Mackenzie Financial Corporation and The Top Funds

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from investment fund conflict of interest investment restrictions in the Legislation to permit investment funds that are not reporting issuers to invest in underlying investment funds/collective investment vehicles that are not reporting issuers in which (i) the investment fund, together with other related investment funds, may become a substantial security holder, and (ii) a substantial security holder of the manager of the investment fund may have a significant interest -- Relief subject to conditions.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 111(2)(b), 111(2)(c)(ii), 111(4) and 113.

January 20, 2025

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 MACKENZIE FINANCIAL CORPORATION (the Filer) AND THE TOP FUNDS (as defined below)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Top Funds for a decision under the securities legislation of the Jurisdiction (the Legislation):

1. exempting the Top Funds, with respect to investments in the Underlying Funds (as defined below), from the restrictions in the Legislation which prohibit:

(a) an investment fund from knowingly making an investment in a person or company in which the investment fund, alone or together with one or more related investment funds, is a substantial security holder;

(b) an investment fund from knowingly making an investment in an issuer in which any person or company who is a substantial security holder of the investment fund, its management company or its distribution company, has a significant interest; and

(c) an investment fund, its management company or its distribution company from knowingly holding an investment described in paragraph (a) or (b) above (collectively, the Requested Relief).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(d) the Ontario Securities Commission is the principal regulator for this application; and

(e) the Filer has provided notice that subsection 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 the Jurisdiction, the Jurisdictions).

Interpretation

Terms defined in MI 11-102, National Instrument 14-101 Definitions and National Instrument 31-103 Registration Requirements,Exemptions and Ongoing Registrant Obligations (NI 31-103) have the same meaning if used in this decision, unless otherwise defined.

For the purposes of this decision, the following terms have the following meaning:

Initial Top Fund means Mackenzie Northleaf Global Private Equity Fund, an existing investment fund managed by the Filer that is not a reporting issuer.

Initial Underlying Funds means Northleaf Global Private Equity Fund, Northleaf Secondary Partners III, NGF Venture Holdings LP and Northleaf MN PE Custom LP.

Future Top Funds means any future mutual funds managed by the Filer that are not, or will not be, reporting issuers.

Future Underlying Funds means any future investment funds or other collective investment vehicles the Top Funds will invest in that are managed by the Filer, an affiliate of the Filer, or Northleaf and are not, or will not be, reporting issuers.

Northleaf means Northleaf Capital Group Ltd., together with its subsidiaries including Northleaf Capital Partners (Canada) Ltd.

Top Funds means, collectively, the Initial Top Fund and the Future Top Funds.

Underlying Funds means, collectively, the Initial Underlying Funds and the Future Underlying Funds.

Representations

This decision is based on the following facts represented by the Filer:

The Filer

1. The Filer is a corporation formed under the laws of Ontario with its head office located in Toronto, Ontario.

2. The Filer is registered as an investment fund manager, portfolio manager, exempt market dealer and commodity trading manager in Ontario, as an investment fund manager, portfolio manager and exempt market dealer in Québec and Newfoundland and Labrador, and as a portfolio manager and exempt market dealer in Alberta, British Columbia, Manitoba, New Brunswick, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Saskatchewan and Yukon.

3. The Filer is the investment fund manager (IFM) and portfolio manager (PM) of the Initial Top Fund and the Filer will be the IFM and/or PM of the Future Top Funds.

4. The Filer is an indirect, wholly owned subsidiary of IGM Financial Inc. (IGM). Approximately 66% of the voting securities of IGM is owned by Power Corporation of Canada (Power). As such, Power is a substantial security holder of the Filer within the meaning of the Legislation.

5. The Filer is not a reporting issuer in any of the Jurisdictions and is not in default of securities legislation in any of the Jurisdictions with respect to the subject matter of this application.

Lifeco

6. Great-West Lifeco Inc. (Lifeco) is an indirect subsidiary of Power, which owns approximately 71% of Lifeco. Power's direct or indirect ownership interest of its subsidiaries is referred to as the Power Ownership Percentage of the applicable subsidiary. As such, Power is deemed to own beneficially an amount equal to the Power Ownership Percentage of any voting securities owned by Lifeco pursuant to the Legislation.

Northleaf

7. Northleaf is a global private markets investment firm with more than US$25 billion in private credit, private equity and infrastructure commitments under management on behalf of more than 250+ institutional investors. Northleaf is led by an experienced group of professionals, who collectively have significant experience in structuring, investing and managing global private markets investments and in evaluating, negotiating, structuring and executing complex financial transactions.

8. On October 28, 2020, affiliates of Power, namely the Filer and Lifeco, entered into a strategic relationship with Northleaf whereby the Filer and Lifeco jointly acquired a 49.9% non-controlling voting interest and 70% economic interest in Northleaf.

9. Northleaf is the general partner or equivalent of each of the Initial Underlying Funds, and the Filer, an affiliate of the Filer, or Northleaf will be the general partner or equivalent of the Future Underlying Funds.

10. Northleaf Capital Partners (Canada) Ltd. is the manager of each of the Initial Underlying Funds and is registered as an investment fund manager, portfolio manager and exempt market dealer in Ontario and Manitoba, as an investment fund manager and exempt market dealer in Québec, and as an exempt market dealer in Alberta, British Columbia, Manitoba, Newfoundland and Labrador and Saskatchewan.

The Top Funds

11. The Initial Top Fund is formed as a trust under the laws of Ontario. Each Future Top Fund will be formed as a limited partnership, trust or corporation governed by the laws of a Jurisdiction or a foreign jurisdiction.

12. Each Top Fund is not, or will not be, a reporting issuer under the securities legislation of one or more Jurisdictions.

13. The securities of each Top Fund are, or will be, distributed solely to investors pursuant to exemptions from the prospectus requirements in accordance with National Instrument 45-106 Prospectus Exemptions (NI 45-106) and the Legislation. Each Top Fund has, or will have, an offering memorandum that is provided or made available to investors.

14. The investment objective of the Initial Top Fund is to seek to achieve long-term capital appreciation mainly through exposure to private equity and public securities globally. To achieve this investment objective, the Initial Top Fund will allocate the assets comprising its portfolio across various strategies, including, without limitation: (i) private equity strategies implemented primarily through exposure to a diversified global portfolio of private equity assets and investments (the Private Portfolio); and (ii) public markets strategies implemented primarily through exposure to a portfolio of public equity securities, fixed income securities and money market instruments. The Initial Top Fund has allocated a portion of the Private Portfolio to the Initial Underlying Funds.

15. To the extent that a Top Fund wishes to invest in an Underlying Fund, the investment objectives and strategies of such Top Fund will permit it to do so.

16. Each Top Fund is, or will be, an investment fund for the purposes of the Legislation.

17. The Initial Top Fund is not in default of securities legislation in any of the Jurisdictions.

18. The Initial Top Fund is currently a "non-redeemable investment fund" as defined in the Legislation based on its redemption features and therefore is not currently subject to the restrictions in the Legislation from which the Requested Relief is sought. The Filer intends to modify certain redemption features of the Initial Top Fund such that it will become a "mutual fund" as defined in the Legislation and, as a result, will become subject to those restrictions in the Legislation.

The Underlying Funds

19. The Initial Underlying Funds are investment funds established as limited partnerships under the laws of Ontario. Future Underlying Funds may be investment funds or other collective investment vehicles structured as limited partnerships, trusts or corporations governed by the laws of a Jurisdiction or a foreign jurisdiction.

20. The Underlying Funds are not, or will not be, reporting issuers in any of the Jurisdictions. Securities of the Underlying Funds are, or will be, distributed to investors in Canada pursuant to exemptions from the prospectus requirements in accordance with NI 45-106 and the Legislation.

21. The Initial Underlying Funds have an offering memorandum and/or limited partnership agreement or other governing document that is provided to investors. Any Future Underlying Funds will have an offering memorandum and/or limited partnership agreement or other governing document that will be provided to investors.

22. The Initial Underlying Funds invest, or will invest, in other private equity funds sponsored by, and/or direct investments in partnership with, fund managers with whom Northleaf has an investment relationship.

23. The investment objective and investment strategies of the Initial Underlying Funds are as follows:

(a) Northleaf Global Private Equity Fund: The objective of Northleaf Global Private Equity Fund (NGPE) is to provide investors with superior long-term returns through access to the value creation and capital growth potential of the private mid-market while offering the possibility of reduced risk through portfolio diversification. The investment strategy will be executed through a full range of secondary, direct, and primary investment transactions and delivered in an accessible and open-end fund structure.

(b) Northleaf Secondary Partners III: The objective of Northleaf Secondary Partners III (NSP III) is to provide investors with focused exposure to private equity secondary transactions. The fund will seek to acquire secondary investments in single interests in private equity funds, portfolios of interests in several private equity funds, continuation vehicles or tender offers, fund or asset financings and single asset secondaries in private equity-backed companies.

(c) NGF Venture Holdings LP: The objective of NGF Venture Holdings LP (NGF Venture) is to seek to earn superior long-term risk-adjusted returns through investments in a portfolio of diversified private equity transactions.

(d) Northleaf MN PE Custom LP: The objective of Northleaf MN PE Custom LP (NL MN PE Custom) is to seek to earn superior long-term risk-adjusted returns through investments in a portfolio of secondary market transactions and direct investments in companies.

24. Each Underlying Fund provides, or will provide, exposure to private markets asset classes, such as private equity in respect of the Initial Underlying Funds.

25. Some Future Underlying Funds may not be considered to be investment funds under the Legislation but, in certain respects, will operate in a manner similar to an investment fund. The Underlying Funds are, or will be, managed by the Filer, an affiliate of the Filer, or Northleaf, as general partner and/or manager.

26. The Initial Underlying Funds are valued on a quarterly basis and, other than NGPE, are not redeemable. However, there may be a secondary market available for the securities of the Initial Underlying Funds that provides liquidity to investors. In addition, the securities of NGPE are redeemable upon prior written notice subject to a lock-up period and specified fund and investor-level limitations on redemptions.

27. The net asset value (NAV) per security of the Initial Underlying Funds is, or will be, calculated by an arm's length fund administrator and is, or will be, primarily based on the value of the underlying funds/vehicles held by the Initial Underlying Funds. At least 85% of the Initial Underlying Funds' aggregate asset value is, or will be, invested in: (a) third party underlying funds/vehicles that are valued independently of the Filer and Northleaf; and/or (b) direct investments valued by a firm that is independent of the Filer and Northleaf. The financial statements (including NAV related information and calculation) for such underlying funds/vehicles are also audited at least annually by an audit firm independent of the underlying funds/vehicles.

28. No more than 15% of the Initial Underlying Funds' aggregate asset value is, or will be, invested in direct investments valued by Northleaf in accordance with its private equity valuation policy. Northleaf's private equity valuation policy is consistent with the International Private Equity and Venture Capital Valuation Guidelines and accords with Canadian Accounting Standards for Private Enterprises (Canadian GAAP).

29. To determine the value of any direct investments held by an Underlying Fund that seeks to provide exposure to private equity, Northleaf determines the value of the asset using its reasonable judgment, based on financial statements and other relevant information in respect of the investment. Specifically, an initial fair valuation recommendation is prepared by a designated Northleaf team member. The recommended fair valuation is then reviewed by additional designated Northleaf team members and subsequently approved by the Underlying Fund's valuation committee.

30. The Underlying Funds produce, or will produce, audited financial statements on an annual basis, in accordance with generally accepted accounting principles with a qualified auditing firm as the auditor of those financial statements. The auditor independently confirms the fair value of each portfolio investment of an Underlying Fund that is valued by Northleaf in accordance with its private equity valuation policy. The auditor also audits the controls and processes in place to ensure portfolio investments are accurately valued in accordance with Northleaf's private equity valuation policy.

Necessity for Requested Relief

31. The Initial Top Fund currently holds more than 20% of the outstanding voting securities of certain of the Initial Underlying Funds (namely, NGF Venture and NL MN PE Custom) and, as such, is a substantial security holder of those Initial Underlying Funds within the meaning of the Legislation. Such holdings are currently permitted since the Initial Top Fund is not a "mutual fund" as defined in the Legislation. However, absent the Requested Relief, following expected changes to the Initial Top Fund's redemption features, the Initial Top Fund will no longer be permitted to hold more than 20% of the outstanding voting securities of any of the Initial Underlying Funds, as the Initial Top Fund will be considered to be a "mutual fund" as defined in the Legislation.

32. Going forward, the amount invested from time to time, directly or indirectly, in a Future Underlying Fund by a Top Fund, together with one or more other funds managed by the Filer (collectively, the Other Top Funds), may also exceed 20% of the outstanding voting securities of such Future Underlying Fund. As a result, a Top Fund could, together with one or more Other Top Funds, become a substantial security holder of Future Underlying Funds. Each Top Fund and the Other Top Funds are "related investment funds", as such term is defined in the Legislation by virtue of common management by the Filer.

33. The Initial Top Fund currently holds certain Initial Underlying Funds (namely, NSP III and NGPE) in which Power, who is a substantial security holder of the Filer, has a significant interest, which is currently permitted since the Initial Top Fund is not currently a "mutual fund" as defined in the Legislation. However, absent the Requested Relief, as a result of expected changes to the Initial Top Fund's redemption features which will cause it to be considered a "mutual fund" as defined in the Legislation, the Initial Top Fund will no longer be permitted to hold an underlying issuer in which a substantial security holder of the Filer has a significant interest, including any of the Initial Underlying Funds.

34. Going forward, a Top Fund may, directly or indirectly, invest in a Future Underlying Fund in which a person or company who is a substantial security holder of the Top Fund or the Filer, has a significant interest.

35. The Top Funds are unable to invest in the Underlying Funds in reliance on the exemption from the investment restrictions of the Legislation that is provided under subsection 2.5.1(2) of National Instrument 81-102 Investment Funds (NI 81-102) for non-reporting issuer investment funds that purchase or hold securities of another non-reporting issuer investment fund because, among other reasons, the Underlying Funds may be collective investment vehicles that are not "investment funds" as defined in the Legislation and that do not comply with section 2.4 of NI 81-102 as they hold primarily illiquid assets.

36. In the absence of the Requested Relief, each Top Fund (including the Initial Top Fund once it becomes a "mutual fund" as defined in the Legislation) would be precluded from directly or indirectly purchasing or holding securities of an Underlying Fund due to the investment restrictions contained in the Legislation.

Generally

37. An investment by a Top Fund in an Underlying Fund will only be made if the investment is, or will be, compatible with the investment objectives of the Top Fund and allows, or will allow, the Top Fund to obtain exposure to asset classes in which the Top Fund may otherwise invest directly.

38. The Filer believes that the investment by a Top Fund in an Underlying Fund will provide the Top Fund with an efficient and cost-effective manner of pursuing portfolio diversification and asset diversification instead of purchasing securities directly. The Top Fund will gain access to the expertise of the portfolio adviser or manager of the applicable Underlying Fund as well as to the investment strategies and asset classes of the Underlying Fund.

39. No management fees or incentive fees would be payable by a Top Fund with respect to an investment in an Underlying Fund that, to a reasonable person, would duplicate a fee payable by an Underlying Fund for the same service.

40. No sales fees or redemption fees would be payable by a Top Fund in relation to its purchases or redemptions of securities of an Underlying Fund, unless the Top Fund redeems its securities of the Underlying Fund during a lock-up period, in which case an early redemption fee may be payable by the Top Fund.

41. Investments in securities of an Underlying Fund by a Top Fund will be effected at an objective price, which for this purpose will be: a) in respect of Underlying Funds that are open-ended, the NAV per security of the applicable class or series of the Underlying Fund, b) in respect of Underlying Funds that are closed-ended, a fixed price at the time of closing and c) in respect of Underlying Funds whose securities are purchased on the secondary market, the price that is negotiated between the applicable Top Fund and the seller of the securities.

42. No Top Fund will actively participate in the business or operations of an Underlying Fund.

43. A Top Fund's investment in an Underlying Fund will be disclosed to investors in such Top Fund's offering memorandum.

44. An investment by a Top Fund in an Underlying Fund will only be made if such investment represents the business judgement of a responsible person uninfluenced by considerations other than the best interests of that Top Fund and its investors.

45. No Underlying Fund will be a Top Fund.

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 Requested Relief is granted provided that:

(a) the securities of the Top Funds and the Underlying Funds, if distributed in Canada, are distributed in Canada solely pursuant to exemptions from the prospectus requirements in accordance with NI 45-106 and the Legislation;

(b) a direct or indirect investment by a Top Fund in an Underlying Fund will be compatible with the fundamental investment objectives and strategies of such Top Fund;

(c) no management fees or incentive fees will be payable by a Top Fund that, to a reasonable person, would duplicate a fee payable by an Underlying Fund for the same service;

(d) no sales fees or redemption fees are payable by a Top Fund in relation to its purchases or redemptions of securities of an Underlying Fund, unless the Top Fund redeems its securities of the Underlying Fund during a lock-up period, in which case an early redemption fee may be payable by the Top Fund;

(e) the securities of an Underlying Fund held by a Top Fund will not be voted at any meeting of the security holders of the Underlying Fund, except that the Top Fund may arrange for the securities of the Underlying Fund it holds to be voted by the beneficial holders of securities of the Top Fund;

(f) a Top Fund's investment in securities of an Underlying Fund will be disclosed to investors in the Top Fund's offering memorandum or other investor disclosure document and, where applicable, periodic reports and financial statements;

(g) a disclosure document, including an offering memorandum where available, will be provided to each prospective investor in a Top Fund prior to the time of investment or prior to the Requested Relief being relied on by such Top Fund, and will disclose:

(i) that a Top Fund may purchase securities of one or more Underlying Funds;

(ii) that the Filer is the manager of the Top Fund, that the Filer, an affiliate of the Filer or Northleaf is the manager of the Underlying Funds, and the relationship between the Filer and the affiliate of the Filer or Northleaf, as applicable;

(iii) the approximate maximum percentage of the Top Fund's assets that may be invested in the Underlying Funds in aggregate;

(iv) the nature of the fees, expenses and any performance or special incentive distributions payable by the Underlying Fund in which a Top Fund invests;

(v) the process or criteria used to select the Underlying Fund, if applicable;

(vi) that the Top Fund, alone or together with Other Top Funds, may be a substantial security holder of an Underlying Fund, and that the Filer, an affiliate of the Filer or a substantial security holder of the Filer or of the Top Fund may have a significant interest in the Underlying Fund, and the potential conflicts of interest which may arise from such relationships;

(vii) for each substantial security holder of the Filer or its affiliate, or of the Top Fund, that has a significant interest in the Underlying Fund, the approximate amount of the significant interest they hold, on an aggregate basis, expressed as a percentage of the Underlying Fund's net asset value, and the potential conflicts of interest which may arise from such relationship;

(viii) that investors are entitled to receive from the Filer, on request and free of charge, a copy of the offering memorandum or other similar disclosure document of the Underlying Fund, if available; and

(ix) that investors are entitled to receive from the Filer, on request and free of charge, the annual audited financial statements and interim financial reports relating to the Underlying Fund in which the Top Fund invests;

(h) where an investment is made by a Top Fund in an Underlying Fund, the records of portfolio transactions maintained by the Top Fund include, separately for every portfolio transaction effected for a Top Fund by the Filer, the name of the related person in which an investment is made, being the Underlying Fund;

(i) a Top Fund will not invest in an Underlying Fund unless: (A) immediately after the time of investment, at least 85% of the aggregate asset value of the Underlying Funds is based on the valuation of assets that are valued by a firm that is independent of the Filer, any affiliate of the Filer, and Northleaf; and (B) the Underlying Fund prepares audited financial statements on an annual basis, in accordance with applicable generally accepted accounting principles, that (i) are audited by a qualified auditing firm that independently confirms the fair value of each portfolio investment of the Underlying Fund that is valued by Northleaf in accordance with its private equity valuation policy and (ii) are made available to the Top Fund;

(j) no Top Fund will actively participate in the business or operations of any Underlying Fund; and

(k) each Top Fund is, or will be, treated as an arm's length investor in each Underlying Fund in which it invests, on substantially the same terms as other investors.