Manulife Investment Management Limited and Manulife Real Asset Fund
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Mutual fund that is not a reporting issuer granted 90-day extension of the annual financial statement filing and delivery deadlines and 60-day extension of the interim financial statement filing and delivery deadlines under NI 81-106 -- Fund invests the majority of its assets in Underlying Funds with later financial reporting deadlines.
Applicable Legislative Provisions
National Instrument 81-106 Investment Fund Continuous Disclosure, ss. 2.2, 2.4, 5.1(2), and 17.1.
December 17, 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 MANULIFE INVESTMENT MANAGEMENT LIMITED (the Filer) AND MANULIFE REAL ASSET FUND (THE FUND)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer, on behalf of itself and the Fund, for a decision under the securities legislation of the Jurisdiction (the Legislation), exempting the Filer and the Fund from:
(a) the requirement in section 2.2 of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) that the Fund file its audited annual financial statements and auditor's report on or before the 90th day after the Fund's most recently completed financial year (the Annual Filing Deadline);
(b) the requirement in paragraph 5.1(2)(a) of NI 81-106 that the Fund deliver its audited financial statements by the Annual Filing Deadline (the Annual Delivery Requirement);
(c) the requirement in section 2.4 of NI 81-106 that the Fund file its interim financial report on or before the 60th day after the Fund's most recently completed interim period (the Interim Filing Deadline); and
(d) the requirement in paragraph 5.1(2)(b) of NI 81-106 that the Fund deliver its interim financial report by the Interim Filing Deadline (the Interim Delivery Requirement);
(collectively, the Requested Relief).
Under National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions:
(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 British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, Northwest Territories, Nunavut and Yukon (together with Ontario, the Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 -- Definitions, NI 81-102 or in MI 11-102 have the same meaning if used in this decision, unless otherwise defined herein.
Representations
The decision is based on the following facts represented by the Filer:
The Filer and the Fund
1. The Filer is a corporation amalgamated under the laws of Canada, with its registered head office located in Toronto, Ontario.
2. The Filer is registered in the categories of commodity trading manager, portfolio manager, derivatives portfolio manager and investment fund manager.
3. The Filer is not in default of securities legislation in any Jurisdiction.
4. The Filer is the general partner, investment fund manager and portfolio advisor of the Fund.
The Fund
5. The Fund is a limited partnership formed under the laws of the Province of Ontario.
6. The Fund is a "mutual fund" for purposes of the Legislation.
7. Units of the Fund are offered for sale on a continuous basis to qualified investors in all provinces and territories of Canada pursuant to exemptions from the prospectus requirements under National Instrument 45-106 -- Prospectus Exemptions (NI 45-106).
8. Units of the Fund will only be distributed in Canada pursuant to exemptions from the prospectus requirement in accordance with NI 45-106. Each investor in the Fund is, or will be, responsible for making its own investment decisions regarding its purchases and/or redemptions of securities of the Fund.
9. The Fund is not a reporting issuer in any province or territory of Canada.
10. The Fund is not in default of securities legislation in any Jurisdiction.
11. The Fund has a financial year-end of December 31.
12. The Fund's investment objective is to achieve long term growth of capital. The Fund seeks positive returns over the Canadian Consumer Price Index (CPI) by investing in direct real assets and liquid assets globally. The Fund's exposure to real assets (such as mortgages, real estate and private debt) is obtained by investing in securities of underlying direct real asset funds (the Underlying Funds).
13. All of the Underlying Funds currently invested in by the Fund have financial reporting periods that end on December 31 of each year.
14. Five of the Underlying Funds are managed by entities unrelated to the Filer (the Third-Party Underling Funds).
15. The Filer believes that investing in the Underlying Funds (including the Third-Party Underling Funds) offers benefits not available through a direct investment in the companies, other issuers or assets held by the Underlying Funds.
16. The Filer engages in an extensive due diligence process when selecting Underlying Funds for the Fund.
17. Securities of the Underlying Funds are typically redeemable at various intervals. As the Fund has a long-term investment horizon, the Fund is able to manage its own liquidity requirements taking into consideration the frequency at which the securities of the Underlying Funds may be redeemed.
18. Currently, the net asset value of the Fund is calculated on a monthly basis, as of the last day of each month, except if that day falls on a Saturday, Sunday, a statutory holiday in Toronto, Ontario or another day on which the Toronto Stock Exchange is not open for trading. Investors in the Fund are provided with the net asset value of the Fund on a monthly basis.
19. The holdings by the Fund of securities of the Underlying Funds are disclosed in the financial statements of the Fund.
Financial Statement Filing and Delivery Requirements
20. Section 2.2 and subsection 5.1(2)(a) of NI 81-106 require the Fund to file and deliver its annual audited financial statements by the Annual Filing Deadline. As the Fund's financial year-end is December 31, it has a filing and delivery deadline of March 31.
21. Section 2.4 and subsection 5.1(2)(b) of NI 81-106 require the Fund to file and deliver its interim financial reports by the Interim Filing Deadline. As the Fund's financial year-end is December 31, it has an interim filing and delivery deadline of August 29.
22. Section 2.11 of NI 81-106 provides an exemption from the filing requirements of the annual financial statements and interim financial reports if, among other things, the Fund delivers its annual financial statements and interim financial reports in accordance with Part 5 of NI 81-106 by the Annual Filing Deadline and Interim Filing Deadline, as applicable.
23. In order to formulate an opinion on the financial statements on the Fund, the Fund's auditor requires audited financial statements of the respective Underlying Funds in order to audit the information contained in the Fund's financial statements. The auditor of the Fund has advised the Filer that they may be unable to express an unmodified audit opinion in accordance with subsection 2.7(3) of NI 81-106 if the audited financial statements of the Underlying Funds are not completed and available to the Fund.
24. The delivery requirements for the annual financial statements and the interim financial statements for four Third-Party Underlying Funds (the Misaligned Third-Party Underlying Funds) do not comply with the Annual Delivery Requirement and the Interim Delivery Requirement, as applicable.
25. Twenty five percent of the Fund's assets are invested in Misaligned Third-Party Underlying Funds.
26. The Fund will not be able to obtain the financial statements of the Misaligned Third-Party Underlying Funds sooner than the deadline for filing the financial statements of the Misaligned Third-Party Underlying Funds and, in all cases, no sooner than other unitholders of the Misaligned Third-Party Underlying Funds receive the financial statements of the Misaligned Third-Party Underlying Funds.
27. The offering memorandum that will be provided to investors will disclose that: (i) annual audited financial statements for the Fund would be delivered to each investor within 180 days of the Fund's financial year end; and (ii) unaudited interim financial statements for the Fund would be delivered to each investor within 120 days following the end of each interim period of the Fund.
28. The Filer will notify its securityholders that it has received and intends to rely on relief from the Annual Filing Deadline and Annual Delivery Requirement and the Interim Filing Deadline and the Interim Delivery Requirement.
29. The Third-Party Underlying Funds are suitable and desirable investments for the Fund but, as noted, the Misaligned Third-Party Underlying Funds have financial reporting deadlines that are not aligned with the filing and delivery deadlines contemplated by NI 81-106 and that are applicable to the Fund. Given the expected investment profile of the Fund, the Filer expects such timing discrepancies to occur year after year for the foreseeable future.
30. The Fund therefore seeks an extension of the Annual Filing Deadline and Annual Delivery Requirement of 180 days, to enable the Fund's auditors to first receive the audited financial statements of all the Misaligned Third-Party Underlying Funds so as to be able to prepare its opinion with respect to the Fund's annual audited financial statements.
31. Owing to its investments in the Third-Party Underlying Funds, apart from the timing challenges imposed by producing financial statements/financial reports in accordance with the Annual Filing Deadline and the Interim Filing Deadline, the delivery of any financial statements/reports prepared within the applicable time frames could be detrimental to investors, as such statements would necessarily be based on estimates which are subject to change and therefore could be materially inaccurate. Such rationale is equally applicable to the annual financial statements, as it is to the interim financial reports. In the Filer's view, investors are better served by having financial statements/financial reports free of material inaccuracies delivered: (i) in the case of annual financial statements, within 180 days following the Fund's year-end rather than the Annual Filing Deadline; and (ii) in the case of interim financial reports, within 120 days following the Fund's most recent interim period rather than the Interim Filing Deadline.
32. In order to ensure all financial statements of the Fund are free of material inaccuracies, the Filer therefore also seeks an extension of the Interim Filing Deadline and Interim Delivery Requirement of 120 days.
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 for so long as:
(a) The Fund has a financial year ended December 31.
(b) The Fund's investment strategy requires investing a majority of its assets in securities of the Underlying Funds.
(c) No less than 25% of the total assets of the Fund at the time the Fund makes an initial investment decision in a Third-Party Underlying Fund, are invested in investment entities that have financial reporting periods that end on December 31 of each year and are subject to laws of their jurisdictions that require:
(i) annual financial statements to be delivered within 120 days of their financial year ends; and
(ii) interim financial statements to be delivered between 60 and 90 days of their most recent interim period.
(d) On behalf of the Fund, within 60 days of the date hereof, the Filer will notify Fund investors that the Fund has received and intends to rely on relief from the Annual Filing Deadline, the Interim Filing Deadline, the Annual Delivery Requirement and the Interim Delivery Requirement (the Notification).
(e) As soon as reasonably practicable following the Notification, the offering memorandum for the Fund and the limited partnership agreement of the Fund will each be amended to confirm:
(i) the audited annual financial statements of the Fund may be filed and delivered on or before the 180th day after the Fund's most recently completed financial year; and
(ii) the interim financial reports of the Fund may be filed and delivered on or before the 120th day after the Fund's most recently completed interim period.
(f) The Fund is not a reporting issuer.
(g) The conditions in section 2.11 of NI 81-106 will be met, except for subsection 2.11(b), and:
(i) the annual audited financial statements will be delivered to Fund investors in accordance with Part 5 of NI 81-106 on or before the 180th day after the Fund's most recently completed financial year; and
(ii) the interim financial reports will be delivered to Fund investors in accordance with Part 5 of NI 81-106 on or before the 120th day after the Fund's most recently completed interim period.
(h) This decision will terminate within one year of the coming into force of any amendment to NI 81-106 or other rule that modifies how the Annual Filing Deadline, the Interim Filing Deadline, the Annual Delivery Requirement or the Interim Delivery Requirement applies in connection with mutual funds under the Legislation.