Hamilton Lane Advisors LLC
Headnote
Application for relief from the investment fund manager registration requirement and the dealer registration requirement in order to allow "senior-level" employees of a the opportunity to voluntarily participate in investment opportunities alongside other partners and employees of Hamilton Lane Advisors LLC globally -- the investment funds advised by the filer are or will be established outside of Canada -- the filer's head office or principal place of business is in the United States and the filer is appropriately registered in the United States -- the filer distributes to no more than 20 "Ontario Eligible Participants" -- the filer shall not receive any trade-based compensation -- the participation in an investment opportunity by an "Ontario Eligible Participants" is voluntary -- the filer is subject to the standard conditions applicable to a non-registered exempt international firm and non-resident investment fund managers.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1), 25(4) and 74.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 8.16 and 8.18.
Multilateral Instrument 32-102 Registration Exemptions for Non-Resident Investment Fund Managers, ss. 1, 3 and 4.
National Instrument 45-106 Prospectus Exemptions, ss. 1.1 and 2.3.
December 19, 2024
IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, c. S.5, AS AMENDED AND IN THE MATTER OF HAMILTON LANE ADVISORS LLC
DECISION
Background
The Ontario Securities Commission (the Commission) has received an application (the Application) from Hamilton Lane Advisors LLC (the Filer) for a ruling pursuant to section 74(1) of the Securities Act (Ontario) (the Act) (the Ruling) that the Filer be exempted from:
(a) the investment fund manager registration requirement in subsection 25(4) of the Act (the Investment Fund Manager Relief); and
(b) the dealer registration requirement in subsection 25(1) of the Act (the Dealer Relief);
in connection with the provision by the Filer to Eligible Participants (as defined below) resident in Ontario of the opportunity to invest in securities of HL Funds (as defined below) for which the Filer serves as the investment manager.
Interpretation
Terms defined in National Instrument 14-101 Definitions and National Instrument 45-106 Prospectus Exemptions (NI 45-106) have the same meaning if used in this decision, unless otherwise defined.
The following terms have the following meanings:
Eligible Participant means any senior level employee, executive officer, director or consultant of the Covered Affiliates that is an eligible participant for purposes of a Voluntary Program and, if applicable, their permitted assigns as defined under section 2.22 of 45-106.
HL Fund means any one or more proprietary private investment funds, including special purpose employee and other feeder vehicles, formed principally under the laws of jurisdictions outside of Canada and managed by the Filer;
HL Fund Securities means securities of HL Funds issued as part of the Voluntary Program;
HL Parties means the Filer and a group of affiliated entities that together comprise a global private markets investment manager;
MI 32-102 means Multilateral Instrument 32-102 Registration Exemptions for Non-Resident Investment Fund Managers;
NI 31-103 means National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations;
NI 45-106 means National Instrument 45-106 Prospectus Exemptions;
Notice of Regulatory Action means Form 32-102F2 Notice of regulatory Action which is required to be filed under section 4(4) of MI 32-102;
Permitted Client has the same meaning ascribed to that term in section 1.1 of NI 31-103, as modified by section 1 [definitions] of MI 32-102;
Permitted Client IFM Exemption means the exemption from the investment fund manager registration requirement set out in section 4 [permitted clients] of MI 32-102;
US or USA means the United States of America; and
Voluntary Program means one or more voluntary employee incentive programs or initiatives sponsored by the Filer or its affiliates providing for the acquisition of HL Fund Securities by Eligible Participants.
Representations
This Ruling is based on the following facts represented by the Filer:
1. The Ruling is sought in connection with the distribution by the Filer of HL Fund Securities pursuant to the Voluntary Program to a senior level employee, executive officer, director or, as the case may be, consultant of the Filer or its affiliates who (a) is an Eligible Participant, (b) in the case of a senior level employee or executive officer, has the title of Managing Director, Principal and Vice President or is a Senior Associate or Associate that is directly involved in the investment function, or a title of equivalent seniority, (c) has otherwise established to the satisfaction of the Filer that they have sufficient knowledge, sophistication and assets to make a Voluntary Contribution (as defined below), (d) is resident in Ontario, (e) qualifies as an "accredited investor" as defined under section 1.1 [definitions] of NI 45-106, and (d) does not qualify as a "permitted client" as defined in section 1.1 of NI 31-103, as modified by section 1 of MI 32-102.
Hamilton Lane Advisors LLC (the Filer)
2. The Filer is a limited liability company formed pursuant to the laws of Pennsylvania, USA, with a head office located at 110 Washington Street, Suite 1300, Conshohocken, Pennsylvania 19428, USA.
3. The Filer is an affiliate of Hamilton Lane (Nasdaq: HLNE) (Hamilton Lane), a private markets investment firm, globally providing solutions to institutional and private wealth investors around the world.
4. The Filer is (a) registered with the US Securities and Exchange Commission (the SEC) as an investment adviser under the US Investment Advisers Act of 1940, as amended; and (b) is generally exempt from registration with the US Commodity Trading Futures Commission (the CFTC) as a commodity pool operator and as a commodity trading advisor.
5. The Filer also serves as the portfolio manager and manager of the HL Funds.
6. The Filer is not registered under the securities legislation of any jurisdiction of Canada.
7. The Filer has determined that it can rely on the Permitted Client IFM Exemption in Ontario and Québec and on the international adviser exemption set out in section 8.26 of NI 31-103 in Ontario, Manitoba and Saskatchewan to offer the Voluntary Program to Ontario Eligible Participants.
8. The Filer is not in default of securities legislation, commodity futures legislation or derivatives legislation in Ontario or any other jurisdiction of Canada, other than in respect of the subject matter to which this Decision relates.
9. The Filer is in compliance in all material respects with the securities laws, commodity futures laws and derivatives laws of the United States.
Hamilton Lane (Canada) LLC (HL Canada)
10. HL Canada is a limited liability company formed pursuant to the laws of Delaware, USA, with a head office located at 110 Washington Street, Suite 1300, Conshohocken, Pennsylvania 19428, USA.
11. HL Canada is registered as an investment fund manager, portfolio manager and exempt market dealer in Ontario and Newfoundland and Labrador, as an investment fund manager and exempt market dealer in Québec, and as an exempt market dealer in the other seven Canadian provinces, the Northwest Territories and Yukon.
Hamilton Lane Securities, LLC (HL Securities)
12. HL Securities is a limited liability company formed pursuant to the laws of Delaware, USA, with a head office located at 110 Washington Street, Suite 1300, Conshohocken, Pennsylvania 19428, USA.
13. HL Securities is not registered under the securities legislation of any jurisdiction of Canada.
14. HL Securities relies on the international dealer exemption set out in section 8.18 of NI 31-103 in all ten provinces, the Northwest Territories and Yukon.
The Voluntary Program
15. Hamilton Lane (Canada) LLC and other HL Parties that may employ Eligible Participants from time to time (Covered Affiliates) are related entities of the Filer.
16. The HL Parties provide certain Eligible Participants the opportunity to make voluntary contributions (Voluntary Contributions) to acquire HL Fund Securities pursuant to one or more Voluntary Programs.
17. In Ontario, the Voluntary Program is made available to an Eligible Participant of the Covered Affiliates who:
(i) meets the eligibility criteria under the Voluntary Program and such other criteria as the HL Parties may determine from time to time;
(ii) in the case of a senior level employee or executive officer, has the title of Managing Director, Principal and Vice or is a Senior Associate or Associate that is directly involved in the investment function, or a title of equivalent seniority;
(iii) has otherwise established to the satisfaction of the Filer that they have sufficient sophistication and assets to make a Voluntary Contribution; and
(iv) qualifies as an "accredited investor" as such term is defined under section 1.1 [definitions] of NI 45-106 (each an Ontario Eligible Participant).
18. The Filer relies on the "accredited investor" prospectus exemption under section 2.3 of NI 45-106 (the Accredited Investor Exemption) in connection with a distribution to an Ontario Eligible Participant.
19. HL Fund Securities are generally available only by making a Voluntary Contribution whereby the Eligible Participant will become a securityholder of the relevant HL Fund in accordance with, and subject to, the terms of the Voluntary Program.
20. The determination as to which HL Fund an Eligible Participant will be offered the opportunity to make a Voluntary Contribution is driven by a combination of tax, securities, administrative and internal business considerations.
21. Voluntary Contributions will only be accepted at the discretion of the Filer and may not be available to all Eligible Participants. The minimum and/or maximum Voluntary Contribution that may be made by an Eligible Participant shall be determined in the sole discretion of the HL Parties and may vary among Eligible Participants.
22. In Ontario, the Voluntary Program will be offered solely to an Ontario Eligible Participant who has established to the satisfaction of the Filer that they have sufficient knowledge, sophistication and assets to make a Voluntary Contribution. Ontario Eligible Participants will not receive any advice from the Filer as to whether an investment in the HL Fund Securities is suitable and there may be no restriction on the amount of the subscription an Ontario Eligible Participant may decide to make.
23. The offering of HL Fund Securities is made to Eligible Participants globally, subject to the rules and regulations of the corresponding jurisdictions.
24. Participation in the Voluntary Program by Eligible Participants is voluntary and an Ontario Eligible Participant is not induced to participate in the Voluntary Program by expectation of employment, appointment or engagement or continued employment, appointment or engagement.
25. No trade-based fees or commission are charged to an Ontario Eligible Participant by any HL Party in connection with the Ontario Eligible Participant's acquisition of HL Fund Securities.
26. The Filer does not receive any direct incentive compensation for the issuance of HL Fund Securities to Eligible Participants. However, as an investor in the HL Funds, each Eligible Participant pays its pro rata share of expense reimbursements.
27. Before an Ontario Eligible Participant acquires HL Fund Securities, the Ontario Eligible Participant will be provided with a disclosure package (HL Fund Documentation) comprising (a) a Confidential Private Placement Memorandum, (b) the organizational documentation of the relevant HL Fund, and (c) a Subscription Agreement or a similar agreement, as applicable.
28. In addition, Eligible Participants may be able to attend information sessions that are generally held in respect of the Voluntary Program at which the terms of the Voluntary Program and certain aspects of the HL Funds are discussed.
Reasons for the Ruling
29. For purposes of section 2.24(1) [employee, executive officer, director and consultant] of NI 45-106, participation in the Voluntary Program by Eligible Participants is voluntary and Ontario Eligible Participants are not induced to make a Voluntary Contribution by expectation of employment, appointment or engagement or continued employment, appointment or engagement. Consequently, the issuance of HL Fund Securities by the relevant HL Funds pursuant to a Voluntary Contribution to Ontario Eligible Participants is exempt from the prospectus requirement.
30. Each HL Fund is managed by the Filer. The Filer is applying for the Ruling because (a) the Filer currently relies on the exemption from the investment fund manager registration requirement under the Permitted Client IFM Exemption, and (b) each Ontario Eligible Participant may not qualify as a Permitted Client, which is a condition of the Permitted Client IFM Exemption.
Why is the relief needed?
31. The Filer has also applied for Dealer Relief in connection with these distributions. There is no exemption from the dealer registration requirement available to the Filer. The "plan administration exemption" set out in section 8.16 of NI 31-103 is not available because, among other things, the securities being issued pursuant to the Voluntary Program are not being issued pursuant to a "plan of the issuer". Furthermore, because the Ontario Eligible Investors do not all qualify as "permitted clients" and the Filer is not registered as a dealer and does not engage in the business of a dealer in its home jurisdiction, the "international dealer" exemption set out in section 8.18 of NI 31-103 is also not available.
32. The Filer submits that there would be minimal regulatory benefit to requiring the Filer to register as an investment fund manager and/or a dealer, as applicable, for the limited purpose of the distribution described above.
Decision
In the opinion of the Commission, it is not prejudicial to the public interest to make this Order.
It is ordered by the Commission pursuant to section 74 of the Act that the Investment Fund Manager Relief is granted to the Filer, provided that:
1. All securities of the HL Funds distributed in Ontario are distributed under the employee exemption under section 2.24 of NI 45-106 to Ontario Eligible Participants who also qualify as "accredited investors" as such term is defined under section 1.1 of NI 45-106.
2. Securities of the HL Funds shall be distributed to no more than 20 Ontario Eligible Participants.
3. The Filer is registered as an "investment adviser" with the SEC and is generally exempt from registration as a commodity pool operator and as a commodity trading advisor with the CFTC.
4. The Filer does not have its head office or principal place of business in any jurisdiction of Canada.
5. The Filer is incorporated, formed or created under the laws of a foreign jurisdiction.
6. None of the HL Funds is a reporting issuer in any jurisdiction of Canada.
7. The Filer has submitted to the Commission a completed Form 32-102F1 Submission to Jurisdiction and Appointment of Agent for Service for International Investment Fund Manager and a completed Form 32-102F2 Notice of Regulatory Action.
8. Prior to an Ontario Eligible Participant acquiring any HL Fund Securities, the Filer has notified each Ontario Eligible Participant in writing of all of the following
The Filer is not registered in Ontario to act as an investment fund manager;
The foreign jurisdiction in which the head office or principal place of business of the Filer is located;
all or substantially all of the assets of the Filer may be situated outside of Canada;
there may be difficulty enforcing legal rights against the Filer because of the above; and
the name and address of the agent for service of process of the Filer in Ontario.
9. If the Filer has relied on the Investment Fund Manager Relief under this Order to act as an investment fund manager for HL Funds during the 12 month period preceding December 1 of a year, it must notify the Commission, by December 1 of that year, of the following: (a) the fact that it relied upon the Investment Fund Manager Relief; and (b) the total assets under management expressed in Canadian dollars, attributable to securities beneficially owned by residents of Ontario as at the most recently completed month.
10. The Filer has filed with the Commission a completed Notice of Regulatory Action in respect of the last 7 years.
11. The Filer notifies the Commission of any change to the information previously submitted in the Notice of Regulatory Action within 10 days of the change.
12. The Filer complies with the filing and fee payment requirements applicable to an unregistered investment fund manager under OSC Rule 13-502 Fees.
It is also ruled by the Commission that the Dealer Relief is granted to the Filer, provided that:
1. The Filer does not receive any trade-based compensation for a distribution of HL Fund Securities made to an Ontario Eligible Participant.
2. Participation in the Voluntary Program by an Ontario Eligible Participant is voluntary, and the Ontario Eligible Participant will not be induced to participate in the Voluntary Program by expectation of employment, appointment or engagement or continued employment, appointment or engagement.
OSC File #: 2024/0320