Sprott Asset Management LP

September 27, 2016

Decision

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 related pooled funds to invest in underlying pooled funds managed by a third party investment fund manager, subject to conditions.

Applicable Legislative Provisions

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

September 27, 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

SPROTT ASSET MANAGEMENT LP

(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 its behalf and on behalf of Sprott Private Credit Trust II (the Initial Top Fund) and any other future investment fund which is not a reporting issuer under the securities legislation of the principal regulator (the Legislation) which may be established and managed by the Filer from time to time (the Future Top Funds, and together with the Initial Top Fund, the Top Funds), which invests its assets in Third Eye Capital Alternative Credit Trust (the Initial Underlying Fund) or any other investment fund which is not a reporting issuer under the Legislation and which may be established and managed by Third Eye Capital Inc. (the Initial Underlying Fund Manager), or another investment fund manager unrelated to the Filer, from time to time (the Future Underlying Funds, and together with the Initial Underlying Fund, the Underlying Funds), for a decision under the Legislation exempting the Filer and the Top Funds from the restrictions in the Legislation which prohibit:

(a) an investment fund from knowingly 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; and

(b) an investment fund, its management company or its distribution company from knowingly holding an investment described in paragraph (a) above

(collectively, the Requested Relief).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission (the 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.

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 Filer:

The Filer

1. The Filer is a limited partnership established under the laws of the Province of Ontario with its head office located in Toronto, Ontario.

2. The Filer is registered in Ontario as an investment fund manager, adviser in the category of portfolio manager and dealer in the category of exempt market dealer under the Act and as a commodity trading manager under the Commodity Futures Act (Ontario). The Filer is also registered as an investment fund manager, portfolio manager and exempt market dealer under the securities legislation of Newfoundland and Labrador, as an investment fund manager and exempt market dealer under the securities legislation of Quebec, and as a portfolio manager and exempt market dealer under the securities legislation of British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick and Nova Scotia.

3. The Filer is the investment fund manager of the Initial Top Fund and will be the investment fund manager of the Future Top Funds.

4. The Filer is the portfolio manager for the Initial Top Fund and has complete discretion to invest and reinvest the assets of the Initial Top Fund, and is responsible for executing all portfolio transactions while being subject to applicable securities laws. The portfolio manager of a Future Top Fund may be the Filer, but if it is not the Filer, the portfolio manager or Sub-Advisor (as defined below) of a Top Fund will be a third party entity, unrelated to the Filer, holding the appropriate adviser registration or exemption from adviser registration and will meet the due diligence criteria established by the Filer for third party portfolio managers.

5. The Filer may also act as a distributor of the securities of the Top Funds not otherwise sold through another registered dealer.

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

Top Funds

7. The Initial Top Fund is an investment trust established under the laws of Ontario. The Future Top Funds will be open-ended mutual funds that are structured as trusts, limited partnerships or corporations under the laws of Ontario or another jurisdiction of Canada.

8. The securities of each Top Fund are, or will be, sold solely to investors in Canada pursuant to exemptions from the prospectus requirements in accordance with National Instrument 45-106 Prospectus Exemptions (NI 45-106) or the Legislation.

9. The assets of each Top Fund (only if such Top Fund holds securities other than securities of an Underlying Fund) will be held by an entity that meets the qualifications of section 6.2 of NI 81-102 Investment Funds (NI 81-102) (for assets held in Canada) or an entity that meets the qualifications of section 6.3 of NI 81-102 (for assets held outside Canada).

10. Each of the Top Funds is, or will be, a “mutual fund” as defined in securities legislation of the jurisdictions in which the Top Funds are distributed.

11. The Initial Top Fund intends to initially invest substantially all of its assets in the Initial Underlying Fund. A Future Top Fund may invest substantially all of its assets in the Initial Underlying Fund, any Future Underlying Fund, or any combination of both.

12. None of the Top Funds will be a reporting issuer in any jurisdiction of Canada.

Underlying Funds

13. The Initial Underlying Fund is a trust established under the laws of Ontario. The Future Underlying Funds will be structured as trusts, limited partnerships or corporations under the laws of Ontario, another jurisdiction of Canada or a foreign jurisdiction.

14. The Initial Underlying Fund Manager acts as the investment fund manager and portfolio manager of the Initial Underlying Fund. It is unknown at this time who will be the investment fund manager and/or portfolio manager of the Future Underlying Funds, however, each Future Underlying Fund will be managed by a third party investment fund manager that is, or will be, unrelated to the Filer and which will meet the due diligence criteria established by the Filer for third party investment fund managers as described in paragraph 30 below with respect to the Underlying Funds.

15. Each of the Underlying Funds has, or will have, separate investment objectives and investment strategies.

16. The securities of the Initial Underlying Fund are sold solely to investors in Canada pursuant to exemptions from the prospectus requirements in accordance with NI 45-106 or the Legislation.

17. The assets of the Initial Underlying Fund are held by RBC Investor Services Trust. The assets of the Future Underlying Funds will be held by an entity that meets the qualifications of section 6.2 of NI 81-102 (for assets held in Canada) or an entity that meets the qualifications of section 6.3 of NI 81-102 (for assets held outside Canada).

18. Each of the Underlying Funds is, or will be, a “mutual fund” as defined in securities legislation of the jurisdictions in which the Underlying Funds are distributed.

19. Each Underlying Fund has, or is expected to have, other investors in addition to the Top Fund.

20. None of the Underlying Funds will be a reporting issuer in any jurisdiction of Canada.

21. The Initial Underlying Fund is not in default of securities legislation of any jurisdiction of Canada.

Fund-on-Fund Structure

22. The Filer currently delegates its portfolio manager responsibilities in respect of Sprott Private Credit Trust, another investment fund managed by the Filer, to the Initial Underlying Fund Manager as sub-advisor. The Filer wishes to similarly benefit from the expertise of the Initial Underlying Fund Manager in respect of the Initial Top Fund, but through a fund-of-fund strategy.

23. Initially, the Initial Top Fund intends to invest substantially all of its assets in securities of the Initial Underlying Fund. The Initial Top Fund may cease to allocate 100% of its assets to investing in the Initial Underlying Fund and instead allocate all or some of its investments to one or more other Underlying Funds or invest directly in a portfolio of securities, depending upon the Filer’s view of the best method by which to obtain the desired investment exposure from the best portfolio manager for the asset class, as identified by the Filer from time to time. A Future Top Fund may invest its assets in the Initial Underlying Fund, any Future Underlying Fund, or any combination of both.

24. The Top Funds allow investors to obtain exposure to the investment portfolios of the Underlying Funds and their respective investment strategies through direct investments by the Top Funds in securities of the Underlying Funds (the Fund-on-Fund Structure).

25. The purpose of the Fund-on-Fund Structure is to provide an efficient and cost-effective manner of pursuing portfolio diversification on behalf of the Top Funds rather than through the direct purchase of securities. Managing a single pool of assets provides economies of scale and will allow the Filer to meet the investment objective of each Top Fund in the most efficient manner.

26. The Fund-on-Fund Structure seeks to provide access to managers the Filer views as best-in-class at superior pricing than the pricing a client would obtain on its own.

27. The Filer will use the Fund-on-Fund Structure to invest the Top Funds in Underlying Funds that are managed by investment fund managers that are unrelated to the Filer. For example, the Initial Top Fund will invest its assets in the Initial Underlying Fund managed by the Initial Underlying Fund Manager, Third Eye Capital Inc. which is unrelated to the Filer.

28. The Filer proposes to operate the Top Funds under a “manager of managers” structure whereby the Filer will either invest the Top Funds in Underlying Funds (that are, or will be, managed by a third party investment fund manager) and/or appoint various third party sub-advisors to a Top Fund (each a Sub-Advisor and collectively, the Sub-Advisors) to assist in the management of the investment portfolios of the Top Funds. The structures that the Filer contemplates are outlined in paragraph 29 below.

29. There are two different Fund-on-Fund Structures that may be used by the Filer to invest the assets of a Top Fund:

(a) Certain Top Funds will invest in only one Underlying Fund managed by a third party investment fund manager. This Fund-on-Fund Structure will be used where the Filer determines that the investment objective of a Top Fund is best achieved by investing in one Underlying Fund, either alongside other securities or not. Such Underlying Fund may be changed to one or more other Underlying Funds, depending on whether the Filer concludes that different Underlying Funds would better achieve the investment objective of the Top Fund. The amounts invested from time to time in any Underlying Fund by one or more Top Funds may exceed 20% of the outstanding voting securities of the Underlying Fund.

(b) Certain Top Funds will invest in more than one Underlying Fund, each of which is managed by a third party investment fund manager. This Fund-on-Fund Structure will be used where the Filer determines that the investment objective of the Top Fund is best achieved through exposure to different investment styles and broader diversification provided by investing in multiple Underlying Funds, either alongside other securities or not. One or more of such Underlying Funds may be changed to other Underlying Funds from time to time, depending on whether the Filer concludes that different Underlying Funds would better achieve the investment objective of the Top Fund. The amounts invested from time to time in any Underlying Fund by one or more Top Funds may exceed 20% of the outstanding voting securities of the Underlying Fund.

30. The Filer selects Underlying Funds and their investment fund managers, and Sub-Advisors to a Top Fund, from a universe of potential opportunities by utilizing a selection process which evaluates information across several key categories including asset class, loan underwriting methodology, target borrowers, target geography, industry focus, management, operations and control processes, loan loss history, market position, investment staff, investment process, investment risk, performance, and terms and conditions.

31. The Filer will allocate assets of a Top Fund to third party investment fund managers as appropriate and consistent with the investment objectives of the relevant Top Fund. At the time of investment of a Top Fund in an Underlying Fund, the aggregate amount of assets directed to the third party investment fund manager of the Underlying Fund, across all Underlying Funds of such third party investment fund manager, will not represent more than 20% of the total assets under management of such third party investment fund manager in its overall asset management business.

32. Any investment made 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.

33. When a Top Fund invests in one or more Underlying Funds, the Underlying Fund(s) will pay a management fee (and may pay an incentive fee) to its investment fund manager for services related to selecting investments for the Underlying Fund and administering the Underlying Fund. As a result, investors in the Top Fund indirectly will pay the management (and incentive) fee of the third party investment fund manager. This fee is for portfolio management and administrative services related to the Underlying Fund and its investments. It is not duplicative of the fee that investors are paying to the Filer for determining the overall asset allocation of the investor’s portfolio.

34. Each of the Top Funds and the Underlying Funds that are 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, as applicable.

35. The portfolio of the Initial Underlying Fund will consist of privately-negotiated senior secured loans, primarily to Canadian companies. The portfolio of Future Underlying Funds will consist primarily of asset-based loans and companies based primarily in Canada and/or the United States. An investment by a Top Fund in an Underlying Fund will be effected based on an objective net asset value (NAV) of the Underlying Fund.

36. Redemptions from the Initial Top Fund and the Initial Underlying Fund are permitted on a monthly basis. The Initial Top Fund and the Initial Underlying Fund will be valued on a monthly basis. Redemptions from the Future Top Funds are expected to be monthly. Valuation of the Future Top Funds is expected to occur on a monthly basis.

37. A Top Fund will have the same valuation and redemption dates as the Underlying Fund or Underlying Funds in which it invests.

38. No Underlying Fund will be a Top Fund.

39. Each Top Fund that invests substantially all its assets in Underlying Fund(s) will not be available for redemption on a valuation date where Underlying Fund(s) representing more than 10% of the NAV of the Top Fund are not available for redemption. In all cases, the Filer will manage the liquidity of the Top Funds having regard to the redemption features of the Underlying Fund(s) to ensure that it can meet redemption requests from investors of the Top Funds.

Generally

40. The Top Funds are, or will be, related mutual funds under the Legislation by virtue of the common management by the Filer. The amounts invested from time to time in an Underlying Fund by a Top Fund, either alone or together with other Top Funds, may exceed 20% of the outstanding voting securities of the Underlying Fund. As a result, each Top Fund could, either alone or together with other Top Funds, become a substantial security holder of an Underlying Fund.

41. In the absence of the Requested Relief, each Top Fund would be precluded from purchasing and holding securities of an Underlying Fund due to the investment restrictions contained in the Legislation.

42. A Top Fund’s investments in an Underlying Fund represent the business judgement of a responsible person uninfluenced by considerations other than the best interests of the investment funds concerned.

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:

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

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

(c) at the time of the purchase of securities of an Underlying Fund by a Top Fund, the Underlying Fund holds not more than 10% of its NAV in securities of other investment funds unless the Underlying Fund:

(i) is a “clone fund” (as defined by NI 81-102),

(ii) purchases or holds securities of a “money market fund” (as defined by NI 81-102), or

(iii) 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 or redemption fees are payable by a Top Fund in relation to its purchases or redemptions of securities of an Underlying Fund, except that a fee or deduction may be payable or incurred by a Top Fund provided the subscription or redemption relates to a corresponding subscription or redemption at the Top Fund level and the fee or deduction is flowed through to the subscribing or redeeming securityholder(s) of the Top Fund only;

(f) no fees or deductions are payable by investors in a Top Fund in relation to such investor’s purchase or redemption of securities of such Top Fund that would duplicate a fee payable by the Top Fund in connection with its subscription or redemption of securities of an Underlying Fund;

(g) the Filer does not cause the securities of an Underlying Fund held by a Top Fund to be voted at any meeting of holders of such securities, except that the Filer 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;

(h) at the time of investment of a Top Fund in an Underlying Fund, the aggregate amount of assets directed to the third party investment fund manager of the Underlying Fund, across all Underlying Funds of such third party investment fund manager, will not represent more than 20% of the total assets under management of such third party investment fund manager in its overall asset management business;

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

a. that the Top Fund may purchase securities of the Underlying Fund(s);

b. that the Filer is the investment fund manager and portfolio manager of the Top Fund or, where the Filer is the portfolio manager of a Top Fund, the Filer may appoint a third party Sub-Advisor to a Top Fund which meets the Filer’s due diligence criteria for third party portfolio managers, and that any Underlying Fund has, or will have, an investment fund manager that, in each case, is a third party entity, unrelated to the Filer, and which meets the due diligence criteria established by the Filer for third party investment fund managers;

c. the approximate or maximum percentage of net assets of the Top Fund that is intended be invested in securities of the Underlying Fund(s);

d. the fees and expenses payable by the Underlying Fund(s) in which the Top Fund invests, including any incentive fees;

e. that investors in each Top Fund are entitled to receive from the Filer, on request and free of charge, a copy of the offering memorandum or other similar disclosure document of the Underlying Fund(s) (if available); and

f. that investors are entitled to receive from the Filer, on request and free of charge, the annual and semi-annual financial statements of the Underlying Fund(s) in which the Top Fund invests its assets.

“Christopher Portner”

Commissioner

Ontario Securities Commission

“Tim Moseley”

Commissioner

Ontario Securities Commission