National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval granted for change of control of investment fund manager under s. 5.5(1)(a.1) of National Instrument 81-102 Investment Funds -- the Buyer has no current plans to change the Manager of the Funds, or to amalgamate or merge the current Manager with any other entity, for the foreseeable future.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, ss. 5.5(1)(a.1), 5.7(1).
May 11, 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 RUSSELL INVESTMENTS CANADA LIMITED (THE MANAGER)
The principal regulator in the Jurisdiction has received an application from the Manager for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for approval pursuant to subsection 5.5(1)(a.1) of National Instrument 81-102 Investment Funds (NI 81-102) of a change of control (the Change of Control) of the Manager (the Approval Sought).
Under National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator (the Principal Regulator) for this application; and
(b) the Manager has provided notice pursuant to section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) that the Approval Sought is intended to be relied upon in each province and territory of Canada.
Defined terms contained in National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless they are otherwise defined in this decision.
The decision is based on the following facts represented by the Manager:
The Manager and the Funds
1. The Manager is a corporation incorporated under the Canada Business Corporations Act and has its head office in Toronto, Ontario.
2. The Manager is registered in each of the provinces and territories of Canada in the categories of investment fund manager, portfolio manager and exempt market dealer. The Manager also is registered in Ontario as a commodity trading manager and as a mutual fund dealer exempt from membership in the Mutual Funds Dealer Association of Canada. The Manager also is registered in Manitoba as an advisor (commodities).
3. The Manager is the investment fund manager of the investment funds listed in Schedule "A" hereto (each, a Fund).
4. The Manager is not in default of securities legislation in any province or territory of Canada.
5. Each Fund is a reporting issuer in all of the provinces and territories of Canada and distributes, or has distributed, its securities to the public pursuant to disclosure documents filed under National Instrument 81-101 -- Mutual Fund Prospectus Disclosure.
6. The Funds are not in default of applicable securities legislation in any of the provinces or territories of Canada.
7. The Manager is a direct, wholly-owned subsidiary of Frank Russell Company (FRC) which, in turn, is indirectly wholly-owned by London Stock Exchange Group plc (LSEG). FRC is headquartered in Seattle, Washington, United States of America.
8. The Manager is one part of the subsidiaries and assets that comprise FRC's global asset management business (Russell Investments).
Proposed Change of Control of the Manager
9. On October 8, 2015, Emerald Acquisition Limited (the Buyer) entered into a stock and asset purchase agreement (the Purchase Agreement) with FRC and LSEG pursuant to which the Buyer, through one or more direct or indirect wholly-owned subsidiaries, will acquire Russell Investments, including the Manager (the Proposed Transaction).
10. Russell Investments is comprised of FRC, the Manager and other affiliates of FRC around the world in the asset management business, including Russell Implementation Services Inc. (RIS) and Russell Investment Management Company (RIMCo). RIS is registered with the United States Securities and Exchange Commission (the SEC) as an investment adviser and a broker-dealer. RIMCo is registered with the SEC as an investment adviser. Russell Investments is a global asset manager with approximately C$318.2 billion of assets under management as of September 30, 2015, of which approximately C$12.8 billion constituted the aggregate net assets of the Funds or approximately 4.0% of the global assets under management of Russell Investments. Accordingly, FRC's Canadian business managed by the Manager is not the primary asset being acquired by the Buyer through the Proposed Transaction.
11. FRC also currently operates the Russell Indexes business. However, the Russell Indexes business is not being sold to the Buyer and will be retained by LSEG.
12. A press release dated October 8, 2015 was issued by LSEG announcing the details of the Proposed Transaction.
13. Subject to obtaining requisite regulatory approvals, including the Approval Sought, the parties expect the Proposed Transaction to be completed in the first half of 2016.
14. The Buyer is a company incorporated under the laws of England and Wales. The Buyer is a newly formed special purpose entity that will be owned indirectly by:
(a) the limited partners of certain private funds (the TA Funds) managed by TA Associates Management, L.P. (TA) through the TA AIVs (as defined below);
(b) the limited partners of certain private funds (the Reverence Capital Funds) managed by Reverence Capital Partners, L.P. (Reverence Capital) through either the Reverence Capital AIVs (as defined below) or specific Reverence Capital Funds, namely Reverence Capital Partners Opportunities Fund I (Cayman), L.P. and RCP Emerald Co-Invest, L.P. (the Specific Reverence Capital Funds).
15. The TA Funds are private equity funds that participate in large equity investments arranged by TA. The Reverence Capital Funds are private equity funds that participate in large equity investments arranged by Reverence Capital.
16. The Buyer will be owned directly by:
(a) alternative investment vehicles held by the limited partners of certain TA Funds (collectively, the TA AIVs);
(b) alternative investment vehicles held by the limited partners of certain Reverence Funds (collectively, the Reverence Capital AIVs); and
(c) the Specific Reverence Capital Funds.
17. Each of the TA AIVs, the Reverence Capital AIVs and the Specific Reverence Capital Funds is, or will be, organized as a Cayman Islands limited partnership.
18. At the closing of the Proposed Transaction (the Closing), pursuant to equity contributions:
(a) the limited partners of certain TA Funds, indirectly through the TA AIVs, will acquire approximately a 66.7% outstanding ownership interest in the Buyer; and
(b) the limited partners of certain Reverence Capital Funds, indirectly through the Reverence Capital AIVs and the Specific Reverence Capital Funds, will acquire approximately a 33.3% outstanding ownership interest in the Buyer.
In addition, approximately 15% of the fully diluted equity of the Buyer will be reserved for a management equity incentive plan for senior management of Russell Investments, and certain members of senior management will be required to and/or have the right to use certain proceeds of their pre-existing incentive compensation to subscribe for equity of the Buyer (in such amounts as will be less than 10% on a fully diluted basis).
Impact of the Proposed Transaction
19. The Proposed Transaction is structured as a stock and asset purchase transaction, with the Buyer purchasing the stock of certain subsidiaries (Transferred Subsidiaries), including the Manager, and assets (the Transferred Assets) of FRC. The Buyer expects to form several intermediate holding companies for the purpose of acquiring certain of the Transferred Subsidiaries from FRC, including the Manager. Accordingly, the Buyer will hold its interest in the Manager through these holding companies, none of which are expected to become registrants in Canada.
20. As the Buyer does not currently manage any investment funds in Canada, the Manager anticipates that there will be no duplication of Canadian personnel, systems, products or services resulting from the Proposed Transaction which will require rationalization. The Buyer confirms that following completion of the Proposed Transaction:
(a) no current directors, officers or employees of the Buyer or its affiliates are expected to become involved in the day-to-day management of the Funds;
(b) there is no current intention to change any of the directors, officers, advising representatives or associate advising representatives of the Manager; and
(c) the directors, officers and employees of the Manager will continue the day-to-day management of the Funds.
21. Accordingly, completion of the Proposed Transaction is not expected to result in any material changes to the business, operations or affairs of any Fund, any securityholder of the Funds, or the Manager. In particular, the Buyer confirms that :
(a) the completion of the Proposed Transaction is not expected to result in any changes to:
(i) how the Manager operates or manages the Funds;
(ii) the investment objectives and strategies of the Funds;
(iii) the fees or expenses that are charged to the Funds;
(iv) the custodian or trustee of the Funds; or
(v) adversely affect the Manager's financial position or its ability to fulfill its regulatory obligations;
(b) there is no current intention to amalgamate or merge the Manager with another investment fund manager or to change the manager of the Funds within the foreseeable future; and
(c) there is no current intention to change the management teams or supervisory personnel of the Manager.
22. Upon the Change of Control, the members of the independent review committee (the IRC) of the Funds will cease to be IRC members by operation of section 3.10(1)(c) of National Instrument 81-107 Independent Review Committee for Investment Funds. Immediately following the Change of Control, the IRC will be reconstituted with the same members.
23. Notice of the change of control that will result from the Proposed Transaction was provided by mail to all securityholders of the Funds on February 29, 2016 in accordance with the requirements of Section 5.8(1) of NI 81-102.
24. A notice regarding the Proposed Transaction was sent to the Compliance and Registrant Regulation Branch of the Principal Regulator on February 5, 2016 pursuant to section 11.10 of National Instrument 31-103 Registration Requirements and Exemptions.
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 Approval Sought is granted.