Ontario Securities Commission Rule 13-502 Fees (OSC Rule 13-502) establishes a fee regime where the participation fee for a registered firm is based on the firm's revenues attributable to its capital markets activity in Ontario. The registrant's corporate structure does not allow it to adequately meet the requirements of OSC Rule 13-502. The registrant is seeking a decision granting relief from the requirement to calculate the participation fee that it pays to the Ontario Securities Commission in the manner prescribed by Part 3 of OSC Rule 13-502.
Applicable Legislative Provisions
OSC Rule 13-502 Fees, Part III Form 13-502F4.
December 16, 2013
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
NYLCAP CANADA GENPAR INC.
The Ontario Securities Commission (the OSC) has received an application from the Filer (the "Application") for a decision under the securities legislation of Ontario (the "Legislation") for an exemption under section 6.1 of OSC Rule 13-502 Fees (the Fees Rule):
(a) from the requirements of Part 3 of the Fees Rule such that the amount of the capital called from Ontario-resident investors of NYLCAP Select Manager Canada Fund, LP (the "Canadian Fund") by NYLCAP Select Manager Cayman Fund, L.P. (the "Cayman Fund") in connection with the payment of the management fee payable by NYLCAP Select Manager Fund, LP (the "Main Fund") to GoldPoint Partners LLC ("GPP") be used as the starting point in line 1 titled "Gross revenue for relevant fiscal year" of Part III Advisers, Other Dealers, and Unregistered Capital Markets Participation of Form 13-502 F4 Capital Markets Participation Fee Calculation ("Form 13-502F4"); and
(b) from the requirement in section 4.1 of the Fees Rule to pay a fee for its filing of this exemption application (together with (a), the "Exemption Sought").
Terms defined in National Instrument 14-101 Definitions have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation formed under the laws of the Province of New Brunswick. The head office of the Filer is located in the State of New York, United States.
2. The Filer is registered as an investment fund manager in Ontario.
3. The Filer is, to the best of its knowledge, not in default of any requirements of the securities legislation of Ontario.
4. As a registered firm in Ontario, the Filer must pay, for each of its financial years, the participation fee shown in Appendix B of the Fees Rule that applies to it according to the Filer's specified Ontario revenues earned from its capital market activities as calculated under Part III of Form 13-502 F4 Capital Markets Participation Fee Calculation.
5. The Filer acts as the investment fund manager for the Canadian Fund.
6. In accordance with section 3.4 of the Fees Rule, the Filer's specified Ontario revenue for its reference fiscal year is calculated by multiplying:
(a) its gross revenues, as shown in its audited financial statements prepared for the reference fiscal year, less specified deductions, by
(b) its Ontario percentage for the reference fiscal year.
7. The Filer does not charge a management fee for acting as the investment fund manager of the Canadian Fund and its sole compensation is from the 0.001% interest in the Canadian Fund that it holds. The Filer therefore does not report any gross revenues on its audited financial statements for the reference fiscal year.
8. The Canadian Fund is a limited partner in the Cayman Fund, a limited partnership formed under the laws of the Cayman Islands, which in turn is a limited partner in the Main Fund, a limited partnership formed under the laws of Delaware.
9. GPP acts as the investment fund manager to the Cayman Fund and the Main Fund and is paid management fees by the limited partners of the Main Fund, which include the Cayman Fund. To the extent that the Cayman Fund's limited partners are required to make capital contributions to the Cayman Fund (whether for portfolio investments or Cayman Fund expenses), the Canadian Fund as a limited partner of the Cayman Fund will also be so required, and as such the limited partners of the Canadian Fund will be required to make their pro rata portion of such capital contribution, based on the proportion that their capital commitment bears to the total capital commitments made to the Canadian Fund.
The management fee payable to GPP is payable by the Cayman Fund as a limited partner of the Main Fund, and in turn by the Canadian Fund as a limited partner of the Cayman Fund. Each limited partner of the Canadian Fund is assessed its pro rata portion of the Main Fund management fee, based on the proportion that such limited partner's capital commitment bears to the total capital commitments made to the Canadian Fund (and that in turn the Cayman Fund's capital commitment bears to the total capital commitments to the Main Fund). Amounts attributable to the Main Fund management fee are contributed by the Canadian Fund to the Cayman Fund, and then by the Cayman Fund to the Main Fund.
10. Upon review of the structure of the Filer and of the Canadian Fund, Staff of the Ontario Securities Commission ("OSC Staff") expressed concern that given the structure of the Canadian Fund and the fact that the Filer does not earn any revenue for acting as the investment fund manager for the Canadian Fund, the Filer's calculation of its participation fee required by Form 13-502F4 does not reflect the Filer's capital market activity in Ontario.
11. In order for the Filer to accurately capture its capital market activity in Ontario, the Filer will calculate its capital markets participation fee using the amount of the capital called from Ontario-resident investors of the Canadian Fund by the Cayman Fund in connection with the payment of the management fee payable by the Main Fund to GPP as the starting point in line 1 titled "Gross revenue for relevant fiscal year" of Part III of Form 13-502F4.
12. The capital called from Ontario-resident investors by the Cayman Fund will, therefore, subject to any deductions represent the "Revenue subject to participation fee" reported in line 8 of Part III of Form 13-502F4 for the reference fiscal year.
13. The Ontario percentage for the reference fiscal year reported in line 9 of Form 13-502F4 will be 100% to reflect the fact that 100% of the Filer's "Revenue subject to participation fee" reported in line 8 of Form 13-502F4 is attributable to capital markets activities in Ontario.
The Ontario Securities Commission is satisfied that the decision meets the test set out in the Legislation for the Ontario Securities Commission to make the decision.
The decision of the Ontario Securities Commission under the Legislation is that the Exemption Sought is granted, provided that:
(a) the Filer files supporting documentation to show how each component that went in to calculating line 1 of Part III of Form 13-502F4 was calculated.
This Decision shall expire on the sooner of:
a) Any change to how the capital is called from Ontario-resident investors by the Cayman Fund in connection with the payment of the management fee payable by the Main Fund to GPP.
b) 90 days after any material changes in the Filer's business and operations.
c) 90 days after a material change to the manner in which the management fee is charged.
d) Immediately preceding the wind up of the Canadian Fund; and
e) Immediately preceding a change in the Fees Rule that would require a change to the manner in which the Filer's participation fee is calculated.