Franklin Templeton Investments Corp.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief granted to permit a non-redeemable investment fund that is not a reporting issuer to transfer certain portfolio assets in specie to a related Luxembourg bottom fund in exchange for units of the Luxembourg bottom fund -- relief subject to terms and conditions.
Applicable Legislative Provisions
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 13.5(2)(b)(ii), 13.5(2)(b)(iii) and 15.1.
December 14, 2020
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF FRANKLIN TEMPLETON INVESTMENTS CORP. (the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) pursuant to section 15.1 of National Instrument 31-103 -- Registration Requirements, Exemptions and Ongoing Registration Obligations (NI 31-103) exempting the Filer from the prohibitions in sections 13.5(2)(b)(ii) and (iii) of NI 31-103 which prohibit a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as an adviser, to purchase or sell a security from or to the investment portfolio of an associate of a responsible person, or from or to the investment portfolio of an investment fund for which a responsible person acts as an adviser (the Exemption Sought), in order to permit the Filer, on behalf of Franklin Global Real Assets Fund (FGRAF) to transfer certain portfolio securities that are currently held as direct holdings of FGRAF to Franklin Global Real Assets AIV SIF (the SICAV), (the In Specie Transaction).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:
(a) the Ontario Securities Commission is the principal regulator for this application, and
(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 each of the other provinces and territories of Canada (together with Ontario, the Canadian Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 -- Definitions and MI 11-102 have the same meanings if used in this decision, unless otherwise defined.
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 the Province of Ontario with its head office located in Toronto, Ontario.
2. The Filer is registered under securities legislation in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland & Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, Saskatchewan and Yukon as an adviser in the category of portfolio manager and as a dealer in the categories of mutual fund dealer and exempt market dealer. The Filer is also registered under securities legislation in Alberta, British Columbia, Manitoba, Newfoundland & Labrador, Nova Scotia, Ontario and Quebec as an investment fund manager and is registered in Ontario as a commodity trading manager.
3. The Filer is not a reporting issuer in any of the Canadian Jurisdictions and is not in default of securities legislation in any of the Canadian Jurisdictions.
The Funds
4. The Filer is the investment fund manager and portfolio manager of FGRAF and Franklin Templeton Institutional, LLC (FTILLC) is the sub-advisor to the Filer in respect of FGRAF.
5. The SICAV in which FGRAF invests is managed by Franklin Templeton International Services S.a r.l. (FTIS) and advised by FTILLC.
6. Both FTIS and FTILLC are foreign affiliates of the Filer.
7. FGRAF is a non-redeemable investment fund established under the laws of Ontario pursuant to a declaration of trust dated March 31, 2017. FGRAF has issued and will issue units exclusively to investors pursuant to the "accredited investor exemption" or another exemption from the prospectus requirements under applicable Canadian securities laws.
8. Franklin Templeton Specialised Investment Funds (FTSIF) is incorporated in Luxembourg under the laws of the Grand Duchy of Luxembourg as a société anonyme and qualifies as a société d'investissement à capital variable -- fonds d'investissement spécialisé. FTSIF was established on June 16, 2016 by notarial deed and it is registered on the official list of specialised investment funds supervised by the Commission de Surveillance du Secteur Financier (CSSF) since July 13, 2020, pursuant to the Luxembourg law of February 13, 2007. Shares of FTSIF are issued in different segregated sub-funds. The SICAV is a sub-fund of FTSIF incorporated by CSSF approval on October 11, 2018. Shares of the SICAV are currently exclusively offered to FGRAF.
9. The investment objectives and strategies of FGRAF and the SICAV are, and will be, substantially similar. As such, the investments held by FGRAF are compatible with the investment objectives and strategies of the SICAV, and the investments held by the SICAV will be compatible with the investment objectives and strategies of FGRAF.
10. FGRAF and the SICAV are not reporting issuers in any of the Canadian Jurisdictions nor are they in default of securities legislation in any of the Canadian Jurisdictions.
In Specie Transaction
11. FGRAF invests certain of its holdings indirectly through the SICAV. The Filer has determined that it is in the best interests of FGRAF to transfer certain portfolio securities that are currently held as direct holdings of FGRAF to the SICAV.
12. The Filer wishes to engage in the In Specie Transaction, pursuant to which FGRAF will purchase securities of the SICAV and, as payment for the securities, make good delivery of portfolio securities that meet the investment criteria of the SICAV.
13. The Filer considers an investment by FGRAF in the SICAV to be a more cost effective and efficient way for FGRAF to achieve exposure to the portfolio securities than a direct investment in those securities.
14. The In Specie Transaction is expected to increase the asset base of the SICAV, which is expected to result in additional benefits to FGRAF (as well as the SICAV and other funds investing in the SICAV) including, more favourable pricing and transaction costs on portfolio trades, increased access to investments when there is a minimum subscription or purchase amount and better economies of scale through greater administrative efficiency, all which will allow FGRAF to achieve its investment objectives in a more cost efficient manner.
15. In the circumstances, instead of FGRAF disposing of portfolio securities and the SICAV respectively purchasing the same securities and incurring unnecessary brokerage costs, the portfolio securities will, pursuant to the In Specie Transaction, be acquired by the SICAV.
16. The value of the portfolio securities will be equal to the issue price of the securities of the SICAV for which they are payment, valued as if the securities were portfolio assets of the SICAV.
17. The In Specie Transaction represents the business judgement of the Filer uninfluenced by considerations other than the best interests of FGRAF.
18. It is anticipated that the In Specie Transaction will commence in December 2020, take place in several tranches and will be completed by approximately June 30, 2021.
Reasons for Exemption Sought
19. Due to the fact that FTILLC is an affiliate of the Filer and is the portfolio manager of the SICAV, FTILLC is considered a "responsible person" within the meaning of the applicable provisions of NI 31-103 as it has access to or participates in the formulation of, investment decisions made on behalf of FGRAF. Accordingly, without the Exemption Sought, the Filer would be prohibited from engaging FGRAF in the In Specie Transaction.
20. The Filer has determined that it is in the best interests of FGRAF to be able to effect the In Specie Transaction.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that:
The Exemption Sought is granted provided that:
(a) the SICAV will, at the time of payment, be permitted to purchase the portfolio securities delivered in specie by the Filer, on behalf of FGRAF;
(b) the portfolio securities are acceptable to FTILLC, as portfolio adviser of the SICAV, and are consistent with the investment objectives of the SICAV;
(c) the portfolio securities transferred by FGRAF as purchase consideration will be valued (i) on the same valuation day on which the purchase price of the SICAV securities is determined; and (ii) at a value equal to the amount at which those portfolio securities were valued in calculating the NAV used to establish the purchase price of the SICAV's securities, as if the portfolio securities were assets of the SICAV and as if the SICAV was subject to subsection 9.4(2)(b)(iii) of NI 81-102;
(d) each of FGRAF and the SICAV will keep written records of the In Specie Transaction, reflecting details of the portfolio securities delivered to the SICAV, and the value assigned to such portfolio securities, for a period of five years after the end of the fiscal year, and the most recent two years in a reasonably accessible place;
(e) the Filer does not receive any compensation in respect of any sale or redemption of securities of FGRAF and, in respect of any delivery of portfolio securities further to the In Specie Transaction, the only charge paid by FGRAF or the SICAV is the transfer charge; and
(f) should the In Specie Transaction involve the transfer of an "illiquid asset" (as defined in NI 81-102), the Filer will obtain at least one quote for the asset from an independent arm's length purchaser or seller, immediately before effecting the In Specie Transaction.