Securities Law & Instruments


Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – relief granted from the investment fund self-dealing restrictions in the Securities Act (Ontario) and National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations to allow pooled funds to invest in securities of underlying funds under common management – relief subject to certain conditions.

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.

October 3, 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
AVIVA INVESTORS AMERICAS LLC
(the Filer)

AND

IN THE MATTER OF
THE INITIAL POOLED FUND
(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 each of the Filer’s affiliates, Aviva Investors Multi-Strategy Target Return Private Pooled Fund (the Initial Pooled Fund) and any other investment fund that will not be a reporting issuer under the securities legislation of the Jurisdiction of the principal regulator (the Legislation), for which the Filer or an affiliate of the Filer will be the investment fund manager and portfolio manager (the Future Pooled Funds and, together with the Initial Pooled Fund, the Pooled Funds), for a decision under the Legislation in respect of the Fund-on-Fund Structure (as defined below) exempting the Pooled Funds, the Filer and the Filer’s affiliates from:

(a)           the restriction in the Securities Act (Ontario) (the Act) that prohibits an investment fund from knowingly making an investment in any person or company in which the investment fund, alone or together with one or more related investment funds, is a substantial securityholder;

(b)           the restriction in the Act that prohibits an investment fund from knowingly 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 either of them, or

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

(c)           the restriction in the Act that prohibits an investment fund, its management company or its distribution company from knowingly holding an investment described in paragraphs (a) or (b) above

(collectively, the Related Issuer Relief); and

(d)           the restrictions contained in subsection 13.5(2)(a) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) that prohibit a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as 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 the fact is disclosed to the client and the written consent of the client to the investment is obtained before the purchase

(the Consent Relief and, together with the Related Issuer Relief, the Exemptions Sought).

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: (i) in respect of the Related Issuer Relief, in Alberta; and (ii) in respect of the Consent Relief, in each province and territory of Canada other than Ontario.

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 and its Affiliates

1.             The Filer is a Delaware limited liability company and is an indirect wholly-owned subsidiary of Aviva Investors Holdings Limited. Its affiliate, Aviva Investors Canada Inc. (AIC), is incorporated under the laws of Ontario and has its head office in Toronto.

2.             The Filer is qualified to rely on the international investment fund manager exemption set out in section 4 of Multilateral Instrument 32-102 Registration Exemptions for Non-Resident Investment Fund Managers.

3.             AIC is registered in each province of Canada as a portfolio manager and an exempt market dealer and is registered in Ontario as a commodity trading manager.

4.             The Filer is the investment fund manager of the Initial Pooled Fund and the Filer or an affiliate of the Filer will be the investment fund manager of each Future Pooled Fund.

5.             An affiliate of the Filer is the investment fund manager of the Aviva Investors Multi-Strategy Target Return Fund, a sub-fund of Aviva Investors (the Initial Underlying Fund) and the Filer or an affiliate of the Filer is or will be the investment fund manager of other investment funds (each, an Other Underlying Fund and, together with the Initial Underlying Fund, the Underlying Funds).

6.             The Filer offers securities of the Initial Pooled Fund and may offer securities of the Future Pooled Funds solely to permitted clients, as that term is defined in NI 31-103.

7.             The Filer is not a reporting issuer in any jurisdiction of Canada and has no operations in Canada.

8.             AIC is the portfolio manager for the Initial Pooled Fund’s Canadian investments, if any, and the Filer is the portfolio manager for the Initial Pooled Fund’s non-Canadian investments. The Filer or AIC, or one of their affiliates, will be the portfolio manager of each Future Pooled Fund. An affiliate of the Filer or of AIC may be retained as sub-adviser for the Future Pooled Funds.

9.             Aviva Investors Global Services Limited (AIGSL), an affiliate of the Filer, is the portfolio manager of the Initial Underlying Fund and AIGSL or an affiliate of AIGSL is or will be the portfolio manager of each Other Underlying Fund.

10.          AIC may act as a distributor of the securities of the Pooled Funds not otherwise sold through another registered dealer.

11.          As the Filer or AIC, or one of their affiliates, is or will be the portfolio manager of the Pooled Funds and as AIGSL or an affiliate of AIGSL is or will be the portfolio manager of the Underlying Funds, the Filer or AIC, or one of their affiliates, and AIGSL or an affiliate of AIGSL is or will be a responsible person of the Pooled Funds and the Underlying Funds, as that term is defined in NI 31-103.

The Pooled Funds

12.          Each Pooled Fund is or will be an investment fund trust established by the Filer or an affiliate of the Filer and governed by the laws of Ontario.

13.          Each Pooled Fund is or will be a mutual fund, as that term is defined under the Legislation.

14.          The securities of each Pooled Fund are or will be sold solely to permitted clients pursuant to exemptions from the prospectus requirements in accordance with National Instrument 45-106 Prospectus Exemptions (NI 45-106) and section 73.3 of the OSA.

15.          The investment objective of the Initial Pooled Fund is to target a 5% per annum gross return above the Bank of Canada overnight lending rate (or equivalent) over a 3-year rolling period, regardless of market conditions (absolute return).

16.          To achieve its investment objective, the Initial Pooled Fund invests in the Initial Underlying Fund, which investment is consistent with the Initial Pooled Fund’s investment objective and strategies. Further, each Future Pooled Fund may invest in one or more Underlying Funds, which investments will be consistent with the Future Pooled Fund’s investment objective and strategies. Each investment by a Pooled Fund in one or more Underlying Funds is referred to as a Fund-on-Fund Structure.

17.          No Pooled Fund will be a reporting issuer in any jurisdiction of Canada.

The Underlying Funds

18.          The Initial Underlying Fund is a sub-fund of Aviva Investors. Aviva Investors is an investment fund established as Société d’investissement à capital variable corporation under the laws of Luxembourg. The Initial Underlying Fund is authorized as an undertaking for collective investments in transferable securities (a UCITS) under the Luxembourg law of December 17, 2010 on Undertakings for Collective Investment, as amended from time to time.

19.          Each Other Underlying Fund is or will be an investment fund established under the laws of a member state of the European Union or the United States. Each Other Underlying Fund established under the laws of a member state of the European Union is or will be authorized as a UCITS, subject to the supervision of the national competent authority of the applicable member state of the European Union. Each Other Underlying Fund established under the laws of the United States is or will be registered under the Investment Company Act of 1940, as amended from time to time. It is expected that each Other Underlying Fund will also be part of a corporate fund structure.

20.          Each Underlying Fund is or will be a mutual fund, as that term is defined under the Legislation.

21.          The investment objective of the Initial Underlying Fund is to target a 5% per annum gross return above the European Central Bank base rate (or equivalent) over a 3-year rolling period, regardless of market conditions (absolute return).

22.          One or more classes or series of securities of each Underlying Fund will be sold to the public in the European Union or the United States pursuant to a prospectus or other similar disclosure document. Other classes or series of securities of an Underlying Fund may be sold on a private placement basis.

23.          No Underlying Fund is or will be a reporting issuer in any jurisdiction of Canada.

Fund-on-Fund Structure

24.          The Initial Pooled Fund allows investors in the Initial Pooled Fund to obtain exposure to the investment portfolio of the Initial Underlying Fund and its investment strategies through the Fund-on-Fund Structure and each Future Pooled Fund will allow investors in the Future Pooled Fund to obtain exposure to the investment portfolios of one or more Underlying Funds and their investment strategies through the Fund-on-Fund Structure. The Filer believes that investing in one or more Underlying Funds will allow a Pooled Fund to achieve its investment objective in an efficient and cost effective way and will not be detrimental to the interests of the other securityholders of the Underlying Funds. This is because the Fund-on-Fund Structure can provide greater diversification for a Pooled Fund in particular asset classes, on a more cost-efficient basis, than investing directly in the securities held by the Underlying Funds.

25.          The assets of the Pooled Funds are or will be held by a custodian that meets the qualifications set out in subsection 6.2 of National Instrument 81-102 Investment Funds (NI 81-102). The assets of the Underlying Funds are or will be held by a custodian that meets the qualifications set out under applicable law.

26.          Each Pooled Fund will prepare annual audited financial statements and interim unaudited financial statements in accordance with National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) and will otherwise comply with the requirements of NI 81-106 applicable to it. Each Underlying Fund prepares or will prepare financial statements in accordance with applicable law. The holdings by a Pooled Fund of securities of an Underlying Fund will be disclosed in the financial statements of the Pooled Fund.

27.          The Pooled Funds will be related investment funds with each other, with the Underlying Funds and with other investment funds managed by the Filer or an affiliate of the Filer by virtue of the common management of the Pooled Funds, the Underlying Funds and such other investment funds. The amount invested from time to time in an Underlying Fund by a Pooled Fund, either alone or together with one or more other related investment funds, may exceed 20% of the outstanding voting securities of the Underlying Fund. As a result, each Pooled Fund could, either alone or together with one or more related investment funds, become a substantial securityholder of an Underlying Fund.

28.          An investment in an Underlying Fund by a Pooled Fund will be effected at an objective price. According to the Filer’s and its affiliates’ policies and procedures, an objective price, for this purpose, will be the net asset value (NAV) per security of the applicable class or series of the applicable Underlying Fund.

29.          The portfolio of each Underlying Fund consists or will consist primarily of publicly traded securities, debt instruments and derivatives. No Underlying Fund holds or will hold more than 10% of its NAV in “illiquid” assets (as defined in NI 81-102).

30.          In addition, the Fund-on-Fund Structure may result in a Pooled Fund investing in an Underlying Fund in which an officer or director of the Filer or an affiliate of the Filer has a significant interest and/or a Pooled Fund investing in an Underlying Fund in which a person or company who is a substantial securityholder of the Pooled Fund, the Filer or an affiliate of the Filer has a significant interest.

31.          In the absence of the Related Issuer Relief, each Pooled Fund would be precluded from purchasing and holding securities of an Underlying Fund due to the investment restrictions contained in the Legislation. Specifically, the Pooled Funds would be prohibited from becoming substantial securityholders of the Underlying Funds, either alone or together with related investment funds.

32.          In the absence of the Consent Relief, each Pooled Fund may be precluded from investing in one or more Underlying Funds unless the specific fact is disclosed to securityholders of the Pooled Fund and the written consent of the securityholders of the Pooled Fund to the investment is obtained prior to the purchase, since an officer and/or director of the Filer or an affiliate of the Filer who may be considered a responsible person (as per 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.

33.          Since the Pooled Funds will not offer their securities under a simplified prospectus, they are not subject to NI 81-102 and, therefore, the Pooled Funds will be unable to rely upon the exemption codified under subsection 2.5(7) of NI 81-102.

34.          The investment objective and restrictions applicable to a Pooled Fund will be described in the offering memorandum of the Pooled Fund (the Offering Memorandum), as will be the fees, compensation and expenses payable by the Pooled Fund and matters relating to the structure of the Pooled Fund, the calculation of NAV, distributions, the powers and duties of the investment fund manager and all other matters material to the Pooled Fund. The Offering Memorandum also will disclose that in pursuing its investment objective, a Pooled Fund may invest in one or more Underlying Funds as an investment strategy.

35.          The securityholders of a Pooled Fund will receive, on request, a copy of the audited annual financial statements and interim unaudited financial statements of any Underlying Fund in which the Pooled Fund invests.

36.          Other than the observance of Canadian statutory holidays in the operation of the Pooled Funds, the Pooled Funds and the Underlying Funds otherwise will have matching valuation and redemption dates.

37.          An investment by a Pooled Fund in securities of an Underlying Fund will represent the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Pooled Fund and the Underlying Fund, as applicable.

Decision

The principal regulator is satisfied that the exemptive relief application 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 Exemptions Sought are granted provided that:

(a)           securities of each Pooled Fund are distributed in Canada solely to permitted clients;

(b)           the investment by a Pooled Fund in one or more Underlying Funds is compatible with the investment objectives of the Pooled Fund;

(c)           a Pooled Fund will not purchase or hold securities of an Underlying Fund if that Underlying Fund holds securities of another mutual fund unless:

(i)            at the time of the purchase of securities of the Underlying Fund, the Underlying Fund holds no more than 10% of its NAV in securities of other mutual funds; or

(ii)           the Underlying Fund:

(A)           links its performance to the performance of one other mutual fund (i.e., a clone fund as such term is defined in NI 81-102);

(B)           purchases or holds securities of mutual funds that are money market funds, as such term is defined in NI 81-102; or

(C)          purchases or holds securities that are index participation units, as such term is defined in NI 81-102;

(d)           no management fees or incentive fees will be payable by a Pooled Fund that, to a reasonable person, would duplicate a fee payable by an Underlying Fund held by the Pooled Fund for the same service;

(e)           no sales fees or redemption fees will be payable by a Pooled Fund in relation to its purchases or redemptions of securities of an Underlying Fund;

(f)            the Filer or its affiliate will not cause the securities of an applicable Underlying Fund to be voted at any meeting of the security holders of a Pooled Fund, except that the Pooled Fund may arrange for the securities of the Underlying Fund it holds to be voted by the beneficial holders of securities of the Pooled Fund;

(g)           the Filer or its affiliate will provide the following disclosure to investors in a Pooled Fund prior to the time of investment:

(i)            that the Pooled Fund will purchase securities of applicable Underlying Fund or Underlying Funds;

(ii)           that the Filer or an affiliate of the Filer is the investment fund manager and the portfolio manager of the Pooled Fund and the Underlying Funds;

(iii)          the approximate or maximum percentage of the NAV of the Pooled Fund that it is intended be invested in securities of an Underlying Fund;

(iv)          the process or criteria used to select the Underlying Funds, if applicable;

(v)           each officer, director or substantial securityholder of the Filer, of an affiliate of the Filer or of a Pooled Fund that also has a significant interest in an applicable Underlying Fund, the approximate amount of the significant interest they hold, on an aggregate basis, expressed as a percentage of the applicable Underlying Fund’s NAV, and the potential conflicts of interest which may arise from such relationships;

(vi)          the fees and expenses payable by each applicable Underlying Fund, including any incentive fee;

(vii)         that securityholders of a Pooled Fund are entitled to receive from the Filer or an affiliate of the Filer, on request and free of charge, a copy of the Offering Memorandum or other disclosure document, if any, and the annual and interim financial statements of each applicable Underlying Fund.


The Consent Relief

“Raymond Chan”
Manager
Investment Funds & Structured Products Branch
Ontario Securities Commission

The Related Issuer Relief

“Edward P. Kerwin”
Commissioner 
Ontario Securities Commission 
“Anne Marie Ryan”
Commissioner
Ontario Securities Commission