity as investment fund manager of the Canadian Fund and in its discretion, has sought and received instructions from the beneficial owners of securities of the Canadian Fund concerning how their proportionate number of securities of the Master Fund are to be voted and the securities of the Master Fund are voted in accordance with such instructions;

(e) the offering memorandum of a Canadian Fund will disclose:

(i) that a Canadian Fund will solely purchase securities of the Master Fund;

(ii) that the Master Fund is managed by IFM Ltd. or an affiliate of IFM Ltd.;

(iii) that all of the net assets of the Canadian Fund will be invested in securities of the Master Fund;

(iv) the circumstances under which the General Partner in respect of the Fund, or the general partner of any Future Canadian Fund, has or will have discretion to limit or suspend redemptions from the Fund or Future Canadian Fund; and

(v) that investments by a Canadian Fund in the Master Fund should be considered as generally illiquid;

(f) each Canadian Fund and each Other Fund will invest in the Master Fund at the net asset value of the Master Fund which is based on the valuation of the portfolio assets by the Independent Appraisers;

(g) any investment in the Master Fund occurs only through the Canadian Funds and/or the Other Funds; and

(h) direct investments in the Master Fund are not permitted.

"James E.A. Turner"
Vice-Chair
Ontario Securities Commission
 
"Christopher Portner"
Commissioner
Ontario Securities Commission