Securities Law & Instruments


Headnote

Application for relief from the investment fund manager registration requirement and the dealer registration requirement in order to provide certain current “senior-level” employees of a global investment firm with the opportunity to voluntarily participate in investment opportunities alongside other employees, globally – the filers are related entities – each of the investment funds advised by the filers are or will be established outside of Canada – each of the filers’ head office or principal place of business is in the United States or United Kingdom, as applicable, and each of the filers are appropriately registered in the United States or United Kingdom, as applicable – the filers distribute to no more than 10 “Qualified Employees” – the filers shall not receive any trade-based compensation – the participation in an investment opportunity by a “Qualified Employee” is voluntary – the filers are subject to the standard conditions applicable to a non-registered exempt international firm – the filers granted relief from the investment fund manager registration requirement on conditions analogous to the permitted client exemption in section 4 of Multilateral Instrument 32-102 Registration Exemptions for Non-Resident Investment Fund Managers.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1), 25(4), 74(1).
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 8.16, 8.18.
Multilateral Instrument 32-102 Registration Exemptions for Non-Resident Investment Fund Managers, ss. 1, 4.
National Instrument 45-106 Prospectus Exemptions, ss. 1.1, 2.3.

November 11, 2016

IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, c. S.5, AS AMENDED
(the "Act")

AND

IN THE MATTER OF
NB ALTERNATIVES ADVISERS LLC (“NBAA LLC”),
NEUBERGER BERMAN EUROPE LIMITED (“NBEL”),
NEUBERGER BERMAN INVESTMENT ADVISERS LLC (“NBIA LLC”),
NEUBERGER BERMAN LLC (“NB LLC”), AND
NB ALTERNATIVE INVESTMENT MANAGEMENT LLC (“NBAIM LLC” and,
together with NBAA LLC, NBEL, NBIA LLC and NB LLC, the “Filers”, and each a “Filer”)

ORDER
(Section 74 of the Act)

Background

The Commission has received an application for an order pursuant to subsection 74(1) of the Act:

(a)           from each of the Filers, for an exemption from the investment fund manager registration requirement under subsection 25(4) of the Act (the Investment Fund Manager Relief) in respect of it acting as an investment fund manager for the Funds (as defined below) where all securities of the Funds distributed in Ontario are distributed:

i.              under an exemption from the prospectus requirement to a Permitted Client; or

ii.             under the Accredited Investor Exemption (as defined below) to a Qualified Employee (as defined below) employed by NB LLC; and

(b)           from NB LLC, for an exemption from the dealer registration requirement under subsection 25(1) of the Act (the Dealer Relief) in respect of it distributing securities of the Funds and other collective investment vehicles that do not meet the definition of an “investment fund” under applicable securities laws (collectively, the Collective Investment Vehicles) under the Accredited Investor Exemption to Qualified Employees employed by NB LLC.

Interpretation

Terms defined in National Instrument 14-101 Definitions have the same meaning if used in this order, unless otherwise defined.

The term Permitted Client has the same meaning as in section 1 of Multilateral Instrument 32-102 Registration Exemptions for Non-Resident Investment Fund Managers (MI 32-102).

Representations

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

The Filers

1.             Neuberger Berman Group LLC is a holding company, which through its subsidiaries (collectively, Neuberger Berman), including the Filers, provides a broad range of global investment solutions – equity, fixed income and alternatives – to institutions and individuals through, among other things, customized separately managed accounts and collective investment vehicles (including non-redeemable investment funds).

2.             NB LLC is a limited liability company formed pursuant to the laws of the state of Delaware in the United States, with a head office located in New York, United States.

3.             NBAIM LLC is a limited liability company formed pursuant to the laws of the state of Delaware in the United States, with a head office located in New York, United States.

4.             NBAA LLC is a limited liability company formed pursuant to the laws of the state of Delaware in the United States with a head office located in Dallas, United States.

5.             NBIA LLC is a limited liability company formed pursuant to the laws of the state of Delaware in the United States with a head office located in Chicago, United States.

6.             NBEL is a company incorporated under the laws of England with a head office located in London, England.

7.             NB LLC currently maintains an office in Toronto, Ontario. None of the other Filers maintain a physical office in Canada.

8.             Each of the Filers is registered as an investment adviser with the United States Securities and Exchange Commission (the SEC).

9.             NBEL is also authorised and regulated by the Financial Conduct Authority (the FCA) in the United Kingdom. NBEL is authorized to carry on certain regulated activities in the U.K., including the following: (a) advising on investments, (b) arranging (bringing about) deals in investments, (c) arranging safeguarding and administration of assets, (d) dealing in investments as agent, (e) establishing, operating or winding up a regulated collective investment scheme, (f) establishing, operating or winding up an unregulated collective investment scheme, (g) making arrangements with a view to transactions in investments, and (h) managing investments.

10.          NB LLC is also registered as a broker-dealer with the SEC and applicable United States state regulators and is a member of the United States Financial Industry Regulatory Authority (FINRA).

11.          NBAA LLC and NBAIM LLC are also registered as commodity pool operators with the United States Commodity Futures Trading Commission (the CFTC). NBIA LLC is also registered with the CTFC as a commodity pool operator and a commodity trading advisor. NB LLC is also registered with the CTFC as a commodity pool operator, commodity trading advisor and futures commission merchant. In these capacities, NBAA LLC, NBIA LLC, NB LLC and NBAIM LLC are members of the United States National Futures Association (the NFA).

12.          NB LLC relies on the international dealer exemption in section 8.18 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), as well as the international adviser exemption in section 8.26 of NI 31-103, in each Canadian province. NB LLC also relies on the “permitted clients” investment fund manager registration exemption in section 4 of MI 32-102 (the Permitted Clients Exemption) in Ontario and Québec.

13.          NBAIM LLC relies on the international adviser exemption in section 8.26 of NI 31-103 in Ontario.

14.          NBAA LLC relies on the Permitted Clients Exemption in Ontario and Québec, and the international adviser exemption in section 8.26 of NI 31-103.

15.          NBIA LLC relies on the Permitted Clients Exemption in Newfoundland and Labrador, Ontario and Québec, and the international adviser exemption in section 8.26 of NI 31-103 in each Canadian province.

16.          NBEL relies on the Permitted Clients Exemption in Ontario and Québec.

17.          Each of NB LLC, NBAA LLC, NBIA LLC and NBEL solicit, through NB LLC, Permitted Clients to purchase securities of certain Funds.

18.          The Filers are not registered under the securities legislation in any jurisdiction of Canada in any capacity.

19.          The Filers are not in default of securities legislation, commodity futures legislation or derivatives legislation of any jurisdiction in Canada. The Filers are in compliance in all material respects with securities laws, commodity futures laws and derivatives laws of the United States.

20.          For Canadian purposes, each of the Filers acts as investment fund manager for one or more investment funds that are offered to individual or institutional investors (the Funds).

21.          Each of the Filers act as the investment adviser, as defined under United States securities law, for the Collective Investment Vehicles (including the Funds), which may be offered to individual or institutional investors.

22.          The Collective Investment Vehicles advised by the Filers are or will be established outside of Canada.

The Proposed Investment Opportunity and Qualified Employees

23.          Neuberger Berman provides certain eligible employees and their family members the opportunity to invest in the Collective Investment Vehicles (each an Investment Opportunity). For each Investment Opportunity, the offering made to eligible employees is subject to the same terms as other individual or institutional investors in the Fund, except that each Filer may waive any management fees, incentive fees and performance allocations, and minimum investment amounts may be reduced.

24.          Each Investment Opportunity is or will be offered solely to an employee that has the job title of Managing Director or Senior Vice President, or are fund directors, Neuberger Berman equity owners or employees who have otherwise established to the satisfaction of Neuberger Berman that they have sufficient sophistication and assets to participate in the Investment Opportunity, subject to the rules and regulations of the local jurisdiction (the Qualified Employees).

25.          Each Investment Opportunity is made to Qualified Employees globally, subject to the rules and regulations of the local jurisdiction.

26.          Participation in an Investment Opportunity by a Qualified Employee is voluntary, and the Qualified Employee will not be induced to participate in an Investment Opportunity by expectation of employment or continued employment.

27.          Only Qualified Employees who are "accredited investors" as defined in Regulation D under Section 4(2) of the United States Securities Act of 1933, as amended, (and, in the case of certain funds, “qualified purchasers” or “knowledgeable employees” under the United States Investment Company Act of 1940, as amended, or “qualified clients” under the United States Investment Advisers Act of 1940, as amended) are eligible to invest in the Collective Investment Vehicles.

28.          Each Qualified Employee shall also qualify as an "accredited investor" as such term is defined under National Instrument 45-106 Prospectus Exemptions (NI 45-106). It is not certain that all Qualified Employees would be "permitted clients" as defined under NI 31-103 or MI 32-102.

29.          The “accredited investor” prospectus exemption under section 2.3 of NI 45-106 (the Accredited Investor Exemption) will be relied upon in connection with a distribution to a Qualified Employee.

30.          As a registered broker-dealer and member of FINRA, NB LLC shall take reasonable steps to ensure that, before it makes a recommendation to or accepts an instruction from a Qualified Employee to buy or sell a security of a Collective Investment Vehicle pursuant to an Investment Opportunity, the purchase or sale is suitable for the Qualified Employee.

31.          Currently, there are no stated limits on how much a Qualified Employee can invest in an Investment Opportunity. However, Neuberger Berman seeks to ensure that no Qualified Employee invests more than 10% of his or her liquid net worth in any single Collective Investment Vehicle.

32.          No trade based fees or commission are charged to Qualified Employees by any of the Filers, including NB LLC, in connection with participation in an Investment Opportunity.

33.          In the event a Qualified Employee is interested in an Investment Opportunity, the applicable Filers will provide to the Qualified Employee an investor kit relating to the Fund in which the Qualified Employee wishes to invest. This investor kit generally includes a welcome letter, the investment fund’s prospectus or offering memorandum, subscription agreement, subscription instructions and limited partnership agreement (if applicable), as well as the applicable Filer’s privacy policy and Part 2A of the applicable Filer’s Form ADV (which is the disclosure document included by the Filer in its application to register as an investment adviser with the SEC). In addition, the portfolio management team for each Collective Investment Vehicle generally hosts an information session at which they discuss their investment approach and process, the terms of the offering and potential risks. If a Qualified Employee cannot attend, the information session and any presentation materials are, subject to applicable law, available to be viewed at any time on a webpage dedicated to the Investment Opportunities on Neuberger Berman’s internal intranet site.

Why is the relief needed?

34.          NB LLC currently employs three persons in Toronto.

35.          Currently, NB LLC believes that only one of the employees in the Toronto office meets the requirements to be a Qualified Employee and is, therefore, able to participate in the Investment Opportunities. NB LLC anticipates that, in the future, all employees in the Toronto office that meet the requirements to be a Qualified Employee will also be invited to participate in the Investment Opportunities.

36.          In light of the Investment Opportunities, NBAA LLC, NBEL, NBIA LLC and NB LLC will be unable to continue relying on the Permitted Clients Exemption in Ontario because not all securities of the Funds managed by them and distributed in Ontario will be distributed to Permitted Clients. Although the Qualified Employees all qualify as “accredited investors”, not all of them are Permitted Clients. The Investment Fund Manager Relief is required to permit each of NBAA LLC, NBEL, NBIA LLC and NB LLC to continue soliciting Permitted Clients resident in Ontario to invest in Funds through NB LLC.

37.          NB LLC has also applied for Dealer Relief in connection with these distributions. There is no exemption from the dealer registration requirement available to NB LLC. The “plan administration exemption” set out in section 8.16 of NI 31-103 is not available because, amongst other things, the securities being issued pursuant to an Investment Opportunity are not being issued pursuant to a “plan of the issuer”. Furthermore, because the Qualified Employees do not all qualify as “permitted clients” under NI 31-103, the “international dealer” exemption set out in section 8.18 of NI 31-103 is also not available.

38.          The Filers submit that there would be minimal regulatory benefit to requiring each of them to register as an investment fund manager and/or dealer, as applicable, for the limited purpose of the distribution described above.

Decision

In the opinion of the Commission it is not prejudicial to the public interest to make this Order.

It is ordered by the Commission pursuant to section 74 of the Act that the Investment Fund Manager Relief is granted provided that:

1.             All securities of the Funds distributed in Ontario by a Filer are distributed:

(a)           under an exemption from the prospectus requirement to a Permitted Client; or

(b)           under the Accredited Investor Exemption to a Qualified Employee employed by NB LLC.

2.             Securities of the Funds shall be distributed to no more than 10 Qualified Employees in Ontario.

3.             Where required by law, each Filer is registered as an investment adviser with the SEC.

4.             NBEL is authorised and regulated by the FCA.

5.             NB LLC is registered as a broker-dealer with the SEC and is a member of FINRA.

6.             Where required by law, each of NBAA LLC, NBIA LLC, NB LLC and NBAIM LLC are registered as a commodity pool operator, commodity trading advisor, and/or futures commission merchant, as applicable, and each is a member of the NFA.

7.             Each Filer does not have its head office or its principal place of business in Canada.

8.             Each Filer is incorporated, formed or created under the laws of a foreign jurisdiction.

9.             None of the Funds are a reporting issuer in any jurisdiction of Canada.

10.          Each Filer has submitted to the Ontario Securities Commission a completed Submission to Jurisdiction and Appointment of Agent for Service for International Investment Fund Manager in the form attached as Appendix “A” hereto.

11.          Each Filer has notified each Permitted Client or Qualified Employee in writing of all of the following:

(a)           the Filer is not registered in Ontario to act as an investment fund manager;

(b)           the foreign jurisdiction in which the head office or principal place of business of the Filer is located;

(c)           all or substantially all of the assets of the Filer may be situated outside of Canada;

(d)           there may be difficulty enforcing legal rights against the Filer because of the above; and

(e)           the name and address of the agent for service of process of the Filer in Ontario.

12.          If a Filer relied on the Investment Fund Manager Relief during the 12 month period preceding December 1 of a year, it must notify the Ontario Securities Commission, by December 1 of that year, of the following:

(a)           the fact that it relied upon the Investment Fund Manager Relief; and

(b)           for all Funds for which it acts as an investment fund manager, the total assets under management expressed in Canadian dollars, attributable to securities beneficially owned by residents of Ontario as at the most recently completed month.

13.          Each Filer files with the Ontario Securities Commission, a completed Notice of Regulatory Action in the form attached as Appendix “B” hereto within 10 days of the date on which the Filer begins relying on the Investment Fund Manager Relief.

14.          Each Filer must notify the Ontario Securities Commission, of any change to the information previously submitted in the Notice of Regulatory Action in the form attached as Appendix “B” hereto within 10 days of the change.

15.          Each Filer complies with the filing and fee payment requirements applicable to an unregistered investment fund manager under Ontario Securities Commission Rule 13-502 Fees (OSC Rule 13-502).

It is ordered by the Commission pursuant to section 74 of the Act that the Dealer Relief is granted provided that:

1.             Securities of the Collective Investment Vehicles shall be distributed to no more than 10 Qualified Employees in Ontario.

2.             NB LLC will not receive any trade-based compensation for the distributions made to Qualified Employees.

3.             Participation in an Investment Opportunity by a Qualified Employee is voluntary, and the Qualified Employee will not be induced to participate in an Investment Opportunity by expectation of employment or continued employment.

4.             NB LLC shall take reasonable steps to ensure that, before it makes a recommendation to or accepts an instruction from a Qualified Employee to buy or sell a security of a Collective Investment Vehicle pursuant to an Investment Opportunity, the purchase or sale is suitable for the Qualified Employee.

5.             Where required by law, NB LLC is registered as an investment adviser with the SEC.

6.             NB LLC is registered as a broker-dealer with the SEC and is a member of FINRA, that registration permitting it to distribute securities of the Collective Investment Vehicles to the Qualified Employees.

7.             Where required by law, NB LLC is registered as a commodity pool operator, commodity trading advisor and futures commission merchant with the CFTC and is a member of the NFA.

8.             NB LLC has submitted to the Ontario Securities Commission a completed Submission to Jurisdiction and Appointment of Agent for Service in the form attached as Appendix “A” hereto.

9.             NB LLC has notified each Qualified Employee in writing of all of the following:

(a)           NB LLC is not registered in Ontario to make the trade;

(b)           the foreign jurisdiction in which the head office or principal place of business of NB LLC is located;

(c)           all or substantially all of the assets of NB LLC may be situated outside of Canada;

(d)           there may be difficulty enforcing legal rights against NB LLC because of the above; and

(e)           the name and address of the agent for service of process of NB LLC in Ontario.

10.          NB LLC files with the Ontario Securities Commission, a completed Notice of Regulatory Action in the form attached as Appendix “B” hereto within 10 days of the date on which NB LLC begins relying on the Dealer Manager Relief.

11.          NB LLC must notify the Ontario Securities Commission, of any change to the information previously submitted in the Notice of Regulatory Action in the form attached as Appendix “B” hereto within 10 days of the change.

12.          If NB LLC does not rely on the international dealer exemption in section 8.18 of NI 31-103, NB LLC complies with the filing and fee payment requirements applicable to an unregistered exempt international firm under OSC Rule 13-502 as if it relied on the international dealer exemption in section 8.18 of NI 31-103.

                DATED at Toronto, Ontario this 11th day of November, 2016.

“Deborah Leckman”
Commissioner
Ontario Securities Commission

“William Furlong”
Commissioner
Ontario Securities Commission



APPENDIX “A”

SUBMISSION TO JURISDICTION AND APPOINTMENT OF AGENT FOR SERVICE

1.             Name of person or company (“International Firm”):

2.             If the International Firm was previously assigned an NRD number as a registered firm or an unregistered exempt international firm, provide the NRD number of the firm:

3.             Jurisdiction of incorporation of the International Firm:

4.             Head office address of the International Firm:

5.             The name, e-mail address, phone number and fax number of the International Firm’s individual(s) responsible for the supervisory procedure of the International Firm, its chief compliance officer, or equivalent.

Name:

E-mail address:

Phone:

Fax:

6.             Details of the exemption order that the International Firm is relying on (the Relief Order), including the date of the Relief Order:

7.             Name of agent for service of process (the “Agent for Service”):

8.             Address for service of process on the Agent for Service:

9.             The International Firm designates and appoints the Agent for Service at the address stated above as its agent upon whom may be served a notice, pleading, subpoena, summons or other process in any action, investigation or administrative, criminal, quasi-criminal or other proceeding (a “Proceeding”) arising out of or relating to or concerning the International Firm’s activities in the local jurisdiction and irrevocably waives any right to raise as a defence in any such proceeding any alleged lack of jurisdiction to bring such Proceeding.

10.          The International Firm irrevocably and unconditionally submits to the non-exclusive jurisdiction of the judicial, quasi-judicial and administrative tribunals of the local jurisdiction in any Proceeding arising out of or related to or concerning the International Firm’s activities in the local jurisdiction.

11.          Until 6 years after the International Firm ceases to rely on the Relief Order, the International Firm must submit to the regulator

(a)           a new Submission to Jurisdiction and Appointment of Agent for Service in this form no later than the 30th day before the date this Submission to Jurisdiction and Appointment of Agent for Service is terminated;

(b)           an amended Submission to Jurisdiction and Appointment of Agent for Service no later than the 30th day before any change in the name or above address of the Agent for Service; and

(c)           a notice detailing a change to any information submitted in this form, other than the name or above address of the Agent for Service, no later than the 30th day after the change.

12.          This Submission to Jurisdiction and Appointment of Agent for Service is governed by and construed in accordance with the laws of the local jurisdiction.

Dated: ________________________________

_____________________________________________________
(Signature of the International Firm or authorized signatory)

_____________________________________________________
(Name of signatory)

_____________________________________________________
(Title of signatory)


Acceptance

The undersigned accepts the appointment as Agent for Service of __________________________ [Insert name of International Firm] under the terms and conditions of the foregoing Submission to Jurisdiction and Appointment of Agent for Service.

Dated:    –––––––––––––––––––––––––––-

_____________________________________________________
(Signature of the International Firm or authorized signatory)

_____________________________________________________
(Name of signatory)

_____________________________________________________
(Title of signatory)

This form, and notice of a change to any information submitted in this form, is to be submitted through the Ontario Securities Commission’s Electronic Filing Portal:

https://www.osc.gov.on.ca/filings


APPENDIX “B”

NOTICE OF REGULATORY ACTION

1. Has the firm, or any predecessors or specified affiliates of the firm entered into a settlement agreement with any financial services regulator, securities or derivatives exchange, SRO or similar agreement with any financial services regulator, securities or derivatives exchange, SRO or similar organization?

Yes _____ No _____

If yes, provide the following information for each settlement agreement:

Name of entity

Regulator/organization

Date of settlement (yyyy/mm/dd)

Details of settlement

Jurisdiction

2. Has any financial services regulator, securities or derivatives exchange, SRO or similar organization:

 

Yes

No

(a)           Determined that the firm, or any predecessors or specified affiliates of the firm violated any securities regulations or any rules of a securities or derivatives exchange, SRO or similar organization?

___

___

(b)           Determined that the firm, or any predecessors or specified affiliates of the firm made a false statement or omission?

___

___

(c)           Issued a warning or requested an undertaking by the firm, or any predecessors or specified affiliates of the firm?

___

___

(d)           Suspended or terminated any registration, licensing or membership of the firm, or any predecessors or specified affiliates of the firm?

___

___

(e)           Imposed terms or conditions on any registration or membership of the firm, or predecessors or specified affiliates of the firm?

___

___

(f)            Conducted a proceeding or investigation involving the firm, or any predecessors or specified affiliates of the firm?

___

___

(g)           Issued an order (other than an exemption order) or a sanction to the firm, or any predecessors or specified affiliates of the firm for securities or derivatives-related activity (e.g. cease trade order)?

___

___

If yes, provide the following information for each action:

Name of entity

Type of action

Regulator/organization

Date of action (yyyy/mm/dd)

Reason for action

Jurisdiction


3. Is the firm aware of any ongoing investigation of which the firm or any of its specified affiliates is the subject?

Yes _____ No _____

If yes, provide the following information for each investigation:

Name of entity

Reason or purpose of investigation

Regulator/organization

Date investigation commenced (yyyy/mm/dd)

Jurisdiction

 

Name of firm:

Name of firm’s authorized signing officer or partner

Title of firm’s authorized signing officer or partner

Signature

Date (yyyy/mm/dd)

Witness

The witness must be a lawyer, notary public or commissioner of oaths.

Name of witness

Title of witness

Signature

Date (yyyy/mm/dd)

This form is to be submitted through the Ontario Securities Commission’s Electronic Filing Portal:

https://www.osc.gov.on.ca/filings

      In this Appendix, the term "specified affiliate" has the meaning ascribed to that term in Form 33-109F6 to National Instrument 33-109 Registration Information.