NB Alternatives Advisers LLC et al. – ss. 74(1), 144(1)

Headnote

Previous decision revoked and replaced with a new decision – previous application was for relief from the investment fund manager registration requirement and the dealer registration requirement in order to provide up to 10 “senior-level” employees in Ontario employed by a subsidiary of a global investment conglomerate with certain investment opportunities alongside other employees of the conglomerate, globally – this decision increases the limit to 20 “senior-level” employees in Ontario employed by any entity in the conglomerate – the filers are related entities – each of the collective investment vehicles managed by the filers is or will be established outside of Canada – each filer’s head office or principal place of business is in the United States or United Kingdom, as applicable, and each filer is appropriately registered in the United States or United Kingdom, as applicable – distribution in Ontario is made to no more than 20 “Qualified Employees” in Ontario – the filers shall not receive any trade-based compensation – participation in an investment opportunity by a “Qualified Employee” is voluntary – relief from the investment fund manager registration requirement granted on conditions analogous to the permitted client exemption in section 4 of Multilateral Instrument 32-102 Registration Exemptions for Non-Resident Investment Fund Managers – relief from the dealer registration requirement granted on conditions analogous to the international dealer exemption in section 8.18 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.

Applicable Legislative Provisions

Statutes Cited

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1), 25(4), 74(1), 144(1).

Instruments Cited

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 8.16, 8.18.

Multilateral Instrument 32-102 Registration Exemptions for Non-Resident Investment Fund Managers, ss. 1, 4.

National Instrument 45-106 Prospectus Exemptions, ss. 1.1, 2.3.

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O. 1990, c. S.5, AS AMENDED

(the Act)

AND

IN THE MATTER OF

NB ALTERNATIVES ADVISERS LLC (NBAA),

NEUBERGER BERMAN EUROPE LIMITED (NBEL),

NEUBERGER BERMAN INVESTMENT ADVISERS LLC (NBIA),

NEUBERGER BERMAN BD LLC

(NBBD, and together with NBAA, NBEL and NBIA, the Filers)

ORDER AND RULINGS

(Subsections 144(1) and 74(1) of the Act)

Background

On November 11, 2016, the Ontario Securities Commission (the Commission) made a ruling pursuant to subsection 74(1) of the Act in In the Matter of NB Alternatives Advisers LLC et al. (2016), 39 OSCB 9436 (the Previous Decision) to exempt, on certain terms and conditions:

(a)           each of the Filers and NB Alternative Investment Management LLC (NBAIM) from the investment fund manager registration requirement in subsection 25(4) of the Act in respect of it acting as an investment fund manager for the NB Funds (as defined below) where all securities of the NB Funds distributed in Ontario are distributed:

i.              under an exemption from the prospectus requirement to a Permitted Client (as defined below); or

ii.             under the Accredited Investor Prospectus Exemption (as defined below) to up to 10 qualifying employees employed by NBBD (previously Neuberger Berman LLC); and

(b)           NBBD from the dealer registration requirement in subsection 25(1) of the Act in respect of it distributing securities of the NB Collective Investment Vehicles (as defined below) under the Accredited Investor Prospectus Exemption to up to 10 qualifying employees employed by NBBD.

After the Previous Decision was made, the NB Group (as defined below) underwent a reorganization. As part of that reorganization: (a) NBAIM was wound up; (b) all employees in Ontario that were previously employed by NBBD immediately before the reorganization became employees of NBIA; and (c) NBBD ceased to act as an investment fund manager for any NB Fund.

In November 2017, the NB Group acquired Neuberger Berman Breton Hill ULC (NBBH), which is headquartered in Toronto, Ontario.

The Filers have made an application (the Application) for exemptive relief that is substantially similar to that provided for in the Previous Decision, but modified so as to allow the Filers to provide up to 20 qualifying employees in Ontario that are employed by any NB Entity (as defined below) with the opportunity to participate in the same Investment Opportunities (as defined below) in which employees outside Ontario are offered the opportunity to participate.

Application

In the Application, the Filers have applied to the Commission for the following:

(a)           a ruling under subsection 74(1) of the Act that each NB Fund Manager (as defined below) is not subject to the investment fund manager registration requirement in subsection 25(4) of the Act (the Investment Fund Manager Relief) in respect of the NB Fund Manager acting as an investment fund manager for an NB Fund where all of the securities of the NB Fund distributed in Ontario have been distributed:

i.              under an exemption from the prospectus requirement to a Permitted Client; or

ii.             under the Accredited Investor Prospectus Exemption to up to 20 Qualified Employees (as defined below); and

(b)           a ruling under subsection 74(1) of the Act that NBBD is not subject to the dealer registration requirement in subsection 25(1) of the Act (the Dealer Relief) in respect of it distributing securities of any NB Collective Investment Vehicle under the Accredited Investor Prospectus Exemption to up to 20 Qualified Employees in Ontario.

In the Application, the Filers have also applied for an order, under subsection 144(1) of the Act, to revoke the Previous Decision.

Interpretation

Terms defined in National Instrument 14-101 Definitions have the same meaning if used in these rulings and order (collectively, these Decisions), unless otherwise defined.

The following terms shall have the following meanings:

Accredited Investor Prospectus Exemption means the exemption from the prospectus requirement set out in section 2.3 [accredited investor] of NI 45-106;

CFTC means the U.S. Commodity Futures Trading Commission;

FCA means the Financial Conduct Authority in the United Kingdom;

FINRA means the Financial Industry Regulatory Authority, Inc. in the USA;

International Adviser Exemption means the exemption from the adviser registration requirement set out in section 8.26 [international adviser] of NI 31-103;

International Dealer Exemption means the exemption from the dealer registration requirement set out in section 8.18 [international dealer] of NI 31-103;

MI 32-102 means Multilateral Instrument 32-102 Registration Exemptions for Non-Resident Investment Fund Managers;

NB Collective Investment Vehicle means: (a) an NB Fund; or (b) a collective investment vehicle that does not meet the definition of an “investment fund” under applicable securities laws and that is advised by an NB Fund Manager;

NB Entity means any person or company in the NB Group;

NB Fund means an investment fund that is managed by an NB Fund Manager;

NB Fund Manager means NBAA, NBEL or NBIA;

NB Group means Neuberger Berman Group LLC and its subsidiaries, which include the Filers;

NFA means the National Futures Association in the USA;

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 the form attached as Appendix “B” to these Decisions;

OSC Rule 13-502 means Ontario Securities Commission Rule 13-502 Fees;

Permitted Client has the same meaning ascribed to that term in 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;

Submission to Jurisdiction and Appointment of Agent for Service means the form attached as Appendix “A” to these Decisions; and

USA means the United States of America.

Representations

These Decisions are based on the following facts represented by the Filers:

The Filers

1.             Neuberger Berman Group LLC is a holding company, which through its subsidiaries, including the Filers, provides a broad range of global investment solutions (equity, fixed income and alternatives) to institutions and individuals through, among other things, customized separately managed accounts and collective investment vehicles (including non-redeemable investment funds).

2.             Each of the Filers is registered as an “investment adviser” with the SEC.

3.             None of the Filers is registered under the securities legislation of any jurisdiction of Canada.

4.             None of the Filers is in default of securities legislation, commodity futures legislation or derivatives legislation of any jurisdiction of Canada.

5.             Each Filer is in compliance in all material respects with the securities laws, commodity futures laws and derivatives laws of each jurisdiction in which its head office or principal place of business is located.

6.             Except for NBIA, none of the Filers maintains a physical office in Canada.

NBIA

7.             NBIA is a limited liability company formed pursuant to the laws of the State of Delaware. Its head office is located in New York, USA. NBIA is registered with the CTFC as a “commodity pool operator” and a “commodity trading advisor.” In these capacities, NBIA is a member of the NFA.

8.             In Ontario, Québec and Newfoundland and Labrador, NBIA relies on the Permitted Client IFM Exemption. In each Canadian province, NBIA relies on the International Adviser Exemption.

9.             NBIA currently maintains an office in Toronto, Ontario.

NBAA

10.          NBAA is a limited liability company formed pursuant to the laws of the State of Delaware. Its head office is located in Dallas, USA. NBAA is registered as a “commodity pool operator” with the CFTC. In this capacity, NBAA is a member of the NFA.

11.          In Ontario, NBAA relies on the Permitted Client IFM Exemption and the International Adviser Exemption. In Québec and Newfoundland and Labrador, NBAA relies on the Permitted Client IFM Exemption.

NBEL

12.          NBEL is a company incorporated under the laws of England. Its head office is located in London, England. NBEL is authorised and regulated by the FCA. NBEL is authorized to carry on certain regulated activities in the United Kingdom including the following: (a) advising on investments, (b) arranging (bringing about) deals in investments, (c) arranging safeguarding and administration of assets, (d) dealing in investments as agent, (e) establishing, operating or winding up a regulated collective investment scheme, (f) establishing, operating or winding up an unregulated collective investment scheme, (g) making arrangements with a view to transact in investments, and (h) managing investments.

13.          NBEL relies on the Permitted Client IFM Exemption in Ontario and Québec.

NBBD

14.          NBBD is a limited liability company formed pursuant to the laws of the State of Delaware. Its head office is located in New York, USA. NBBD is registered as a “broker-dealer” with the SEC and applicable State regulators in the USA and is a member of FINRA. NBBD is also registered with the CFTC as a “commodity trading advisor” and “introducing broker.” In these capacities, NBBD is a member of the NFA.

15.          In each Canadian province, NBBD relies on the International Dealer Exemption.

NB Collective Investment Vehicles

16.          Each of the NB Fund Managers acts as the investment fund manager for one or more NB Funds.

17.          Each NB Collective Investment Vehicle (including the NB Funds) is advised by an NB Fund Manager. NBBD generally acts as the placement agent for all NB Collective Investment Vehicles.

18.          All of the NB Collective Investment Vehicles are or will be established in a jurisdiction outside of Canada.

Investment Opportunity and Qualified Employees

19.          The NB Group provides certain eligible employees of NB Entities and their family members the opportunity to invest in NB Collective Investment Vehicles (each an Investment Opportunity). For each Investment Opportunity, the offering made to eligible employees is subject to the same terms as those applicable to other investors in the NB Collective Investment Vehicles, except that in an offering to eligible employees, a Filer may waive any management fees or incentive fees, or reduce performance allocations or minimum investment amounts.

20.          Each Investment Opportunity is or will be offered solely to an employee of an NB Entity that has the job title of Managing Director or Senior Vice President, or that is a director of an NB Collective Investment Vehicle, an equity owner of an NB Entity or parent company of an NB Entity, or an employee of an NB Entity who has otherwise established to the satisfaction of the NB Entity that he or she has sufficient sophistication and assets to participate in the Investment Opportunity (each, a Qualified Employee).

21.          Each Investment Opportunity is made to Qualified Employees globally, subject to the rules and regulations of the corresponding jurisdiction.

22.          Participation in an Investment Opportunity by a Qualified Employee is voluntary, and Qualified Employees are not induced to participate in an Investment Opportunity by expectation of employment or continued employment.

23.          To be eligible to invest in an NB Collective Investment Vehicle, a Qualified Employee must qualify as an “accredited investor” as defined in Regulation D under subsection 4(2) of the United States Securities Act of 1933, as amended. In the case of certain NB Collective Investment Vehicles, the Qualified Employee must also qualify as a “qualified purchaser” or “knowledgeable employee” under the United States Investment Company Act of 1940, as amended, or a “qualified client” under the United States Investment Advisers Act of 1940, as amended.

24.          To be eligible to invest in an NB Collective Investment Vehicle, a Qualified Employee in Ontario must qualify as an “accredited investor” as such term is defined under section 1.1 [definitions] of NI 45-106.

25.          As a registered broker-dealer and member of FINRA, NBBD will take reasonable steps to ensure that, before it makes a recommendation to or accepts an instruction from a Qualified Employee in Ontario to purchase a security of an NB Collective Investment Vehicle pursuant to an Investment Opportunity, the purchase is suitable for the Qualified Employee.

26.          NBBD seeks to ensure that no Qualified Employee invests more than 10% of his or her liquid net worth in any single NB Collective Investment Vehicle.

27.          No trade based fees or commission are charged to any Qualified Employee by any of the Filers, including NBBD, in connection with the Qualified Employee’s acquisition of any security of an NB Collective Investment Vehicle.

28.          Before a Qualified Employee in Ontario acquires a security of an NB Collective Investment Vehicle under an Investment Opportunity, the Qualified Employee will be provided with an investor kit relating to the NB Collective Investment Vehicle. This investor kit will generally include: (a) a welcome letter; (b) the NB Collective Investment Vehicle’s prospectus or offering memorandum; (c) subscription agreement; (d) subscription instructions; (e) limited partnership agreement (if applicable); (f) the applicable Filer’s privacy policy; and (g) Part 2A of the applicable Filer’s Form ADV (which is the disclosure document included by the Filer in its application to register as an “investment adviser” with the SEC). In addition, Qualified Employees may be able to attend information sessions that are generally held in respect of each NB Collective Investment Vehicle at which the terms of the offering and the investment approach and process of the portfolio management team of the NB Collective Investment Vehicle are discussed. Moreover, if a Qualified Employee is not able to attend an information session, the session and any presentation materials may, subject to applicable law, be available to be viewed at any time by the Qualified Employee on the NB Group's internal intranet website.

Why is the relief needed?

29.          NBIA currently has three employees that are located in Toronto.

30.          On November 1, 2017, the NB Group acquired NBBH. NBBH is registered under the Act as a portfolio manager, exempt market dealer, and investment fund manager. It is also registered under the Commodity Futures Act (Ontario) as a commodity trading manager. NBBH is an affiliate of the Filers and currently has 16 employees that are located in Toronto.

31.          Currently, NBIA believes that only one of its employees in Toronto, and NBBH believes that only five of its employees in Toronto, meet the criteria to be Qualified Employees, and are, therefore, eligible to participate in the Investment Opportunities. NBIA and NBBH anticipate that, in the future, all employees in Ontario that meet the criteria to be Qualified Employees will also be invited to participate in the Investment Opportunities, in accordance with the terms of these Decisions.

32.          The NB Fund Managers have each applied for the Investment Fund Manager Relief to reflect the fact that not all securities of the NB Funds distributed in Ontario were or will be distributed to Permitted Clients. Because not all securities of the NB Funds distributed in Ontario were or will be distributed to Permitted Clients, the NB Fund Managers cannot rely on the Permitted Client IFM Exemption in Ontario.

33.          NBBD has applied for the Dealer Relief in connection with these distributions. NBBD cannot rely on the exemption set out in section 8.16 [plan administrator] of NI 31-103 because, amongst other things, the securities being issued pursuant to an Investment Opportunity are not being issued pursuant to a “plan of the issuer.” Furthermore, because the Qualified Employees do not all qualify as “permitted clients” under NI 31-103, NBBD is also not able to rely on the International Dealer Exemption.

Decisions

In the opinion of the Commission, it would not be prejudicial to the public interest to make the following order. The Commission is also satisfied that to make the following rulings would not be prejudicial to the public interest.

Order

It is ordered by the Commission that the Previous Decision is revoked.

Rulings

It is ruled by the Commission that the Investment Fund Manager Relief is granted to each NB Fund Manager, provided that:

1.             The NB Fund Manager continues to be registered as an “investment adviser” with the SEC.

2.             Where NBEL is the NB Fund Manager, it is authorised and regulated by the FCA.

3.             The NB Fund Manager does not have its head office or principal place of business in any jurisdiction of Canada.

4.             The NB Fund Manager remains incorporated, formed or created under the laws of a foreign jurisdiction.

5.             The NB Fund is not a reporting issuer in any jurisdiction of Canada.

6.             The NB Fund Manager has submitted to the Ontario Securities Commission a completed Submission to Jurisdiction and Appointment of Agent for Service.

7.             Before acquiring any security of an NB Fund, each Permitted Client or Qualified Employee in Ontario has been notified in writing of all of the following with respect to the NB Fund Manager who acts as an investment fund manager of the NB Fund:

(a)           the NB Fund Manager is not registered in Ontario to act as an investment fund manager;

(b)           the foreign jurisdiction in which the head office or principal place of business of the NB Fund Manager is located;

(c)           all or substantially all of the assets of the NB Fund Manager may be situated outside of Canada;

(d)           there may be difficulty enforcing legal rights against the NB Fund Manager because of the above; and

(e)           the name and address of the agent for service of process of the NB Fund Manager in Ontario.

8.             If the NB Fund Manager has relied on the Investment Fund Manager Relief under this ruling to act as an investment fund manager for the NB Fund 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)           for all NB Funds for which it acts as an investment fund manager, 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.

9.             The NB Fund Manager files with the Commission, a completed Notice of Regulatory Action within 10 days of the date on which the Filer begins relying on the Investment Fund Manager Relief.

10.          The NB Fund Manager notifies the Commission, of any change to the information previously submitted in the Notice of Regulatory Action within 10 days of the change.

11.          The NB Fund Manager complies with the filing and fee payment requirements applicable to an unregistered investment fund manager under OSC Rule 13-502.

It is also ruled by the Commission that the Dealer Relief is granted to NBBD, provided that:

1.             NBBD continues to be registered as a “broker-dealer” with the SEC and continues to be a member of FINRA.

2.             NBBD does not receive any trade-based compensation for the distribution.

3.             Participation in an Investment Opportunity by a Qualified Employee is voluntary, and the Qualified Employee will not be induced to participate in an Investment Opportunity by expectation of employment or continued employment.

4.             NBBD takes reasonable steps to ensure that, before it makes a recommendation to or accepts an instruction from a Qualified Employee to buy a security of an NB Collective Investment Vehicle pursuant to an Investment Opportunity, the purchase is suitable for the Qualified Employee.

5.             NBBD has submitted to the Commission a completed Submission to Jurisdiction and Appointment of Agent for Service.

6.             NBBD has notified each Qualified Employee (to whom the distribution is made) in writing of all of the following:

(a)           NBBD is not registered in Ontario to make the trade;

(b)           the foreign jurisdiction in which the head office or principal place of business of NBBD is located;

(c)           all or substantially all of the assets of NBBD may be situated outside of Canada;

(d)           there may be difficulty enforcing legal rights against NBBD because of the above; and

(e)           the name and address of the agent for service of process of NBBD in Ontario.

7.             NBBD files with the Commission, a completed Notice of Regulatory Action within 10 days of the date on which NBBD begins relying on the Dealer Manager Relief.

8.             NBBD notifies the Commission, of any change to the information previously submitted in the Notice of Regulatory Action within 10 days of the change.

9.             If NBBD does not rely on the International Dealer Exemption, NBBD nevertheless complies with the filing and fee payment requirements that would be applicable to an unregistered exempt international firm under OSC Rule 13-502 as if it relied on the International Dealer Exemption.

Dated at Toronto, Ontario, this 6th of July, 2018

“Mark J. Sandler”                                                                 “Poonam Puri”

Commissioner                                                                     Commissioner

Ontario Securities Commission                                        Ontario Securities Commission

APPENDIX “A”

SUBMISSION TO JURISDICTION AND APPOINTMENT OF AGENT FOR SERVICE

1.             Name of person or company (“International Firm”):

2.             If the International Firm was previously assigned an NRD number as a registered firm or an unregistered exempt international firm, provide the NRD number of the firm:

3.             Jurisdiction of incorporation of the International Firm:

4.             Head office address of the International Firm:

5.             The name, e-mail address, phone number and fax number of the International Firm’s individual(s) responsible for the supervisory procedure of the International Firm, its chief compliance officer, or equivalent.

Name:   
E-mail address:   
Phone:  
Fax:       

6.             Details of the exemption order that the International Firm is relying on (the Relief Order), including the date of the Relief Order:

7.             Name of agent for service of process (the “Agent for Service”):

8.             Address for service of process on the Agent for Service:

9.             The International Firm designates and appoints the Agent for Service at the address stated above as its agent upon whom may be served a notice, pleading, subpoena, summons or other process in any action, investigation or administrative, criminal, quasi-criminal or other proceeding (a “Proceeding”) arising out of or relating to or concerning the International Firm’s activities in the local jurisdiction and irrevocably waives any right to raise as a defence in any such proceeding any alleged lack of jurisdiction to bring such Proceeding.

10.          The International Firm irrevocably and unconditionally submits to the non-exclusive jurisdiction of the judicial, quasi-judicial and administrative tribunals of the local jurisdiction in any Proceeding arising out of or related to or concerning the International Firm’s activities in the local jurisdiction.

11.          Until 6 years after the International Firm ceases to rely on the Relief Order, the International Firm must submit to the regulator

(a)           a new Submission to Jurisdiction and Appointment of Agent for Service in this form no later than the 30th day before the date this Submission to Jurisdiction and Appointment of Agent for Service is terminated;

(b)           an amended Submission to Jurisdiction and Appointment of Agent for Service no later than the 30th day before any change in the name or above address of the Agent for Service; and

(c)           a notice detailing a change to any information submitted in this form, other than the name or above address of the Agent for Service, no later than the 30th day after the change.

12.          This Submission to Jurisdiction and Appointment of Agent for Service is governed by and construed in accordance with the laws of the local jurisdiction.

Dated:    _____________________________________________

_____________________________________________________
(Signature of the International Firm or authorized signatory)

_____________________________________________________
(Name of signatory)

_____________________________________________________

(Title of signatory)

Acceptance

The undersigned accepts the appointment as Agent for Service of __________________________ [Insert name of International Firm] under the terms and conditions of the foregoing Submission to Jurisdiction and Appointment of Agent for Service.

Dated:    _____________________________________________

_____________________________________________________
(Signature of Agent for Service or authorized signatory)

_____________________________________________________
(Name of signatory)

_____________________________________________________
(Title of signatory)

This form, and notice of a change to any information submitted in this form, is to be submitted through the Ontario Securities Commission’s Electronic Filing Portal:

https://www.osc.gov.on.ca/filings

APPENDIX “B”

NOTICE OF REGULATORY ACTION

1.             Has the firm, or any predecessors or specified affiliates[1] of the firm entered into a settlement agreement with any financial services regulator, securities or derivatives exchange, SRO or similar agreement with any financial services regulator, securities or derivatives exchange, SRO or similar organization?

Yes _____ No _____

If yes, provide the following information for each settlement agreement:

2.             Has any financial services regulator, securities or derivatives exchange, SRO or similar organization:

If yes, provide the following information for each action:

3.             Is the firm aware of any ongoing investigation of which the firm or any of its specified affiliates is the subject?

Yes _____ No _____

If yes, provide the following information for each investigation:

Witness

The witness must be a lawyer, notary public or commissioner of oaths.

This form is to be submitted through the Ontario Securities Commission’s Electronic Filing Portal:

https://www.osc.gov.on.ca/filings