Brownstone Asset Management Inc.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from subparagraphs 13.5(2)(b)(ii) and (iii) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations to permit in specie subscriptions by a managed account in relation to a pooled fund.
Applicable Legislative Provisions
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, subparagraphs 13.5(2)(b)(ii)-(iii) and s. 15.1.
Citation: :Re Brownstone Asset Management Inc:., 2023 ABASC 121
July 20, 2023
IN THE MATTER OF
THE SECURITIES LEGISLATION OF ALBERTA,
BRITISH COLUMBIA, NOVA SCOTIA AND ONTARIO
(the Jurisdictions)
AND
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF
BROWNSTONE ASSET MANAGEMENT INC.
(the Filer)
DECISION
Background
The securities regulatory authority or regulator in each of the Jurisdictions (each, a Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) granting an exemption from the prohibitions contained in sections 13.5(2)(b)(ii) and (iii) of National Instrument 31-103 :Registration Requirements, Exemptions and Ongoing Registrant Obligations: (NI 31-103) to permit In Specie: subscriptions by a Managed Account (as defined below) for Fund Securities (as defined below) (each subscription, an In Specie: Transfer, as more fully defined below) (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Alberta Securities Commission is the principal regulator for this application;
(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 British Columbia and Nova Scotia; and
(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Interpretation
1. Terms defined in MI 11-102, National Instrument 14-101 :Definitions: and NI 31-103 have the same meaning if used in this decision, unless otherwise defined. The following terms have the following respective meanings
(a) Clients means individuals, private holding companies, pension plans, endowments, trusts, insurance companies, corporations, mutual funds and other entities to whom the Filer offers, or may offer, discretionary portfolio management services through a Managed Account;
(b) Discretionary Management Agreement means a written agreement between the Filer and a Client seeking discretionary portfolio management or related services;
(c) Existing Pooled Funds means each existing investment fund that is
(i) not a reporting issuer,
(ii) the securities of which are sold solely to investors in Canada through private placements pursuant to exemptions from the prospectus requirement, and
(iii) for which the Filer acts as investment fund manager and portfolio adviser;
(d) Funds means collectively, the Existing Pooled Funds and the Future Pooled Funds;
(e) Fund Securities means units or shares of any of the Funds;
(f) Future Pooled Funds means any investment fund that the Filer sets up in the future that
(i) will not be a reporting issuer,
(ii) the securities of which will be sold solely to investors in Canada through private placements pursuant to exemptions from the prospectus requirement, and
(iii) for which the Filer will act as investment fund manager and portfolio adviser;
(g) In Specie: Transfer means a subscription/purchase by a Managed Account of Fund Securities using securities held in the Managed Account as consideration; and
(h) Managed Account means an account managed by the Filer for a Client that is not a responsible person and over which the Filer has discretionary authority.
Representations
This decision is based on the following facts represented by the Filer:
The Filer
1. The Filer is a corporation existing under the laws of Alberta, with its head office in Calgary, Alberta.
2. The Filer is registered in:
(a) Alberta, Ontario, British Columbia and Nova Scotia as an adviser in the category of portfolio manager;
(b) Alberta and Ontario as an investment fund manager; and
(c) Alberta, Ontario, British Columbia and Nova Scotia as an exempt market dealer.
3. The Filer is not a reporting issuer in any province or territory of Canada and is not in default of securities legislation in any province or territory of Canada.
The Funds
4. Each of the Funds is, or will be, organized as a limited partnership, a corporation or a trust established under the laws of Alberta, Ontario or another province or territory of Canada.
5. Each Fund is not, or will not be, a reporting issuer under the laws of any province or territory of Canada.
6. The Existing Pooled Funds are not in default of securities legislation in any province or territory of Canada.
The Managed Accounts
7. The Filer offers discretionary portfolio management services to Clients seeking wealth management or related services under Discretionary Management Agreements.
8. Pursuant to the Discretionary Management Agreement entered into with each Client, the Client appoints the Filer to act as portfolio adviser in connection with an investment portfolio held in a Managed Account of the Client with full discretionary authority to trade in securities for the Managed Account without obtaining the specific consent or instructions of the Client to execute the trade.
9. The Filer may, where authorized under the applicable Discretionary Management Agreement, from time to time, invest the assets in a Client's Managed Account in securities of any one or more of the Funds in order to give such Client the benefit of assets in a model portfolio and economies of scale regarding minimum commission charges on portfolio trades, and generally to facilitate portfolio management.
In Specie: Transfers
10. The Filer may wish to deliver portfolio securities held in a Managed Account to a Fund to facilitate an In Specie: Transfer. As the Filer is a registered adviser and is, or will be, the portfolio adviser of the Funds and the Managed Accounts when an In Specie: Transfer is executed, the Filer would be considered a 'responsible person' as defined in NI 31-103 in respect of such Funds and Managed Accounts.
11. As the Filer is, or may be, the trustee of a Fund which is organized as a trust, each such Fund may be an 'associate' of the Filer, and accordingly, absent the grant of the Exemption Sought, the Filer may be precluded by section 13.5(2)(b)(ii) of NI 31-103 from effecting In Specie: Transfers. As the Filer is, or will be, the manager and portfolio adviser of the Funds, absent the grant of the Exemption Sought, the Filer may be precluded by section 13.5(2)(b)(iii) of NI 31-103 from effecting In Specie: Transfers.
12. Prior to engaging in In Specie: Transfers on behalf of a Managed Account, each Discretionary Management Agreement or other documentation will contain the authorization of the Client for the Filer, as portfolio adviser of the Managed Account, to engage in In Specie: Transfers.
13. The only cost which will be incurred by a Managed Account or a Fund for an In Specie: Transfer is a nominal administrative charge levied by the custodian of the relevant Fund for recording the trades and any commission charged by the dealer executing the trade.
14. The Filer, as manager of the Funds, will value the securities transferred under an In Specie: Transfer on the same valuation day on which the purchase price of the Fund Securities is determined. With respect to the purchase of Fund Securities, the securities transferred to a Fund for an In Specie: Transfer in satisfaction of the purchase price of those Fund Securities will be valued at the end of day closing price posted on the exchange in which the security is listed, as if the securities were portfolio assets of the Fund.
15. None of the securities involved in the In Specie: Transfers will be considered an "illiquid asset," as defined in National Instrument 81-102 Investment Funds (NI 81-102).
16. In Specie: Transfers will be subject to
(a) compliance with the written policies and procedures of the Filer respecting In Specie: Transfers that are consistent with applicable securities legislation, and
(b) the oversight of the Chief Compliance Officer of the Filer to ensure that the transaction represents the business judgment of the Filer acting in its discretionary capacity with respect to the Fund and the Managed Account, uninfluenced by considerations other than the best interests of the Fund and Managed Account.
Decision
The Decision Maker is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Maker under the Legislation is that the Exemption Sought is granted provided that:
17. The Filer obtains prior written consent from the Client of the Managed Account, specifically for any contemplated In Specie: Transfers, before it engages in any In Specie: Transfer in reliance on this exemptive relief order;
18. The Fund would, at the time of payment, be permitted to purchase the securities held by the Managed Account that are intended as consideration for the In Specie: Transfer;
19. The portfolio securities intended as consideration for the In Specie: Transfer are acceptable to the Filer, as portfolio adviser of the Fund, and consistent with the Fund's investment objectives;
20. The value of the portfolio securities sold to the Fund for the purpose of the In Specie: Transfer is equal to the issue price of the Fund Securities for which they are used as payment, valued as if the securities were portfolio assets of that Fund;
21. None of the securities involved in the In Specie: Transfers will be considered an "illiquid asset," as defined in NI 81-102.
22. The account statement next prepared for the Managed Account will include a note describing the In Specie: Transfer, the securities delivered to the Fund, and the value assigned to such securities; and
23. Each Funds keeps written records of all In Specie: Transfers during the financial year of the Fund, reflecting details of the securities delivered to the Fund and the value assigned to such securities, for five years after the end of the financial year with the most recent two years in a reasonably accessible place; and
24. Neither the Filer nor any affiliate of the Filer receives any compensation in respect of any sale of Fund Securities. The only charge paid by the Fund or Managed Account, if any, is a nominal administrative charge levied by the custodian for recording the trade and any commission charged by the dealer executing the trade.