Marquest Asset Management Inc. and Stone Asset Management Limited
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Approval granted for change of manager of mutual funds – change of manager is not detrimental to securityholders or the public interest – change of manager to be approved by the funds’ securityholders at a special meeting of securityholders.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, ss. 5.5(1)(a), 5.5(3), 5.7.
August 29, 2018
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
MARQUEST ASSET MANAGEMENT INC.
(Marquest or the Current Manager)
AND
IN THE MATTER OF
STONE ASSET MANAGEMENT LIMITED
(Stone or the Proposed Manager and together with Marquest, the Filers)
AND
IN THE MATTER OF
THE FUNDS
(as defined below)
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 approval of the proposed change of manager of the mutual funds listed in Exhibit “A” (the “Funds”) from Marquest to Stone (the “Change of Manager”) under section 5.5(1)(a) of National Instrument 81-102 – Investment Funds (“NI 81-102”) (the “Approval 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 section 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 Ontario, the “Jurisdictions”).
Interpretation
Terms defined in NI 81-102, 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:
The Current Manager
1. Marquest is a privately-owned corporation existing under the OBCA and based in Toronto.
2. Marquest is the manager of the Funds and is the trustee of the trust funds listed in Exhibit “A” under the heading “Trust Funds” (the “Trust Funds”). Marquest is registered as portfolio manager, investment fund manager and as an exempt market dealer in each of the provinces of Ontario, British Columbia, Alberta, Saskatchewan, Quebec, New Brunswick and Newfoundland and Labrador.
3. Marquest’s head office is located at 161 Bay Street, Suite 4420, Toronto, Ontario M5J 2S1.
4. Marquest is not in default of any requirements under applicable securities legislation.
The Funds
5. Each Trust Fund is an open-ended mutual fund established under the laws of the Province of Ontario by a declaration of trust (collectively, the “Declaration of Trust”) or articles of amendment, as applicable, and the dates of the most recent revisions are listed in the table below:
|
Name of the Trust Fund |
Dates of declaration of trust and its amendments |
|
Marquest Money Market Fund |
November 11, 2013 |
|
Marquest Canadian Bond Fund |
November 11, 2013 |
|
Marquest Canadian Fixed Income Fund |
December 1, 2014 |
|
Marquest Monthly Pay Fund |
November 11, 2013 |
|
Marquest Global Balanced Fund |
July 17, 2014 |
|
Marquest American Dividend Growth Fund |
July 17, 2014 |
|
Marquest Covered Call Canadian Banks Plus Fund |
July 17, 2014 |
|
Marquest Small Companies Fund |
November 11, 2013 |
|
Marquest Canadian Resource Fund |
November 11, 2013 |
Each corporate fund listed in Exhibit “A” under the heading “Corporate Funds” (the “Corporate Funds”) was established by a certificate and articles of incorporation of Marquest Corporate Class Funds Ltd. (“MCC”) dated March 11, 2004, which certificate has been amended on May 26, 2004, July 14, 2010 and November 11, 2013. Each Corporate Fund was created by the by-laws of MCC most recently revised on the following dates:
|
Name of Corporate Fund |
Date of the By-Laws Creating Each Corporate Fund |
|
Marquest Short Term Income Fund (Corporate Class) |
June 10, 2014 |
|
Marquest Monthly Pay Fund (Corporate Class) |
December 15, 2017 |
|
Marquest American Dividend Growth Fund (Corporate Class) |
July 14, 2014 |
|
Marquest Covered Call Canadian Banks Plus Fund (Corporate Class) |
June 9, 2014 |
|
Marquest Canadian Resource Fund (Corporate Class) |
June 9, 2014 |
6. Securities of the Funds are distributed in each of the Jurisdictions under a simplified prospectus, annual information form and fund facts each dated July 10, 2018 and prepared in accordance with the requirements of National Instrument 81-101 – Mutual Fund Prospectus Disclosure.
7. Each Fund is a reporting issuer under the applicable securities legislation of the Jurisdictions.
8. The Funds are not in default of applicable securities legislation in any of the Jurisdictions.
Details of the Proposed Transaction
9. On June 22, 2018, Marquest announced that it and Stone Investment Group Limited (“SIG”) entered into a definitive purchase agreement (the “Purchase Agreement”) pursuant to which SIG will acquire for its wholly-owned subsidiary, Stone, the rights of Marquest to manage the Funds (the “Proposed Transaction”). Under the terms of the Purchase Agreement, the Proposed Transaction will be completed on or about August 31, 2018, subject to the receipt of all necessary regulatory and securityholder approvals, securities registrations and the satisfaction or waiver of all other conditions to the Proposed Transaction, or such other date as Marquest and Stone agree to, but in any event no later than September 30, 2018 (the “Closing”).
10. The Filers are seeking approval of the securities regulatory authorities of the Proposed Transaction in a single application characterized as a change of manager under section 5.5(1)(a) of NI 81-102.
11. It is intended that the Proposed Transaction will result in (i) a change of the Current Manager to the Proposed Manager (the “Change of Manager”), (ii) a change in portfolio manager of the Funds, (iii) a change of trustee of the Trust Funds from Marquest to Stone, (iv) a change in the name of the Corporate Funds to reflect the Stone brand, and (v) a change in the name of the Funds constituted as trusts to reflect the Stone brand.
12. In accordance with National Instrument 81-106 – Investment Fund Continuous Disclosure, a press release announcing the Proposed Transaction was issued on June 22, 2018 and subsequently the press release and material change report were filed on SEDAR. In addition, on July 10, 2018, amendments to the simplified prospectus and the annual information form of the Funds describing the Proposed Transaction were incorporated into the annual renewal materials of the Funds in each of the Jurisdictions, and the Commission issued a receipt in respect of the same on July 20, 2018.
13. Pursuant to section 5.1(1)(b) of NI 81-102, special meetings of the securityholders of the Funds were held on August 13, 2018 and on August 27, 2018 for the purpose of seeking approval of the Proposed Transaction (the “Meetings”). Quorum was obtained in respect of Marquest Canadian Resources Fund and Marquest Short Term Income Fund (Corporate Class) on August 13, 2018, and quorum was obtained in respect of the remainder of the Funds on August 27, 2018. Securityholders of each of the Funds approved the changes.
14. The notice of Meetings and the management information circular in respect of the Meetings (the “Circular”), were mailed to securityholders of the Funds and copies thereof filed on SEDAR in accordance with applicable securities legislation. The Circular contains sufficient information regarding the business, management and operations of Stone, including details of its officers and directors, and all information necessary to allow securityholders to make an informed decision about the Proposed Transaction. All other information and documents necessary to comply with applicable proxy solicitation requirements of securities legislation for the Meetings was mailed to securityholders of the Funds.
15. The Current Manager has determined that the Proposed Transaction is not a conflict of interest matter pursuant to section 5.1 of National Instrument 81-107 – Independent Review Committee for Investment Funds (“NI 81-107”) and that, as a result, the Proposed Transaction will not require the approval or recommendation of the Independent Review Committee (“IRC”) of the Funds. The Manager has, however, provided information relating to the Proposed Transaction and the Change of Manager to the IRC. The IRC has determined after reasonable enquiry that the action achieves a fair and reasonable result for the Funds.
The Change of Manager
16. Stone is a private corporation formed under the laws of the Province of Ontario.
17. Stone is registered in the following categories in certain of the Jurisdictions indicated below:
(a) Ontario (principal jurisdiction): portfolio manager (“PM”), investment fund manager (“IFM”) and restricted dealer;
(b) Alberta: PM and restricted dealer;
(c) British Columbia: PM and restricted dealer;
(d) Manitoba: PM and restricted dealer;
(e) Newfoundland and Labrador: IFM;
(f) Nova Scotia: PM;
(g) Quebec: IFM; and
(h) Saskatchewan: PM and restricted dealer.
18. Stone’s head office is located at 40 University Avenue, Suite 901, Toronto, Ontario M5J 1T1.
19. Upon the completion of the Proposed Transaction, Stone will be the IFM and trustee of the Funds and will replace Marquest as the portfolio manager of the Funds.
20. Stone is not in default of any requirements under applicable securities legislation.
21. Stone is currently the manager of six mutual funds (the “Stone Funds”), which are offered for distribution in all of the provinces and territories of Canada under a simplified prospectus, annual information form and fund facts dated August 22, 2017. As of June 30, 2018, the Stone Funds had aggregate assets under management of approximately $510 million.
22. Stone and Marquest are not related parties. Except pursuant to the Purchase Agreement, there are currently no relationships between Stone and Marquest (or any of their respective affiliates).
Impact of Change of Manager on the Funds
23. Upon Closing, Stone will become the IFM, PM and trustee of the Funds.
24. RBC Investor Services Trust will remain as custodian of the Fund.
25. The members of the Current Manager’s IRC will cease to be members of the IRC of the Funds by operation of section 3.10(1)(b) of NI 81-107. Immediately following the Closing, the IRC of the Funds will be reconstituted. Stone has confirmed to the Current Manager that it is anticipated that the new members of the Funds’ IRC will be Ross McKinnon (Chair), David Crowe and John Anderson. Mr. Anderson currently serves as Chair of the Marquest IRC.
26. Stone will assume and amend the Declaration of Trust and by-laws that governs the Funds (the “New Declaration of Trust” and the “New By-Laws”, as applicable) to reflect Stone as the new trustee and to make certain other changes. Notice of the change and the major differences between the Declaration of Trust and the New Declaration of Trust and the by-laws and the New By-Laws was described in the Meeting Materials.
27. The individuals that will be principally responsible for the investment fund management of the Funds upon Closing have the requisite integrity and experience, as required under section 5.7(1)(a)(v) of NI 81-102.
28. The Proposed Transaction is not expected to have any material impact on the business, operations or affairs of the Funds or the securityholders of the Funds.
29. The Funds will not bear any of the costs and expenses associated with the Proposed Transaction or Change of Manager.
30. Stone intends to manage and administer the Funds in substantially the same manner as Marquest. There is no current intention to change the investment objectives, investment strategies, or increase the fees and expenses of the Funds. However, Stone intends to effect the orderly migration of the custodial and fund administration systems of the Funds to those used for the Stone Funds. Stone will also assess the potential to realize benefits in the efficiency of operations of the Funds within the Stone Funds environment that may reduce management expense ratios. Any amendments to the Funds in this regard are expected to be implemented at a later date, perhaps in 2019, and if pursued will be implemented in accordance with applicable securities legislation, including obtaining any necessary regulatory or securityholder approvals and the approval of the IRC.
31. Other than as required to reflect the Proposed Transaction, Stone does not currently contemplate any changes to the material contracts of the Funds.
32. The Requested Approval will not be detrimental to the protection of investors in the Funds or prejudice the public interest.
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 Approval Sought is granted.
“Stephen Paglia”
Manager
Investment Funds and Structured Products Branch
Ontario Securities Commission
Exhibit “A”
Trust Funds
MARQUEST MONTHLY PAY FUND
MARQUEST AMERICAN DIVIDEND GROWTH FUND
MARQUEST COVERED CALL CANADIAN BANK PLUS FUND
MARQUEST GLOBAL BALANCED FUND
MARQUEST CANADIAN RESOURCES FUND
MARQUEST SMALL COMPANIES FUND
MARQUEST CANADIAN BOND FUND
MARQUEST CANADIAN FIXED INCOME FUND
MARQUEST MONEY MARKET FUND
Corporate Funds
MARQUEST AMERICAN DIVIDEND GROWTH FUND (CORPORATE CLASS)
MARQUEST MONTHLY PAY FUND (CORPORATE CLASS)
MARQUEST COVERED CALL CANADIAN BANKS PLUS FUND (CORPORATE CLASS)
MARQUEST CANADIAN RESOURCE FUND (CORPORATE CLASS)
MARQUEST SHORT TERM INCOME FUND (CORPORATE CLASS)
OF
MARQUEST CORPORATE CLASS FUNDS LTD