Canada Pension Plan Investment Board and Universa Investments L.P. – s. 80 of the CFA
Headnote
Section 80 of the Commodity Futures Act (Ontario) -- International adviser exempted from the adviser registration requirement in section 22(1)(b) of the CFA where such adviser act as an adviser in respect of commodity futures contracts or commodity futures options (commodities) for certain crown corporations or wholly owned entities of the Government of Canada in connection the adviser acting as an adviser to certain Fund -- Commodities are primarily traded on commodity futures exchanges outside of Canada and primarily cleared outside of Canada.
Terms and conditions on exemption ruling correspond to the relevant terms and conditions on the comparable exemption from the adviser registration requirement available to international advisers in respect of securities set out in proposed NI 31-103 Registration Requirements -- Exemption also subject to a "sunset clause" condition.
Statutes Cited
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 1(1), 25.
Commodity Futures Act, R.S.O. 1990, c. C.20. as am., ss. 22(1)(b), 80.
Instruments Cited
Proposed National Instrument 31-103 Registration Requirements, (2008) 31 OSCB 2279, Part 8 -- Exemptions from Registration, Division 1: General, section 8.16.
National Instrument 45-106 Prospectus and Registration Exemptions.
IN THE MATTER OF
THE COMMODITY FUTURES ACT,
R.S.O. 1990, CHAPTER C.20, AS AMENDED
(the CFA)
AND
IN THE MATTER OF
CANADA PENSION PLAN INVESTMENT BOARD
AND
UNIVERSA INVESTMENTS L.P.
ORDER
(Section 80 of the CFA)
UPON the application (the Application) of the Canada Pension Plan Investment Board (the CPP Investment Board) and Universa Investments L.P. (the Applicant) to the Ontario Securities Commission (the Commission) for an order (the Order), pursuant to section 80 of the CFA, that the adviser registration requirement in the CFA (as defined below) shall not apply to the Applicant (including its directors, officers and employees acting as advisers on its behalf) where the Applicant acts as an adviser in respect of Contracts (as defined below) for the CPP Investment Board and/or the Subsidiaries (as defined below) in connection the Applicant acting as an adviser to the Funds (as defined below), subject to certain terms and conditions;
AND WHEREAS, for the purposes hereof, the following terms shall have the following meanings:
"Act" means the Securities Act, R.S.O. 1990, c. S.5, as amended;
"adviser registration requirement in the Act" means the provisions of section 25 of the Act that prohibit a person or company from acting as an adviser, as defined in the Act, unless the person or company satisfies the applicable provisions of section 25 of the Act;
"adviser registration requirement in the CFA" means the provisions of section 22 of the CFA that prohibit a person or company from acting as an adviser unless the person or company satisfies the applicable provisions of section 22 of the CFA;
"Contract" means a commodity futures contract or a commodity futures option, in each case, as defined in the CFA;
"CPP" means the Canada Pension Plan and is described in greater detail in paragraph 1 below;
"CPP Act" means the Canada Pension Plan Act;
"CPP Investment Board Act" means the Canada Pension Plan Investment Board Act;
"Foreign Contract" means a Contract that is primarily traded on one or more organized exchanges that are located outside of Canada and primarily cleared through one or more clearing corporations that are located outside of Canada;
"Funds" means the Universa Black Swan Protection Protocol Offshore II Ltd. and any other foreign domiciled investment funds established or advised by the Applicant in which the CPP Investment Board and/or a Subsidiary is the sole participating shareholder;
"NI 31-103" means proposed National Instrument 31-103 Registration Requirements which was published for comment in the February 29, 2008 Ontario Securities Commission Bulletin;
"NI 45-106" means National Instrument 45-106 Prospectus and Registration Exemptions;
"securities" has the meaning set out in the definition of "security" in subsection 1(1) of the Act;
"Shares" means participating, non-voting, redeemable shares of the Funds; and
"Subsidiary" means a corporation, incorporated under an Act of Parliament or the legislature of Ontario, that is resident of or carries on business in Ontario, and is wholly owned, directly or indirectly, by the CPP Investment Board;
AND WHEREAS any other terms used in the Order that are defined in the Act, and not otherwise defined in the Order or in the CFA, shall have the same meaning as in the Act, unless the context otherwise requires;
AND UPON considering the Application and the recommendation of staff of the Commission;
AND UPON the CPP Investment Board, the Subsidiaries and the Applicant having represented to the Commission that:
The CPP
1. The CPP is a contributory, earnings related social insurance program for Canadian employees in all provinces and territories of Canada (other than Québec) established pursuant to the CPP Act. The CPP provides basic benefits to employees who have contributed to the plan upon the retirement, disability or death of such employees.
The CPP Investment Board
2. The CPP Investment Board is a crown corporation established under the CPP Investment Board Act by the Government of Canada and is a wholly owned entity of the Government of Canada. The principal office of the CPP Investment Board is located in Toronto, Ontario.
3. The CPP Investment Board was established by the Government of Canada as a separate corporation that is governed and managed independently of the CPP. The mandate of the CPP Investment Board is set out in the CPP Investment Board Act as follows:
(a) to manage the assets of the CPP allocated to the CPP Investment Board in the best interests of the contributors and beneficiaries under the CPP;
(b) to assist the CPP in meeting its obligations to contributors and beneficiaries under the CPP; and
(c) to invest the assets of the CPP with a view to achieving a maximum rate of return, without undue risk of loss, having regard to the factors that may affect the funding of the CPP and the ability of the CPP to meet its financial obligations.
4. Pursuant to the CPP Investment Board Act, the CPP Investment Board is authorized to establish the Subsidiaries. The CPP Investment Board makes the determination of whether to have securities, Contracts and/or other instruments purchased either held by the CPP Investment Board or by one of the Subsidiaries. Where a Subsidiary is used, the Subsidiary is the entity that purchases such securities, Contracts and/or other instruments and retains third party advisers, if any. All investment decisions for the Subsidiary are made by the CPP Investment Board or delegated to retained third party advisers, if any.
5. The CPP Investment Board and the Subsidiaries are not registered in any capacity under either the Act or the CFA.
6. As at December 31, 2008, the CPP Investment Board, including the Subsidiaries, had approximately $108 billion in assets under management. In light of its mandate and its growing assets under management, the CPP Investment Board is continuously investing and in some cases, retaining others to advise the CPP Investment Board and/or the Subsidiaries in respect of certain assets of the CPP.
The Applicant
7. The Applicant is a limited partnership established under the laws of the State of Delaware, with its head office located in Santa Monica, California, U.S.A. The Applicant does not have an office in Canada and has no directors, officers or employees resident in Canada.
8. The Applicant engages in the business of an adviser in the United States.
9. The Applicant is registered as an investment adviser with the United States Securities and Exchange Commission. It is also registered as a commodity trading advisor and exempt from registration as a commodity trading operator with the U.S. Commodity Futures Trading Commission and approved as a member of the U.S. National Futures Association.
The Funds
10. Each of the Funds is an exempted company established under the laws of the Cayman Islands or another jurisdiction outside of Canada.
11. The Funds will be managed by the Applicant pursuant to an investment management agreement entered into between the applicable Fund and the Applicant. Each of the Funds is not, and has no current intention of becoming, a reporting issuer under the Act or under the securities legislation of any other jurisdiction in Canada.
12. It is anticipated that the CPP Investment Board and/or a Subsidiary will invest in Shares of the Funds and will be, directly or indirectly, the sole participating shareholder in each of the Funds.
Advising by the Applicant
13. As a part of their investment program, the Funds may invest in Contracts.
14. The adviser registration requirement in the CFA prohibits a person or company from acting as an adviser unless the person or company is registered as an adviser under the CFA, or is registered as a representative or as a partner or an officer of a registered adviser and is acting on behalf of such registered adviser, and otherwise satisfies the applicable requirements specified in section 22 of the CFA. Under the CFA, "adviser" means a person or company engaging in or holding himself, herself or itself out as engaging in the business of advising others as to trading in Contracts.
15. Where the Shares are offered by the Funds to the CPP Investment Board and/or a Subsidiary, and the Applicant engages in the business of advising the Funds as to the investing in or the buying or selling of securities, Contracts and/or other instruments, the Applicant may, by so acting, be interpreted as having triggered the adviser registration requirement in the Act and the adviser registration requirement in the CFA.
16. The Applicant is not, and has no current intention of becoming, registered in any capacity under either the Act or the CFA.
17. Under an exemption from the adviser registration requirement in the Act set out in section 8.16 of NI 31-103 (the International Adviser Exemption) the Applicant would be able to act as an adviser in respect of securities for the CPP Investment Board and/or the Subsidiaries without having to obtain registration under the Act as an adviser, subject to satisfying certain additional requirements specified in NI 31-103.
18. The International Adviser Exemption provides that the adviser registration requirement in the Act does not apply to an international adviser that is acting as an adviser in respect of securities for a "permitted client" (as such term is defined in NI 31-103) if certain conditions are met.
19. In addition to this Application, the CPP Investment Board and certain international advisers (including the Applicant) have applied to the Commission for a ruling granting such international advisers relief from the adviser registration requirement in the Act consistent with the International Adviser Exemption when it acts as an adviser in respect of securities for the CPP Investment Board and/or the Subsidiaries in connection with certain assets of the CPP.
20. There is currently no rule or other regulation under the CFA that provides an exemption from the adviser registration requirement in the CFA for a person or company acting as an adviser, in respect of Contracts, that corresponds to the exemption from the adviser registration requirement in the Act for acting as an adviser (as defined in the Act), in respect of securities, that is similar to the International Adviser Exemption in NI 31-103.
21. In accordance with the International Adviser Exemption:
(a) the Applicant,
(i) has its head office or principal place of business in a foreign jurisdiction;
(ii) is registered, or is exempt from registration, under the legislation of the foreign jurisdiction in which its head office or principal place of business is located in a category of registration that permits it to carry on the activities in that jurisdiction that a registered adviser is permitted to carry on in the local jurisdiction;
(iii) engages in the business of an adviser in the foreign jurisdiction in which its head office or principal place of business is located;
(iv) to the extent that the investment strategies of the Funds include investing in Contracts, only acts as an adviser to the CPP Investment Board and/or the Subsidiaries with respect to Contracts that are Foreign Contracts; and
(v) during its most recent fiscal year, derived not more than ten percent of the aggregate consolidated gross revenue of the Applicant, its affiliates and its affiliated partnerships from the portfolio management activities of the Applicant, its affiliates and its affiliated partnerships in Canada; and
(b) the CPP Investment Board and the Subsidiaries are crown corporations or, directly or indirectly, wholly owned entities of the Government of Canada which meet the proposed definition of "permitted client" set out in Section 1.1(1) of NI 31-103.
22. The International Adviser Exemption is premised on the policy that where certain highly sophisticated Canadian investors are advised by foreign advisers (who are appropriately registered in their home jurisdiction), such Canadian investors may not require all the protections afforded by having the foreign adviser register in Canada.
23. The CPP Investment Board and the Subsidiaries are highly sophisticated investors who fit within the contemplated definition of "permitted client" in NI 31-103 and the Applicant is appropriately registered, or exempt from registration, in its home jurisdictions.
24. Pursuant to the CPP Investment Board Act, every investment manager who advises the CPP Investment Board and/or the Subsidiaries regarding assets of the CPP is required to do so in accordance with the CPPIB Act and the investment policies, standards and procedures established by the CPP Investment Board.
25. Shares will be distributed in Ontario to the CPP Investment Board or a Subsidiary (as the case may be) on a private placement basis. The distribution of Shares to the CPP Investment Board or a Subsidiary shall:
(a) be made through a registered dealer under the Act;
(b) be in accordance with the Act and the regulations and rules pursuant thereto, including the requirements under NI 45-106;
(c) meet all the filing requirements required when making a private placement; and
(d) meet the applicable participation fees requirements.
AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;
IT IS ORDERED pursuant to section 80 of the CFA, that the Applicant (including its directors, officers and employees acting as advisers on its behalf) shall not be subject to the adviser registration requirement in the CFA where the Applicant acts as an adviser in respect of Contracts for the CPP Investment Board and/or the Subsidiaries in connection with the Applicant acting as an adviser to the Funds, provided that, at the relevant time:
(a) the CPP Investment Board and the Subsidiaries are crown corporations or, directly or indirectly, wholly owned entities of the Government of Canada that meet the proposed definition of "permitted client" as set out in paragraph (g) of the definition of "permitted client" under section 1.1(1) of NI 31-103;
(b) the Applicant:
(i) has its head office or principal place of business in a foreign jurisdiction;
(ii) is registered, or is exempt from registration, under the legislation of the foreign jurisdiction in which its head office or principal place of business is located in a category of registration that permits it to carry on the activities in that jurisdiction that a registered adviser is permitted to carry on in the local jurisdiction;
(iii) engages in the business of an adviser in the foreign jurisdiction in which its head office or principal place of business is located;
(iv) to the extent that the investment strategies of the Funds include investing in Contracts, only acts as an adviser to the CPP Investment Board and/or the Subsidiaries with respect to Contracts that are Foreign Contracts;
(v) during its most recent fiscal year, derived less than ten percent of the aggregate consolidated gross revenue of the Applicant, its affiliates and its affiliated partnerships from the portfolio management activities of the Applicant, its affiliates and its affiliated partnerships in Canada;
(vi) before advising the CPP Investment Board and/or any of the Subsidiaries,
(A) will notify the CPP Investment Board or the Subsidiaries (as the case may be):
(I) that it is not registered in Canada;
(II) its jurisdiction of residence;
(III) the name and address of its agent for service of process in Ontario; and
(IV) that there may be difficulty enforcing legal rights against it because the Applicant is resident outside Canada and all or substantially all of its assets are situated outside Canada; and
(B) will deliver to the Commission a submission to jurisdiction and appoints an agent for service in a form acceptable to the Commission; and
(c) this Order, will terminate upon the earlier of:
(i) five years after the date hereof;
(ii) the Applicant being registered as an adviser under the CFA;
(iii) 90 days after the Commission publishes in its Bulletin a notice or a statement to the effect that it does not propose to make NI 31-103; or
(iv) 90 days after the coming into force of NI 31-103 if NI 31-103 does not contain a rule or provision substantially similar to the International Adviser Exemption.
May 29, 2009