Under paragraph 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations a registered firm must not permit an individual to act as a dealing, advising or associate advising representative of the registered firm if the individual is registered as a dealing, advising or associate advising representative of another registered firm. The Filers are affiliated entities and have valid business reasons for the individuals to be registered with both firms. The Filers have policies in place to handle potential conflicts of interest. The Filers are exempted from the prohibition.
Applicable Legislative Provisions
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 4.1 and 15.1.
August 16, 2018
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
EHP FUNDS INC.
(EP, and together with EFI, the Filers)
The Ontario Securities Commission (the Commission) has received an application from the Filers for a decision under the securities legislation of Ontario (the Legislation) pursuant to section 15.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) for relief from paragraph 4.1(1)(b) of NI 31‑103 (the Dual Registration Restriction) to permit Mr. Jason Mann, Mr. Ian Fairbrother and Mr. James Park (the Advising Representatives) to be registered as advising representatives of each of EP and EFI (the Relief Sought).
Terms defined in National Instrument 14-101 Definitions have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filers:
1. EP is registered as an investment fund manager in Ontario, Quebec and Newfoundland and Labrador; an adviser in the category of portfolio manager and as a dealer in the category of exempt market dealer in all provinces other than Prince Edward Island and Nova Scotia. The head office of EP is located in Toronto, Ontario.
2. EFI is seeking registration as an investment fund manager in Ontario, Quebec and Newfoundland and Labrador and as an adviser in the category of portfolio manager in Ontario. The head office of EFI is located in Toronto, Ontario.
3. Since the Filers are under common control, each of EP and EFI is an affiliate of the other and the Filers are affiliated registrants.
4. Mr. Mann has been registered in an advisory capacity with EP since May 2010. Mr. Mann serves as the President and Co-Chief Executive Officer (Co-CEO) of EP and has 16 years of investment experience, including five years as the Chief Investment Officer (CIO) of EP where he manages five alternative strategy funds. In Mr. Mann’s role as CIO, he is the primary individual responsible for the investment process and implementation of the offerings of the EP alternative strategy funds and will have similar responsibilities in respect of the investment funds to be advised by EFI. In Mr. Mann’s role of Co-CEO and Ultimate Designated Person (UDP) of EP, he is ultimately responsible for the direction of the firm as it relates to product offerings, distribution, and compliance.
5. Mr. Fairbrother has been registered in an advisory capacity with EP since May 2010. Mr. Fairbrother has 24 years of investment industry experience, including five years at EP as a portfolio manager of five alternative strategy funds with similar mandates. In Mr. Fairbrother’s role as portfolio manager at EP, he is a key member of the team responsible for strategy development and implementation, as well as part of the management team that determines the overall strategic direction of the firm. Mr. Fairbrother is also the primary partner responsible for developing and managing client relationships.
6. Mr. Park has been registered in an advisory capacity with EP since August 2015. Mr. Park has nine years of investment industry experience, including three years as Chief Risk Officer of EP where he is a portfolio manager of five alternative strategy funds. In Mr. Park’s role as Chief Risk Officer, he is the primary individual responsible for measuring and enforcing EP’s risk policies as it relates to the strategies of the EP alternative strategy funds. In Mr. Park’s role as portfolio manager, he is a key member of the team responsible for strategy development and implementation.
7. EP manages and advises a family of privately offered investment funds (the EHP Private Funds) that are distributed pursuant to available exemptions from the prospectus requirements under applicable securities laws. The EHP Private Funds are only available to purchasers that qualify as “accredited investors” (as such term is defined in National Instrument 45-106 Prospectus Exemptions) or are eligible to rely on other exemptions from the prospectus requirements. In its capacity as an exempt market dealer, EP is permitted to distribute securities of the EHP Private Funds for which it acts as the manager in the jurisdictions that it is registered.
8. EFI is currently seeking registration in the categories of investment fund manager and portfolio manager. EFI was established to manage and advise the EHP family of mutual funds that will be offered by way of a simplified prospectus (the EHP Public Funds) and subject to National Instrument 81-102 Investment Funds (NI 81-102). Mutual funds that are subject to NI 81-102 are required to comply with various investment restrictions and operational requirements that do not apply to privately offered funds. The EHP Public Funds are available to retail purchasers without the need to rely on any exemptions from the prospectus requirements. In addition, exempt market dealers are prohibited from participating in the distribution of securities offered under a prospectus.
9. Due to the fundamental differences in the manner in which privately offered investment funds and publicly offered mutual funds are regulated, operated and distributed, separating the management and advisory functions between EP and EFI with respect to the EHP Private Funds and the EHP Public Funds, respectively, is the preferable organizational structure for the business.
10. The Filers will have different client bases.
11. Dual registration of the Advising Representatives with EFI is being requested to permit the Advising Representatives to provide portfolio management services to the EHP Public Funds and would also allow the Advising Representatives to continue to provide investment management services to EP clients including the EHP Private Funds. The Advising Representatives would continue to advise any current or future clients of EP strictly pursuant to their EP registrations.
12. The Advising Representatives are familiar with the business model of each of EP and EFI. The role of the Advising Representatives will be to support the business activities and interests of both EP and EFI.
13. The Advising Representatives will be subject to supervision by, and the applicable compliance requirements of, both Filers. The Filers’ Chief Compliance Officer will ensure that the Advising Representatives have sufficient time and resources to adequately serve each Filer and their respective clients.
14. The Filers do not expect that the dual registration of the Advising Representatives will create significant additional work and are confident that the advising activities and services provided to the respective clients of the Filers will not interfere with their responsibilities to either Filer.
15. EP and EFI are affiliates and accordingly, the dual registration of the Advising Representatives will not give rise to the conflicts of interest that may be present in a similar arrangement involving unrelated, arm’s length firms. The interests of the Filers are aligned in connection with the appropriate management and administration of the EHP Private Funds and the EHP Public Funds, and the roles of the Advising Representatives. This will mitigate the risks of conflicts of interest arising from dual registration.
16. The Filers have adequate policies and procedures in place to address any potential conflicts of interest that may arise as a result of the dual registration of the Advising Representatives and will be able to appropriately deal with any such conflicts, should they arise.
17. The Advising Representatives will be under the supervision of both Filers and are subject to all policies and procedures addressing conflicts of interest that may arise as a result of the dual registration.
18. The Filers have jointly agreed upon a common allocation policy, to ensure that investment opportunities suitable for the EHP Private Funds and the EHP Public Funds are allocated between them fairly.
19. The relationship between EP and EFI, and the fact that the Advising Representatives are dually registered with both EP and EFI, is fully disclosed in writing to clients of each of them that deal with such Advising Representative.
20. The Advising Representatives will act in the best interest of all clients of each Filer and will deal fairly, honestly and in good faith with such clients.
21. Each of the Filers is subject to the restrictions and requirements contained in Part 13 of NI 31-103.
22. The Filers are not in default of any requirement of securities legislation in any jurisdiction of Canada.
23. For the reasons provided above, the Filers respectfully submits that it would not be prejudicial to the public interest to grant the Requested Relief.
The Commission is satisfied that the decision meets the test set out in the Legislation for the Commission to make the decision.
The decision of the Commission under the Legislation is that the Relief Sought is granted on the following conditions:
(a) Each Advising Representative is subject to supervision by, and the applicable compliance requirements of, both Filers;
(b) The Chief Compliance Officer and Ultimate Designated Person of each Filer ensures that each Advising Representative has sufficient time and resources to adequately serve the respective Filer and its clients;
(c) Each Filer has adequate policies and procedures in place to address any potential conflicts of interest that may arise as a result of the dual registration of the Advising Representatives, and deal appropriately with any such conflicts; and
(d) The relationship between EP and EFI, and the fact that the Advising Representatives are dually registered with both EP and EFI, is fully disclosed in writing to clients of each of them that deal with such Advising Representative.
Compliance and Registrant Regulation
Ontario Securities Commission