Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- approval for change of control of manager under s. 5.5(1)(a.1) of National Instrument 81-102 Investment Funds -- transaction will not result in a change in the Manager of the Redwood Funds, or to amalgamate or merge the 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)(a), 19.1

September 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 REDWOOD ASSET MANAGEMENT INC. (the Manager or Redwood)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Manager and Purpose Investments Inc. (Purpose, and together with the Manager, the Filers) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for approval under section 5.5(1)(a.1) of National Instrument 81-102 Investment Funds (NI 81-102) to 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 (OSC) is the principal regulator for this application; and

(b) the Manager 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 British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, the Northwest Territories and Nunavut.

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:

Redwood Investment Management Inc.

1. Redwood is a corporation existing under the Business Corporations Act (Ontario) with its head office located at 120 Adelaide Street West, Suite 2400, Toronto, Ontario M5H 1T1.

2. Redwood is registered as an investment fund manager in Ontario, Québec and Newfoundland and Labrador, as an adviser in the category of portfolio manager in Ontario and as a dealer in the category of exempt market dealer in Alberta, British Columbia, Ontario and Québec.

3. Redwood is the manager and portfolio adviser (within the meaning of such terms in NI 81-102) of each of the funds listed in Schedule A (the "Redwood Funds"). The Redwood Funds are either investment trusts or a class of shares of Ark Mutual Funds Ltd. or Connected Wealth Funds Inc. Redwood is also the trustee of the Redwood Funds that are organized as investment trusts.

4. The Redwood Funds are reporting issuers in the Jurisdictions noted on Schedule A.

5. Redwood is not in default of the securities legislation of any jurisdiction in Canada.

Purpose Investments Inc.

6. Purpose is a corporation existing under the Business Corporations Act (Ontario) with its head office located at 130 Adelaide Street West, Suite 1700, Toronto, Ontario, M5H 3P5.

7. Purpose is registered as an investment fund manager in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Québec and Saskatchewan; as an adviser in the category of portfolio manager in British Columbia and Ontario and as a dealer in the category of exempt market dealer in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Québec and Saskatchewan.

8. Purpose acts as the manager and portfolio adviser (within the meaning of such terms in NI 81-102) of a group of exchange traded funds, mutual funds and closed-end funds (the Purpose Funds).

9. Purpose is not in default of the securities legislation of any jurisdiction in Canada.

Proposed Acquisition

10. Certain shareholders of Redwood, which prior to closing of the Proposed Acquisition (as defined below) hold all of the issued and outstanding shares of Redwood, and Purpose have entered into a share purchase agreement dated July 22, 2016 (the Share Purchase Agreement).

11. Pursuant to the Share Purchase Agreement, Purpose has agreed to acquire all of the issued and outstanding shares of the Manager (the Proposed Acquisition). The completion of the Proposed Acquisition is subject to the satisfaction of closing conditions, which include obtaining all required regulatory approvals.

12. If the Proposed Acquisition is completed as contemplated, Purpose will become the sole shareholder and will own 100% of the issued and outstanding shares of the Manager, such that the Manager will become a wholly-owned subsidiary of Purpose.

13. On July 25, 2016, the Filers issued a press release announcing the Proposed Acquisition, subject to receipt of all required regulatory approvals.

14. On July 25, 2016, notice was sent to each of the securityholders of the Redwood Funds informing such securityholders of the Proposed Acquisition, as required by section 5.8(1)(a) of NI 81-102.

15. A notice regarding the Proposed Acquisition was delivered to the Compliance & Registrant Regulation Branch of the OSC on July 29, 2016 pursuant to section 11.9 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103).

16. Subject to obtaining the requisite regulatory approvals, including the Approval Sought, the parties expect the Proposed Acquisition to be completed on or about September 26, 2016.

Effect of the Proposed Acquisition on the Manager and the Redwood Funds

17. Redwood will continue to act as the investment fund manager of the Redwood Funds as a discrete, separate and distinct legal entity in materially the same manner as it has conducted such activities immediately prior to completion of the Proposed Acquisition.

18. It is expected that the directors and officers of each of Redwood, Ark Mutual Funds Ltd. and Connected Wealth Funds Inc. will be comprised of individuals all of whom are currently directors and officers of Redwood, Ark Mutual Funds Ltd. and Connected Wealth Funds Inc. In addition, Som Seif and Scott Bartholomew, both of whom are directors and officers of Purpose may become a director and/or officer of Redwood.

19. Both the Manager and Purpose have accumulated a great deal of investment management and operational expertise. The Manager and Purpose do not foresee that the Proposed Acquisition will give rise to material conflicts of interest.

20. Completion of the Proposed Acquisition is not expected to result in any material changes to the business, operations or affairs of Redwood, the Redwood Funds or the securityholders of the Redwood Funds. In particular, Purpose confirms that:

(a) the completion of the Proposed Acquisition is not expected to result in any changes to:

(i) how Redwood operates or manages the Redwood Funds;

(ii) the investment objectives, investment strategies and valuation procedures of the Redwood Funds;

(iii) the fees or expenses that are charged to the Redwood Funds;

(iv) the custodian, trustee (if applicable) or any existing advisors or sub-advisors to the Redwood Funds; or

(v) adversely affect Redwood's financial position or its ability to fulfill its regulatory obligations;

(b) there is no current intention to amalgamate or merge Redwood with another investment fund manager or to change the manager of the Redwood Funds within the foreseeable future; and

(c) there is no current intention to change the management or supervisory personnel of Redwood other than as set forth in paragraph 18.

21. There is no intention to change the Redwood "brand".

22. On the completion of the Proposed Acquisition, the members of the independent review committee (the IRC) of the Redwood 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 completion of the Proposed Acquisition, the IRC will be reconstituted with the members of the independent review committee of the funds managed by Purpose each of which is independent of Redwood.

23. Neither Purpose nor Redwood expects the change of control of the Manager to have any negative consequences on the ability of the Manager to satisfy its obligations to the Redwood Funds or to adversely affect the operation and administration of the Redwood Funds.

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 Approval Sought is granted.

"Vera Nunes"
Manager, Investment Funds and Structured Products
Ontario Securities Commission

 

SCHEDULE A

REDWOOD FUNDS

Name

Reporting Jurisdictions

 

<<REDWOOD FUNDS>>

 

Redwood Emerging Markets Dividend Fund

All Provinces

 

Redwood Global Total Return Bond Portfolio (formerly Redwood Global Bond Portfolio)

All Provinces

 

Redwood Unconstrained Bond Class (formerly, Redwood Flexible Bond Class)

All Provinces

 

Redwood Diversified Equity Fund

All Provinces and Territories

 

Redwood Floating Rate Preferred Fund (formerly, Redwood Diversified Income Fund)

All Provinces and Territories

 

Redwood Global Small Cap Fund

All Provinces and Territories

 

<<REDWOOD CONNECTED WEALTH FUNDS>>

 

Connected Wealth Tactical Class{1}

All Provinces

 

Connected Wealth Core Income Class{1}

All Provinces

 

<<ARK MUTUAL FUNDS>>

 

Trapeze Value Class (formerly, Ark Aston Hill Opportunities Class){2}

All Provinces

 

Redwood Income Growth Class{2}

All Provinces

 

Redwood Equity Growth Class{2}

All Provinces

 

Redwood Unconstrained Bond Fund{2}

All Provinces

 

Redwood Pension Class (formerly, Redwood Energy Income Class){2}

All Provinces

 

First Avenue Dividend Growers Class (formerly, Redwood Global Innovations Class){2}

All Provinces

 

Redwood Global Equity Strategy Class (formerly, Redwood Global Equity Class){2}

All Provinces

{1} is a class of shares of Connected Wealth Funds Inc., a mutual fund corporation established under the laws of the Province of Ontario.

{2} is a class of shares of Ark Mutual Funds Ltd., a mutual fund corporation established under the laws of the Province of Ontario.