Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief granted from the investment fund conflict of interest investment restrictions in securities legislation to permit pooled funds to invest in related underlying pooled funds. This decision revokes and replaces the Previous Decision.

Applicable Legislative Provisions

Securities Act (Ontario), R.S.O. 1990, c. S.5, as am., ss. 111(2)(b), 111(2)(c), 111(4), 113.

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 13.5(2)(a), 15.1.

January 22, 2016

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 BLOOMBERGSEN INC. (the Filer) AND IN THE MATTER OF THE TOP FUNDS (as defined below)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer, on behalf of each of the Filer, its affiliates, BloombergSen Offshore Fund (the Offshore Fund), BloombergSen American Dollar Fund LP and BloombergSen Partners RSP Fund (the Initial Canadian Top Funds, and together with the Offshore Fund, the Initial Top Funds), and any other top investment fund which is not a reporting issuer under the securities legislation of the principal regulator (the Legislation) that is established, advised or managed by the Filer, or an affiliate of the Filer, in the future (the Future Top Funds, and together with the Initial Top Funds, the Top Funds), for a decision:

1) to revoke and replace the Previous Decision (as defined below);

2) exempting the Top Funds that are subject to them (the Canadian Top Funds) from the restrictions in securities legislation which prohibit them from knowingly doing any of the following, to permit the Canadian Top Funds to invest in BloombergSen Master Fund LP and BloombergSen Partners Fund LP (the Initial Underlying Funds), and any other underlying investment fund which is not a reporting issuer under securities legislation that is established, advised or managed by the Filer, or an affiliate of the Filer, in the future (the Future Underlying Funds, and together with the Initial Underlying Funds, the Underlying Funds; the Underlying Funds together with the Top Funds, the Funds), as further described below:

(a) making an investment in a person or company in which the investment fund, alone or together with one or more related investment funds, is a substantial security holder;

(b) making an investment in an issuer in which any of the following has a significant interest:

(i) any officer or director of the investment fund, its management company or distribution company or an associate of any of them; or

(ii) any person or company who is a substantial security holder of the investment fund, its management company or its distribution company;

3) exempting the Canadian Top Funds, the Filer and its affiliates from the restrictions in securities legislation which prohibit them from holding an investment described in paragraphs 2(a) and (b) above (together with the exemption described in 2 above, collectively, the Related Issuer Relief); and

4) exempting the Filer, and its affiliates, from the restriction contained in subsection 13.5(2)(a)(ii) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) which prohibit 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 a security of an issuer in which a responsible person or an associate of a responsible person is a partner, officer or director, unless this fact is disclosed to the client and the written consent of the client to the purchase is obtained before the purchase, to permit the Filer, or its affiliate, to cause the Top Funds to invest in the Underlying Funds (the Consent Relief)

(collectively, the Requested Relief).

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 Alberta in respect of the Related Issuer Relief.

Interpretation

Unless expressly defined herein, terms in this decision have the respective meanings given to them in National Instrument 14-101 Definitions and MI 11-102.

Representations

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

The Filer

1. The Filer is a corporation incorporated under the laws of the Province of Ontario and has its head office in Toronto, Ontario.

2. The Filer is registered in the categories of investment fund manager, portfolio manager and exempt market dealer in Ontario, in the categories of investment fund manager and exempt market dealer in Québec, and in the category of exempt market dealer in Alberta, British Columbia, Manitoba, and New Brunswick.

3. The Filer is not a reporting issuer in any jurisdiction, and is not in default of the securities legislation of any jurisdiction, of Canada.

4. The Filer is the investment fund manager and portfolio adviser of the Initial Top Funds, BloombergSen U.S. Fund LP (the US Feeder Fund) and the Initial Underlying Funds.

5. The Filer, or an affiliate of the Filer, will be the investment fund manager and portfolio adviser of any other Future Top Funds and the Future Underlying Funds.

6. The Filer obtained a previous decision dated April 17, 2015 (the Previous Decision):

(a) for Related Issuer Relief;

(b) for Consent Relief; and

(c) permitting it and its affiliates 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 allow the Filer to transfer the investment portfolio of the Offshore Fund to BloombergSen Master Fund LP in exchange for securities of BloombergSen Master Fund LP.

7. The Filer is seeking the revocation of the Previous Decision and its replacement with the Requested Relief because the Previous Decision contained the representation that the Top Funds would be the only investors in the Underlying Funds and the Previous Decision did not apply to BloombergSen Partners RPS Fund and BloombergSen Partners Fund LP.

8. The Previous Decision granted the Filer In specie Relief (as defined in the Previous Decision) to effect a one-time Reorganisation (as defined in the Previous Decision). As such, the In specie Relief has not been requested in connection with or included in this decision.

9. As of the date of the decision, the Filer will no longer rely on the Previous Decision.

The Top Funds

10. The Initial Canadian Top Funds are a limited partnership and a trust established under the laws of the Province of Ontario.

11. The Offshore Fund is an exempted company established under the laws of the Cayman Islands.

12. Any Future Top Funds will be formed as limited partnerships, trusts or corporations under the laws of the Province of Ontario, another jurisdiction of Canada, or a foreign jurisdiction.

13. The Top Funds are, or will be, investment funds for the purposes of the Legislation.

14. No Top Fund is, or will be, a reporting issuer in any jurisdiction of Canada. Securities of the Top Funds will be offered for sale in Canada solely pursuant to available prospectus exemptions under National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106).

15. The Initial Canadian Top Funds will invest all of their assets in the Initial Underlying Funds.

16. The investment objective of each Initial Underlying Fund will be the same as the investment objective of the corresponding Initial Top Fund.

17. Each of the Future Top Funds will similarly also invest all of its assets in one Underlying Fund.

18. The Initial Top Funds are not in default of the securities legislation of any jurisdiction of Canada.

The Underlying Funds

19. The Initial Underlying Funds are limited partnerships formed under the laws of Ontario and are open-ended exempted limited partnerships established under the laws of the Cayman Islands. Any Future Underlying Funds will be formed as limited partnerships, trusts or corporations under the laws of the Province of Ontario, another jurisdiction of Canada, or a foreign jurisdiction.

20. The Underlying Funds will be investment funds for the purposes of the Legislation.

21. No Underlying Fund will be a reporting issuer in any jurisdiction of Canada. Securities of the Underlying Funds will be offered for sale in Canada solely pursuant to available prospectus exemptions under NI 45-106.

22. The Filer will be entitled to receive management fees with respect to one or more classes of securities of the Initial Underlying Funds. An affiliate of the Filer has formed two other limited partnerships (the Holdings LPs) which each will hold a limited partnership interest in an Initial Underlying Fund, respectively, that entitles it to receive performance distributions with respect to one or more classes of securities of the Initial Underlying Funds. The performance distributions generally will be calculated based on increases in the net asset value (NAV) of certain classes of securities of the Initial Underlying Funds. Each limited partner of the Holdings LPs has paid a nominal amount to acquire its interest in the Holdings LPs and the Holdings LPs have paid a nominal amount to acquire their interest in the respective Initial Underlying Fund. The general partners of the Initial Underlying Funds will be entitled to receive 0.001% of profits of the respective Initial Underlying Funds. The fee arrangements for the Future Underlying Funds will be substantially similar.

23. The shareholders, directors and certain officers of the Filer are (indirectly through their holding companies) the limited partners of Holdings LPs.

24. Each Underlying Fund will have separate investment objectives, strategies and restrictions.

25. An investment in an Underlying Fund by a Top Fund will be effected at an objective price. The portfolio of each Underlying Fund will consist primarily of publicly traded securities. Each Underlying Fund will not hold more than 10% of its NAV in illiquid assets (as defined in National Instrument 81-102 Investment Funds (NI 81-102).

Fund-on-Fund Structure

26. A Top Fund allows investors to obtain exposure to the investment portfolio of the Underlying Fund and its strategies through direct investment by the Top Fund in securities of the Underlying Fund (the Fund-on-Fund Structure).

27. The primary purpose of the Fund-on-Fund Structure is to permit the Filer, or its affiliate, to manage a single portfolio of assets in a single investment vehicle (commonly referred to as a master fund) on a more efficient basis while accepting investments from both Canadian investors and investors in several foreign jurisdictions, through one or more investment vehicles (commonly referred to as feeder funds) that are designed to address the specific tax, securities and other laws of each separate jurisdiction or type of investor.

28. Managing a single pool of assets provides economies of scale and allows a Top Fund to achieve its investment objectives in a cost efficient manner, can provide greater diversification for the Top Fund in particular asset classes, and will not be detrimental to the interests of other security holders of the Underlying Funds.

29. Generally, investors may invest in either an Underlying Fund or a corresponding Top Fund, depending on their tax and jurisdictional status.

30. Each Underlying Fund may have investors other than, and in addition to, the Top Funds.

31. Any investment by a Top Fund in an Underlying Fund will be aligned with the investment objectives, investment strategy, risk profile and other principal terms of the Top Fund.

32. Each of the Funds that is subject to National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) will prepare annual audited financial statements and interim unaudited financial statements in accordance with NI 81-106 and will otherwise comply with the requirements of NI 81-106 applicable to them.

33. A Top Fund will have the same valuation and redemption dates as the corresponding Underlying Fund.

34. No Underlying Fund will be a Top Fund.

35. The Filer expects that the assets of the Initial Underlying Funds (and the assets of the Initial Top Funds only if the Initial Top Funds hold securities other than securities of the Initial Underlying Funds) will be held by a custodian that meets the qualifications of section 6.2 of NI 81-102 (for assets held in Canada) or a custodian that meets the qualifications of section 6.3 of NI 81-102 (for assets held outside Canada) except that its financial statements may not be publicly available.

36. The Canadian Top Funds will be related investment funds (under applicable securities legislation) by virtue of the common management by the Filer or its affiliate. The amounts invested from time to time in an Underlying Fund by a Canadian Top Fund, either alone or together with other Canadian Top Funds, may exceed 20% of the outstanding voting securities of the Underlying Fund. As a result, each Canadian Top Fund could, either alone or together with other Canadian Top Funds, become a substantial security holder of an Underlying Fund.

37. The shareholders, officers and directors of the Filer are not expected through the Holdings LPs to have a significant interest in the Initial Underlying Funds at the time the Initial Canadian Top Funds invest in the Initial Underlying Funds.

38. However, in the future, for the purpose of receiving performance distributions, or otherwise receiving a share of profits through special incentive distributions, from Future Underlying Funds, the Filer expects that shareholders, officers and directors of the Filer may be, directly or indirectly, limited partners of Holdings LPs or of other limited partnerships that may be the initial security holder in the Future Underlying Funds. As limited partners of such limited partnerships, directly or indirectly, such shareholders, officers and directors of the Filer may have a significant interest in a Future Underlying Fund at the time of investment by a Canadian Top Fund. Once other investors, including other Top Funds, invest in the Future Underlying Fund, any interest held indirectly by shareholders, officers and directors of the Filer in such Future Underlying Fund will likely be diluted such that they will no longer hold a significant interest in such Underlying Fund.

39. In the absence of the Related Issuer Relief, each Canadian Top Fund may be precluded from purchasing and holding securities of an Underlying Fund due to the investment restrictions contained in the Legislation.

40. In the absence of the Consent Relief, a Top Fund may be precluded from investing in an Underlying Fund, unless the specific fact is disclosed to security holders of the Top Fund and the written consent of the security holders of the Top Fund to the investment is obtained prior to the purchase, since an officer and/or director of the Filer, who may be considered a "responsible person" (as defined by section 13.5 of NI 31-103) or an associate of a responsible person may also be a partner, officer and/or director of the applicable Underlying Fund.

41. Each investment by a Top Fund in an Underlying Fund represents the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Top 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 Requested Relief is granted, provided that:

In respect of the Related Issuer Relief and the Consent Relief:

a) securities of the Top Funds are distributed in Canada solely pursuant to exemptions from the prospectus requirements in NI 45-106;

b) the investment by a Top Fund in an Underlying Fund is compatible with the investment objectives of the Top Fund;

c) no Top Fund will purchase or hold securities of an Underlying Fund unless, at the time of the purchase of securities of the Underlying Fund, the Underlying Fund holds no more than 10% of its net assets in securities of other investment funds, unless the Underlying Fund:

(i) purchases or holds securities of a "money market fund" (as defined by NI 81-102); or

(ii) purchases or holds securities that are "index participation units" (as defined by NI 81-102) issued by an investment fund;

d) no management fees or incentive fees are payable by a Top Fund that, to a reasonable person, would duplicate a fee payable by an Underlying Fund for the same service;

e) no sales fees or redemption fees are payable by a Top Fund in relation to its purchases or redemptions of securities of an Underlying Fund;

f) the Filer, or its affiliate, does not cause the securities of the Underlying Fund held by a Top Fund to be voted at any meeting of holders of such securities, except that the Filer, or its affiliate, may arrange for the securities the Top Fund holds of the Underlying Fund to be voted by the beneficial holders of securities of the Top Fund;

g) the offering memorandum, where available, or other disclosure document of a Top Fund, will be provided to investors in a Top Fund prior to the time of investment, and will disclose:

(i) that the Top Fund may purchase securities of the Underlying Fund;

(ii) that the Filer, or its affiliate, is the investment fund manager and/or portfolio adviser of both the Top Fund and the Underlying Fund;

(iii) that the Top Fund will invest all of its assets in the Underlying Fund;

(iv) each officer, director or substantial security holder of the Filer or its affiliate that has a significant interest in the Underlying Fund for the purpose of receiving performance distributions or otherwise receiving a share of profits through special incentive distributions from the Underlying Fund, the nature of the significant interest, and the potential conflicts of interest which may arise from such relationships;

(v) the fees, expenses and any performance or special incentive distributions payable by the Underlying Fund that the Top Fund invests in;

(vi) that investors are entitled to receive from the Filer, or its affiliate, on request and free of charge, a copy of the offering memorandum or other similar disclosure document of the Underlying Fund (if available); and

(vii) that investors are entitled to receive from the Filer, or its affiliate, on request and free of charge, the annual and interim financial statements relating to the Underlying Fund in which the Top Fund invests its assets (if available).

The Consent Relief

"Darren McKall"
Manager, Investment Funds and Structured Products Branch
Ontario Securities Commission

The Related Issuer Relief

"Edward P. Kerwin"
Commissioner
Ontario Securities Commission
 
"Mary Condon"
Commissioner
Ontario Securities Commissionner