Wellington Square Capital Partners Inc. and Wellington Square Advisors Inc.
Headnote
Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions. Under paragraph 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations a registered firm must not permit an individual to act as a dealing, advising or associate advising representative of the registered firm if the individual is registered as a dealing, advising or associate advising representative of another registered firm.
The Filers are structured as unaffiliated and not associated corporations within the meaning of applicable securities legislation and have made the business decision to separate investment advisory services according to clients that wish to have investment exposure to the cannabis industry and those who do not wish to have such exposure. This structure is intended to ensure the respective firms comply with local legal requirements regarding controlled substances in the U.S. and Canada and to also preserve the ability for members of Wellington Square Advisors Inc. (other than its dually registered advising representative) to travel and/or immigrate to the United States.
The Filers have policies in place to handle potential conflicts of interest. The Filers are exempted from the prohibition. The decision is subject to a sunset clause.
Applicable Legislative Provisions
Multilateral Instrument 11-102 Passport System, s. 4.7.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 4.1, 15.1.
May 5, 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 WELLINGTON SQUARE CAPITAL PARTNERS INC. (WSCP) AND WELLINGTON SQUARE ADVISORS INC. (WSA) (WSCP and WSA, collectively, the Filers)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for relief from the restriction under paragraph 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) for relief from paragraph 4.l(l)(b) of NI 31-103 to permit Mr. Jeffrey Ardhi Sujitno (the Representative) to be approved as a permitted individual (Permitted Individual) and registered as an advising representative (the Advising Representative) of each of the Filers (the Relief Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
a) the Ontario Securities Commission is the principal regulator for this application; and
b) the Filers have provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon by the Filers in the province of Québec (together with Ontario, the Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filers:
1. Each of the Filers has applied to the Commission for registration as an adviser in the category of Portfolio Manager in the Provinces of Ontario and Québec. The head offices of the Filers are located in Toronto, Ontario.
2. WSCP and WSA are not associated or affiliated with each other within the meaning of applicable securities legislation.
3. The Representative is the sole director, President. Secretary and employee of WSCP.
4. Currently, the Representative is the Senior Vice-President, Investments & Portfolio Manager and registered advising representative of iA Clarington Investments Inc. (iAC).
5. The Representative joined the iAC investment management team in 2013. He specializes in fixed income and credit, with a focus on senior loans, high yield and investment grade corporate bonds.
6. The Representative is a lead portfolio manager and, together with the other principal members of his investment team (the Representative's Team), manage the IA Clarington Core Plus Bond Fund, the IA Clarington Floating Rate Income Fund, the IA Clarington Growth & Income Fund and the IA Clarington U.S. Dollar Floating Rate Income Fund (collectively, the iAC Funds).
7. Prior to joining iAC, the Representative was lead portfolio manager for the fixed income and credit mandates of a boutique Canadian investment firm, where he created the firm's senior loan business and advised both publicly offered and privately offered investment funds. Previously, he was responsible for institutional funds, investing in mezzanine loans and private equity on behalf of some of Canada's largest pension plans.
8. The Representative has 19 years of investment experience. He is a Chartered Investment Manager and Chartered Professional Accountant. He also holds an Honours Bachelor of Business Administration from the Richard Ivey School of Business at Western University.
9. The Representative and the members of the Representative's Team intend to provide discretionary investment management and advisory or sub-advisory services to registered third party portfolio managers, investment fund managers, pension funds or clients who otherwise qualify as permitted clients under NI 31-103. Initial investment advisory mandates are expected to relate primarily to fixed income strategies generally. Other investment advisory mandates will also be undertaken relating to a broad array of investment strategies.
10. Marijuana is listed as a Schedule 1 drug under the United States Controlled Substances Act.
11. Individuals who are active participants/investors in the cannabis industry or who travel to the United States on business related to the cannabis industry may be denied entry to the United States on a temporary or permanent basis.
12. Individuals who are active participants/investors in the cannabis industry may also be denied the ability to immigrate to the United States.
13. The Filers have decided to structure their business in such a way as to isolate all members of WSA from the cannabis business conducted by the Representative at WSCP and thereby preserve the ability for members of WSA (other than the Representative) to travel and/or immigrate to the United States.
14. The Filers have (a) decided to structure WSCP and WSA as unaffiliated and not associated corporations within the meaning of applicable securities legislation and (b) made the business decision to separate investment advisory services according to clients that wish to have investment exposure to the cannabis industry and those who do not wish to have such exposure.
15. WSCP was created to provide discretionary investment management services to clients who wish to have exposure to fixed income investments in the cannabis industry.
16. WSA was created to act primarily as a sub-advisor to WSCP in order to provide investment advisory services in relation to investments in publicly traded fixed income securities and other publicly traded securities of issuers that are not participants in the cannabis industry. WSA may also enter into investment advisory or sub-advisory agreements to provide discretionary investment management services to registered third party portfolio managers, investment fund managers, pension funds or clients who otherwise qualify as permitted clients under NI 31-103 in relation to securities of issuers that do not participate in the cannabis industry.
17. WSCP has sponsored the Representative's application to the Commission for approval as the ultimate designated person (the UDP), a Permitted Individual (shareholder, director and officer) and for registration as the chief compliance officer (the CCO) and Advising Representative of WSCP.
18. WSA has sponsored the Representative's application for approval as a Permitted Individual (shareholder) and for registration as an Advising Representative.
19. The Representative will resign from iAC immediately prior to the Commission approval of WSCP's and WSA's registration.
20. The remaining members of the Representative's Team will be directors, officers and employees of WSA and will resign from iAC immediately prior to the Commission approval of WSA's registration.
21. Upon registration, each of WSCP and WSA will jointly provide investment management services to clients pursuant to investment advisory and sub-advisory arrangements.
22. The Filers are in the process of negotiating sub-advisory arrangements with iAC to sub-advise the iAC Funds and other iAC investment portfolios. The Filers are also negotiating sub-advisory arrangements with other Canadian investment advisors to high net worth clients to manage certain investment portfolios and sub-advise newly formed investment funds to be manufactured, managed and distributed by such investment advisors (the Other Mandates).
23. Dual registration of the Representative as a Permitted Individual and as an Advising Representative with each of the Filers is being requested so as to permit the Representative to provide portfolio management services to the iAC Funds, the Other Mandates as well as to other clients in relation to both cannabis and non-cannabis industry investments.
24. The Representative is familiar with the business model of each of the Filers. His role with WSA will be to provide investment advisory services in relation to investments in non-cannabis industry issuers and to support WSA's other business activities and interests.
25. The Representative will be subject to the applicable compliance policies and procedures of each of the Filers and will spend approximately 60% of his time on the business of WSCP and 40% of his time on the business of WSA.
26. The Filers do not expect that the dual registration of the Representative will create a material amount additional work and are confident that the unique nature of the advising activities and services provided to the respective clients of the Filers will not create significant conflicts of interest.
27. WSA will primarily act as a sub-advisor to WSCP servicing the same clients and accordingly, the dual registration of the Representative will not give rise to the conflicts of interest that may be present in a similar arrangement involving unrelated, arm's length firms. The interests of the Filers are aligned in connection with the appropriate management and administration of the iAC Funds, the Other Mandates and other clients served in this manner. As WSCP will focus on investment advisory activities in relation to public and private issuers in the cannabis industry and WSA will focus on investment activities in relation to non-cannabis industry public issuers, the two firms will not encounter a situation where they are competing with each other for the same investment advisory mandate. The foregoing factors substantially mitigate the risks of any conflicts of interest arising as a result of the dual registration.
28. WSCP will not act as a sub-adviser to WSA and WSA will not have access to information relating to the investment advisory services provided by WSCP.
29. The Filers have adequate policies and procedures in place to address any potential conflicts of interest that may arise as a result of the dual registration of the Representative and will be able to appropriately deal with any such conflicts should they arise.
30. The Representative's activities at WSA will be performed under the supervision of the UDP and CCO of WSA and are subject to WSA's policies and procedures addressing conflicts of interest that may arise as a result of the dual registration. The UDP of WSA will not be responsible for supervising the Representative's work as an advising representative of WSCP.
31. The Filers will provide written disclosure to iAC and other clients of the relationship between the Filers as well as the dual registration of the Representative with each of the Filers.
32. The Representative will act in the best interests of the clients of each Filer and will deal fairly, honestly and in good faith with such clients.
33. Each of the Filers is subject to the restrictions and requirements contained in Part 13 of NI 31-103.
34. The Filers are not in default of any requirement of securities legislation in any jurisdiction of Canada.
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 Relief Sought is granted on the following conditions:
(a) the Representative is subject to supervision by, and the applicable compliance requirements of, the Filers;
(b) the CCO and UDP of each Filer ensure that the Representative has sufficient time and resources to adequately serve the respective Filer and its clients;
(c) the Filers have adequate policies and procedures in place to address any potential conflicts of interest that may arise as a result of the dual registration of the Representative, and deal appropriately with any such conflicts;
(d) the relationship between the Filers and the fact that the Representative is dually registered with each of WSCP and WSA is fully disclosed in writing to clients of each of them that deal with such Representative; and
(e) the Filers file with the principal regulator, on a semi-annual basis, with the first such filing being made within six months of the decision, a certificate in the form attached hereto as Schedule A.
This decision shall continue in force until such time as marijuana is no longer listed as a Schedule 1 drug under the United States Controlled Substances Act.
Schedule A
[FORM OF SEMI-ANNUAL REPORT]
TO: Ontario Securities Commission
Pursuant to the conditions of the exemptive relief decision document dated May 5, 2020 (the Decision Document), each of Wellington Square Capital Partners Inc. (WSCP) and Wellington Square Advisors Inc. (WSA) hereby certify that
1. the decision by each of WSCP and WSA to structure WSCP and WSA as unaffiliated and not associated corporations within the meaning of applicable securities legislation continues to preserve the ability for members of WSA (other than the Representative) to travel and/or immigrate to the United States;
2. each of WSCP and WSA continue to operate their respective business as described in the Decision Document;
3. WSA has no responsibility for the oversight of the investment advisory activities of WSCP or the Representative in his capacity as an advising representative of WSCP; and
4. each of WSCP and WSA continue to maintain adequate policies and procedures to identify and address any conflicts of interest which may arise as a result of the Representative being a registered individual with each firm.
Dated this __________ day of __________, 20_____.
WELLINGTON SQUARE CAPITAL PARTNERS INC.
By: ______________________________
Name:
Title: Ultimate Designated Person
WELLINGTON SQUARE ADVISORS INC.
By: ______________________________
Name:
Title: Ultimate Designated Person