Fiera Capital Inc. et al. - MRRS Decision
Headnote
Mutual Reliance Review System for Exemptive Relief Applications -- Relief granted from the mutual fund conflict of interest investment restrictions under securities legislation in connection with proposed investments by pooled funds in underlying pooled funds under common management -- Investments by pooled funds in underlying funds may cause pooled funds to become "substantial security holder" in underlying funds -- Pooled funds may invest in an underlying fund in which a substantial security holder of the pooled fund or its management company has a significant interest -- Relief granted subject to certain conditions.
Applicable Ontario Statutory Provisions
Securities Act (Ontario), R.S.O. 1990, c. S.5, as am., ss. 111(2)(b), 111(2)(c), 111(3), 113.
April 4, 2008
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO AND ALBERTA
(THE JURISDICTIONS)
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
FIERA CAPITAL INC.
(the Filer)
AND
IN THE MATTER OF
FIERA MARKET NEUTRAL EQUITY FUND AND
FIERA LONG/SHORT EQUITY FUND
MRRS DECISION DOCUMENT
Background
The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from the Filer on behalf of the Funds (as defined below) and other mutual funds as may be established and managed by the Filer from time to time (together with the Funds, the Fiera Funds) for a decision, under the securities legislation of the Jurisdictions (the Legislation), exempting the Fiera Funds from:
(a) the investment restriction contained in the Legislation, which prohibits a mutual fund knowingly making or holding an investment in a person or company in which the mutual fund, alone or together with one or more related mutual funds, is a substantial security holder; and
(b) the investment restriction contained in the Legislation, which prohibits a mutual fund or its management company or its distribution company to knowingly hold an investment described in (a) above.
(collectively, the Requested Relief).
Under the Mutual Reliance Review System for Exemptive Relief Applications (MRRS):
(a) the Ontario Securities Commission is the principal regulator for this application, and
(b) this MRRS decision document evidences the decision of each Decision Maker.
Interpretation
Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.
Fiera Funds means the Funds together with any other mutual fund established and managed by the Filer from time to time;
Funds means the Fiera Market Neutral Equity Fund and the Fiera Long/Short Equity Fund and Fund means each of the Fiera Market Neutral Equity Fund and the Fiera Long/Short Equity Fund;
Long/Short Fund means the Fiera Long/Short Equity Fund;
Market Neutral Fund means the Fiera Market Neutral Equity Fund;
Trust Agreement means the first amended and restated trust agreement dated October 31, 2007;
Underlying Funds means the Underlying Market Neutral Funds and the Underlying Long/Short Fund together with any other investment fund established and managed by the Filer from time to time;
Underlying Long/Short Fund means the Fiera Alpha Beta Fund; and
Underlying Market Neutral Funds means the Fiera North American Market Neutral Fund and the Fiera North American Market Neutral Fund II.
Representations
This decision is based on the following facts represented by the Filer:
Filer
1. The Filer is a corporation formed under the laws of Canada with its head office in Montreal, Quebec. The Filer also has an office located in Ontario.
2. The Filer is registered as an adviser in the categories of investment counsel and portfolio manager (or equivalent) in all provinces of Canada, is registered as a limited market dealer and commodity trading manager in Ontario and is registered as a limited market dealer in Newfoundland and Labrador.
Fiera Funds
3. Each Fund is an open-ended trust established on January 31, 2008 under the laws of the Province of Ontario by the Trust Agreement.
4. RBC Dexia Investor Services Trust acts as a trustee of the Funds, and the Filer acts as the manager of the Funds pursuant to the Trust Agreement.
5. The Market Neutral Fund has an investment objective that requires it to invest in securities in the Underlying Market Neutral Funds in such combinations as the Filer will determine in its absolute discretion from time to time. The Underlying Market Neutral Funds are also managed by the Filer.
6. The Long/Short Fund has an investment objective that requires it to invest in securities in the Underlying Long/Short Fund. The Long/Short Fund is also managed by the Filer.
7. The amounts invested from time to time in an Underlying Fund by one or more of the Fiera Funds may exceed 20% of the outstanding voting securities of the Underlying Fund. As a result, the Fiera Funds may become "substantial security holders" (as those words are defined in the Legislation) of the Underlying Funds.
8. The Fiera Funds are or will be sold in Canada to investors pursuant to exemptions from the prospectus requirements in accordance with National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106). The Fiera Funds are not and will not be reporting issuers in the Jurisdictions and are not in default under the Legislation.
9. Security holders of the Fiera Funds will benefit from investments in the Underlying Funds because in the initial stages of the Fiera Funds, they will achieve greater portfolio diversification at a lower cost than investing in the securities held by the Underlying Funds.
Underlying Funds
10. The Underlying Funds are not and will not be reporting issuers in the Jurisdictions.
Fund-on-Fund Structure
11. In connection with the purchase by the Fiera Funds of securities of the Underlying Funds (the Fund-on-Fund Structure), the Filer shall ensure that:
(a) no management or incentive fees are payable by the Fiera Funds that, to a reasonable person, would duplicate a fee payable by the Underlying Funds for the same service;
(b) no sales or redemption fees are payable by the Fiera Funds in relation to its purchases or redemption of securities of the Underlying Funds that, to a reasonable person, would duplicate a fee payable by an investor in the Fiera Funds;
(c) the offering memorandum of each Fiera Fund will disclose:
(i) that the Fiera Fund may purchase securities of the Underlying Funds;
(ii) the fact that both the Fiera Fund and the Underlying Funds are managed by the Filer; and
(iii) the approximate or maximum percentage of the net assets of the Fiera Fund that is dedicated to the investment securities of the Underlying Funds;
(d) upon request and if available, an investor in the Fiera Funds will receive a copy of the offering memorandum of the Underlying Funds prior to subscribing for units of the Fiera Funds, and the availability of that offering memorandum and the method by which it may be requested will be disclosed in the offering memorandum of the Fiera Funds;
(e) upon request, an investor in the Fiera Funds will be provided with the annual and interim financial statements of the Underlying Funds, and the method by which these financial statements may be requested will be disclosed in the offering memorandum of the Fiera Funds; and
(f) any investment by the Fiera Funds in securities of the Underlying Funds is compatible with the Fiera Funds' investment objectives.
12. In the absence of the Requested Relief, the Fiera Funds would be precluded from using the Fund-on-Fund Structure if their investment in an Underlying Fund was greater than 20% of the Underlying Fund, due to the investment restrictions contained in the Legislation.
13. The Fund-on-Fund Structure represents the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Fiera Funds.
Decision
Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.
The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that:
(a) the securities of the Fiera Funds are distributed in Canada only pursuant to exemptions from the prospectus requirements in accordance with NI 45-106;
(b) the Filer does not vote the securities of the Underlying Funds that are held by a Fiera Fund;
(c) no management or incentive fees are payable by the Fiera Funds that, to a reasonable person, would duplicate a fee payable by the Underlying Funds for the same service;
(d) no sales or redemption fees are payable by the Fiera Funds in relation to its purchase or redemptions of securities of the Underlying Funds that, to a reasonable person, would duplicate a fee payable by an investor in the Fiera Funds; and
(e) the offering memorandum of each Fiera Fund will disclose:
(i) that the Fiera Fund may purchase securities of the Underlying Funds;
(ii) the fact that both the Fiera Fund and the Underlying Funds are managed by the Filer; and
(iii) the approximate or maximum percentage of the net assets of the Fiera Fund that is dedicated to the investment in securities of the Underlying Funds.