Fiera Sceptre Inc. et al.
Headnote
National Policy 11-203 -- relief granted from mutual fund conflict of interest investment restrictions in ss. 111(2)(b) and 111(3) of the Securities Act (Ontario) to allow pooled funds to invest in underlying pooled funds and public mutual funds under common management -- relief granted subject to certain conditions.
Applicable Legislative Provisions
Securities Act (Ontario), R.S.O. 1990, c. S.5, as am., ss. 111(2)(b), 111(3), 113.
October 17, 2011
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 MATTTER OF
FIERA SCEPTRE INC.
(the Filer)
AND
IN THE MATTER OF
MONEY MARKET SECTION
SMALL CAPITALIZATION SECTION
BOND SECTION
INTERNATIONAL EQUITY SECTION
CANADIAN EQUITY SECTION
EFT SECTION
FOREIGN EQUITY SECTION
EQUITY SECTION
BALANCED CORE SECTION
SCEPTRE 130/30 CANADIAN EQUITY FUND
(the Current Sceptre Pooled Funds)
AND
FIERA PRIVATE WEALTH OPPORTUNITIES FUND
FIERA PRIVATE WEALTH INCOME FUND
FIERA CANADIAN HIGH YIELD BOND FUND
FIERA ACTIVE FIXED INCOME FUND
FIERA SHORT TERM INVESTMENT FUND
FIERA BALANCED FUND
FIERA CANADIAN EQUITY VALUE FUND
FIERA INTERNATIONAL EQUITY FUND
FIERA PRIVATE WEALTH US EQUITY FUND
FIERA NORTH AMERICAN MARKET NEUTRAL FUND
FIERA MARKET NEUTRAL EQUITY FUND
FIERA GLOBAL MACRO FUND
FIERA PRIVATE WEALTH CANADIAN EQUITY FUND
FIERA LONG/SHORT EQUITY FUND
FIERA ABSOLUTE BOND YIELD FUND
FIERA MULTI-MANAGER FUND
FIERA CANADIAN HIGH INCOME EQUITY FUND
FIERA PRIVATE WEALTH MODERATE FUND
FIERA PRIVATE WEALTH GROWTH FUND
FIERA PRIVATE WEALTH CONSERVATIVE FUND
(the Current Fiera Ontario Pooled Funds)
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) exempting each Pooled Fund (as defined below) from the investment restrictions contained in the Legislation which prohibit a mutual fund from knowingly making or holding an investment in a person or company in which the mutual fund, alone or together with one or more related mutual funds, is a substantial security holder (the Requested Relief) in order to permit Fund-on-Fund Investing (as defined below) in Underlying Funds (as defined below).
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 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 the province of Alberta.
Interpretation
Defined terms in MI 11-102 and National Instrument 14-101 Definitions have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
Facts
1. The Filer is a corporation subsisting under the laws of Ontario with its head office located in Montréal, Québec.
2. The Filer is registered in:
(a) Québec as an investment fund manager, an exempt market dealer, a portfolio manager and a derivatives portfolio manager;
(b) Ontario as an investment fund manager, an exempt market dealer, a portfolio manager and a commodity trading manager; and
(c) each of the other provinces and territories of Canada as an exempt market dealer and a portfolio manager.
3. The Filer:
(a) currently is the manager and portfolio adviser of each Current Sceptre Pooled Fund and Current Fiera Ontario Pooled Fund; and
(b) may, in the future, become the manager and portfolio adviser of further mutual fund trusts (the Future Pooled Funds).
The Current Sceptre Pooled Funds, Current Fiera Ontario Pooled Funds and Future Pooled Funds are referred to collectively in this decision as the Pooled Funds.
4. The Filer, the Current Sceptre Pooled Funds and the Current Fiera Ontario Pooled Funds are not in default of the Legislation.
5. The Filer also is the manager of the Balanced Section of the Sceptre Pooled Investment Fund. The Balanced Section is not included in this Decision. Through inadvertence, the Balanced Section currently holds approximately 40% of the outstanding units of the Foreign Equity Section contrary to the Legislation. The Balanced Section is in the process of liquidating this investment and will be terminated on or before December 1, 2011.
6. The Requested Relief is not being sought under the securities legislation of Québec. The Filer also has an office, assets and operations located in Toronto, Ontario. As well, each Current Sceptre Pooled Fund and Current Fiera Ontario Pooled Fund has been formed under the laws of Ontario and has its head office in Ontario, and each Future Pooled Fund will be formed under the laws of Ontario and will have its head office in Ontario.
7. Each Pooled Fund is or will be a "mutual fund in Ontario" under the Legislation. The securities of each Pooled Fund are sold in Canada to investors pursuant to exemptions from the prospectus requirements in accordance with National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106). None of the Pooled Funds is, or will be, a reporting issuer under the securities legislation of any province of Canada.
8. Each Pooled Fund (a Top Fund) may, from time to time, invest (Fund-on-Fund Investing) in securities of other Pooled Funds (the Underlying Pooled Funds) in such combinations as the Filer determines from time to time in its absolute discretion.
9. Each Top Fund also may, from time to time, invest (also Fund-on-Fund Investing) in securities of mutual funds of which the Filer, or an affiliate of the Filer, is the manager and that are regulated by National Instrument 81-102 Mutual Funds (NI 81-102), including commodity pools that are regulated by National Instrument 81-104 Commodity Pools (the Underlying Mutual Funds and, together with the Underlying Pooled Funds, the Underlying Funds), in such combinations as the Filer determines from time to time in its absolute discretion.
10. As a result of Fund-on-Fund Investing in an Underlying Fund, a Top Fund, alone or in combination with other Top Funds or related mutual funds, may own more than 20% of the outstanding securities of the Underlying Fund and therefore be a "substantial security holder" (as defined in the Legislation) of the Underlying Fund.
11. The Filer believes that Fund-on-Fund Investing will provide the Top Funds with a more efficient and cost-effective means of pursuing portfolio diversification compared to investing directly in securities held by an Underlying Fund.
12. A Top Fund will invest in securities of an Underlying Fund only if such Fund-on-Fund Investing is consistent with the investment objectives of the Top Fund.
13. The investments held by the Pooled Funds cover a broad range. From time to time, a Pooled Fund may hold significant concentrated investments in single issuers and/or in illiquid securities. Where a Pooled Fund holds illiquid investments, the Filer manages the remainder of the investment portfolio to provide sufficient liquidity to fund redemptions in the ordinary course.
14. Securities of the Pooled Funds generally are valued and redeemable either weekly or monthly. Certain Pooled Funds which hold particularly large proportions of concentrated investments and/or illiquid securities are valued and redeemable quarterly.
15. In the majority of cases, each Top Fund and its Underlying Pooled Funds have matching valuation and redemption dates. Where this is not the case, the Filer treats the Underlying Pooled Fund as potentially an illiquid investment and manages the remainder of the Top Fund's assets to provide sufficient liquidity to fund redemptions in the ordinary course.
16. Offering memoranda are not produced for all Pooled Funds as certain of the Pooled Funds are, or will be, sold only to managed account clients of the Filer. Where an offering memorandum is produced in respect of a Pooled Fund, it will:
(a) be provided to investors of that Pooled Fund; and
(b) disclose:
(i) that the Pooled Fund may invest in, or enter into derivative transactions for which the underlying interest is based on the securities of, securities of Underlying Funds;
(ii) that the manager of the Underlying Funds is the Filer or an affiliate or associate of the Filer;
(iii) the percentage of net assets of the Pooled Fund dedicated to investment in the securities of, or entering into derivative transactions for which the underlying interest is based on the securities of, the Underlying; and
(iv) the process or criteria used to select the Underlying Funds,
(the Fund-on-Fund Information).
17. Each managed account client of the Filer who invests in a Pooled Fund that does not utilize an offering memorandum will receive a copy of the Pooled Fund's Trust Agreement and Investment Policy Statement which disclose the Fund-on-Fund Information.
18. Unitholders of each Top Fund have access to copies of such Top Fund's interim financial statements and audited annual financial statements. The financial statements of each Top Fund will disclose its holdings of securities of Underlying Funds.
19. Where a Top Fund invests in securities of an Underlying Pooled Fund, unitholders of the Top Fund will receive, on request and free of charge, a copy of the offering memorandum (if any) of the Underlying Pooled Fund and the most recent annual financial statements of the Underlying Pooled Fund and any interim financial statements of the Underlying Pooled Fund after the date of its most recent annual financial statements.
20. A Top Fund will not engage in Fund-on-Fund Investing in an Underlying Fund that, in turn, invests in other mutual funds unless:
(i) the Underlying Fund (a "clone fund") links its performance to the performance of one other mutual fund;
(ii) the other mutual fund is a "money market fund" as defined by NI 81-102; or
(iii) the securities held by the other mutual fund are "index participation units" as defined by NI 81-102.
21. Fund-on-Fund Investing is made in such a manner as to avoid the duplication of management fees and incentive fees. In particular, none of the Pooled Funds pays the Filer a management fee in respect of its investments in Underlying Funds. Instead, each unitholder of a Pooled Fund pays a fee directly to the Filer based upon the value of unitholder's units of the Pooled Fund.
22. No sales or redemption fees are, or will be, payable by a Top Fund in relation to its purchase or redemption of securities of an Underlying Fund that, to a reasonable person, would duplicate a fee payable by an investor in the Top Fund.
23. The Top Funds do not, and will not, vote the securities they hold of the Underlying Funds unless the Filer, in its discretion, has sought and received instructions from the beneficial owners of securities of the Top Fund concerning how their proportionate number of securities of the Underlying Fund are to be voted and the securities of the Underlying Fund are voted in accordance with such instructions.
24. In the absence of the Requested Relief, the Top Funds may be precluded from purchasing or holding securities of the Underlying Funds due to the investment restrictions contained in the Legislation.
25. The investment by each Top Fund in securities of an Underlying Fund will represent the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Top Fund.
Decision
The Decision Maker is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Maker under the Legislation is that the Requested Relief is granted provided that:
(a) the securities of the Top Funds are distributed in Canada only pursuant to exemptions from the prospectus requirements in accordance with NI 45-106;
(b) no management or incentive fees are payable by a Top Fund that, to a reasonable person, would duplicate a fee payable by an Underlying Fund for the same services;
(c) no sales or redemption fees are, or will be, payable by a Top Fund in relation to its purchase or redemption of securities of an Underlying Fund that, to a reasonable person, would duplicate a fee payable by an investor in the Top Fund;
(d) each investment by a Top Fund in securities of an Underlying Fund is compatible with the investment objectives of the Top Fund;
(e) if the Underlying Fund invests in other mutual funds:
(i) the Underlying Fund (a "clone fund") links its performance to the performance of one other mutual fund;
(ii) the other mutual fund is a "money market fund" as defined by NI 81-102; or
(iii) the securities held by the other mutual fund are "index participation units" as defined by NI 81-102;
(f) the Top Funds do not vote the securities they hold of the Underlying Funds unless the Filer, in its discretion, has sought and received instructions from the beneficial owners of securities of the Top Fund concerning how their proportionate number of securities of the Underlying Fund are to be voted and the securities of the Underlying Fund are voted in accordance with such instructions;
(g) each investor who is not currently an investor in a Top Fund will be provided with the Fund-on-Fund Information in writing. The Fund-on-Fund Information will be contained in any offering memorandum prepared in connection with a distribution of units of the Top Fund or, if no offering memorandum is prepared, in the Trust Agreement or Investment Policy Statement of the Pooled Fund; and
(h) each investor who is currently an investor in a Top Fund will be provided with the Fund-on-Fund Information in writing not later than October 31, 2011.