SEI Investments Canada Company and SEI Investments Management Corporation -- s. 74(1)
Headnote
Relief granted from the Dealer Registration Requirement when carrying out "rebalancing" trades in units of the Funds in accordance with the investment decisions made by the Sub-Adviser in managing the portfolios of the Funds as sub-adviser to the Manager in respect of the Funds.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1), 74(1).
National Instrument 31-103 Registration Requirements and Exemptions, s. 8.6.
IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, CHAPTER S.5, AS AMENDED
(the OSA)
AND
IN THE MATTER OF
SEI INVESTMENTS CANADA COMPANY
AND
SEI INVESTMENTS MANAGEMENT CORPORATION
ORDER
(Subsection 74(1) of the OSA)
UPON the application (the "Application") of SEI Investments Management Corporation (the "Sub-Adviser") and SEI Investments Canada Company (the "Manager") for an order ("Order") of the Commission pursuant to subsection 74(1) of the Securities Act (Ontario) (the "OSA") exempting the Sub-Adviser, and any individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of the Sub-Adviser in respect of the Sub-Advisory Services (as defined below), from the dealer registration requirements of subsection 25(1) of the OSA when carrying out "rebalancing" trades in units of the Funds (as defined below) in accordance with the investment decisions made by the Sub-Adviser in managing the portfolios of the Funds as sub-adviser to the Manager in respect of the Funds;
AND UPON considering the Application and the recommendation of staff of the Commission;
AND UPON the Manager having represented to the Commission that:
1. The Manager is an unlimited liability company organized under the laws of the Province of Nova Scotia, having its head office in Ontario. The Manager is registered as an adviser in the category of portfolio manager and as a dealer in the category of exempt market dealer under the securities legislation in all the provinces of Canada and in the Yukon, and is also registered under the OSA as an investment fund manager. The Manager is also registered under the Commodity Futures Act (Ontario) (the "CFA") as an adviser in the category of commodity trading manager.
2. The Manager is not in default of the securities legislation of any jurisdiction of Canada.
3. The Manager is the manager of and, as the case may be, provides discretionary portfolio management services in Ontario to (i) investment funds, the securities of which are qualified by prospectus for distribution to the public in Ontario and the other provinces and territories of Canada, including those mutual funds which are listed in the simplified prospectus for the SEI Funds as seeking to achieve their investment objective by investing in units of other mutual funds that are managed by the Manager and for which the Sub-Adviser provides portfolio management services (the "Asset Allocation Funds"); (ii) pooled funds, the securities of which are sold on a private placement basis in Ontario and certain other provinces and territories of Canada pursuant to prospectus exemptions contained in National Instrument 45-106 Prospectus and Registration Exemptions which seek to achieve their investment objectives by investing in shares of mutual funds established in the United States and managed by the Sub-Adviser (the "Pooled Funds"); and (iii) other Asset Allocation Funds and Pooled Funds that may be established in the future in respect of which the Manager engages the Sub-Adviser to provide portfolio advisory services (the "Future Funds") (each of the Asset Allocation Funds, Pooled Funds and Future Funds being referred to individually as a "Fund" and collectively as the "Funds").
4. Each Fund seeks, or will seek, to achieve its investment objective by investing in the securities of an underlying fund (an "Underlying Fund"). The Manager is the manager of the Underlying Funds in which the Asset Allocation Funds invest. The Sub-Adviser is the manager of the Underlying Funds in which the Pooled Funds invest.
AND UPON the Sub-Adviser having represented to the Commission that:
5. The Sub-Adviser is a company incorporated under the laws of the State of Delaware. The head office of the Sub-Adviser is located at One Freedom Valley Drive, Oaks, Pennsylvania, 19456, U.S.A.
6. The Sub-Adviser and the Manager are affiliates and are each indirect wholly-owned subsidiaries of SEI Investments Company, a Pennsylvania corporation the shares of which are listed on NASDAQ (SEIC).
7. The Sub-Adviser is registered in the United States as an investment adviser with the U.S. Securities and Exchange Commission and is currently exempt from registration as a commodity trading adviser and a commodity pool operator with the U.S. Commodity Futures Trading Commission, subject to pending legislative changes in the United States which may require that the Sub-Adviser register in either one or both such capacities.
8. The Sub-Adviser is not resident in any province or territory of Canada and is not registered in any capacity under the OSA, the CFA or under the securities or derivatives legislation of any other Canadian jurisdiction.
9. The Sub-Adviser provides sub-advisory services to the Manager in connection with the management by the Manager of the Funds in respect of all or a portion of the assets of the investment portfolio of the respective Fund (the "Sub-Advisory Services").
10. The Sub-Adviser is not in default of the securities legislation of any jurisdiction of Canada.
AND UPON the Manager having further represented to the Commission that:
11. The relationship among the Manager, the Sub-Adviser and each Fund satisfies the requirements of section 7.3 of Ontario Securities Commission Rule 35-502 Non-Resident Advisers ("Rule 35-502").
12. As required under section 7.3 of Rule 35-502,
(a) the obligations and duties of the Sub-Adviser in connection with the Sub-Advisory Services are set out in a written agreement with the Manager; and
(b) the Manager has contractually agreed with the Funds now existing to be responsible for any loss that arises out of the failure of the Sub-Adviser:
(i) to exercise the powers and discharge the duties of its office honestly, in good faith and in the best interests of the Manager and the Fund; or
(ii) to exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances (this obligation, together with the obligation in subparagraph (i), the ("Assumed Obligations").
13. The prospectus or similar offering document for each Fund now existing for which the Manager engages the Sub-Adviser to provide the Sub-Advisory Services includes the following disclosure:
(a) a statement that the Manager is responsible for any Loss that arises out of the failure of the Sub-Adviser to meet the Assumed Obligations; and
(b) a statement that there may be difficulty in enforcing any legal rights against the Sub-Adviser because the Sub-Adviser is resident outside of Canada and all or substantially all of its assets are situated outside of Canada.
14. As part of the Sub-Advisory Services, the Sub-Adviser is responsible for providing discretionary asset allocation services to the Manager in respect of each Asset Allocation Fund by developing asset class weightings for such Fund (the "Strategic Allocations"), selecting the Underlying Funds in which such Fund will invest in accordance with such Strategic Allocations and setting and adjusting the target percentage of the net assets of the Fund invested in each Underlying Fund consistent with the investment strategy of the Fund (the "Target Percentages").
15. The Manager is currently responsible for periodically rebalancing the portfolio of each Asset Allocation Fund by effecting the required purchase and redemption trades in the securities of the Underlying Funds to bring the portfolio back to the Target Percentages and to adjust the portfolio to changes made by the Sub-Adviser to the Strategic Allocations and Target Percentages (the "Rebalancing Activities").
16. As part of the Sub-Advisory Services, the Sub-Adviser is not currently, but may become responsible for providing asset allocation services to the Manager in respect the Pooled Funds.
17. In order to achieve greater efficiency in the management of the Fund portfolios, the Manager is proposing to delegate the performance of the Rebalancing Activities to the Sub-Adviser in order for the Rebalancing Activities to be performed by the Sub-Adviser as a necessary and incidental part of the Sub-Advisory Services provided by the Sub-Adviser.
18. The Funds, or holders of units of the Funds do not pay any commission or fees to the Sub-Adviser. Rather, the Manager pays the Sub-Adviser a sub-advisory fee directly out of the Management fees it receives. There are no commissions or fees paid on a trade of the securities of the Underlying Funds and there is no duplication of management fees of the Funds since no management fees are payable by the Funds to the Underlying Funds.
AND UPON the Sub-Adviser and the Manager having further represented to the Commission that:
19. Subsection 25(1) of the OSA prohibits a person or company from engaging in, or holding himself, herself or itself out as engaging in the business of trading securities unless the person or company is registered under Ontario securities law as a dealer or as a dealing representative of a registered dealer and is acting on behalf of a registered dealer, unless the person or company is exempt under Ontario securities law from the dealer registration requirement.
20. By engaging in the Rebalancing Activities as part of the Sub-Advisory Services, the Sub-Adviser and any individual acting on behalf of the Sub-Adviser in respect of the Sub-Advisory Services may be engaging in, or holding himself, herself or itself out as engaging in, the business of trading and, in the absence of being granted the requested relief, would be required to register as an dealer, or as a representative of a dealer, as the case may be, under the OSA.
21. The Sub-Adviser is seeking the relief requested for a purpose similar to the purpose underlying the dealer registration exemption available pursuant to section 8.6 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations [Investment fund trades by adviser to managed account] (the "Managed Account Exemption"). While the Managed Account Exemption would not be available to the Sub-Adviser since, among other reasons, the Sub-Adviser does not act as each Fund's adviser and investment fund manager, the Sub-Adviser is seeking dealer registration relief in connection with the Rebalancing Activities, by analogy with the Managed Account Exemption, are an incidental part of its discretionary investment management activities as sub-adviser to the Manager in respect of the Funds.
22. The Sub-Adviser would currently not be subject to the broker-dealer registration requirement in the United States to engage in any Rebalancing Activities.
AND UPON being satisfied that it would not be prejudicial to the public interest for the Commission to grant the relief requested.
IT IS ORDERED, pursuant to subsection 74(1) of the OSA, that the Sub-Adviser and any individuals that, as a result of engaging in Rebalancing Activities, may be engaging in, or holding themselves out as engaging in, the business of trading securities when acting on behalf of the Sub-Adviser in respect of the Sub-Advisory Services, are exempt from the dealer registration requirement of subsection 25(1) of the OSA when engaging in the Rebalancing Activities, provided that at the relevant time that such activities are engaged in:
(a) the Manager is registered under the OSA as a dealer in the category of exempt market dealer or in any other category of dealer registration that would permit it to carry out "rebalancing" trades in units of the Funds; and
(b) the Sub-Adviser and any individuals engaging in, or holding themselves out as engaging in, the business of advising others when acting on behalf of the Sub-Adviser in respect of the Sub-Advisory Services are appropriately registered or licensed, or are entitled to rely on appropriate exemptions from such registrations or licenses, to provide advice for the particular Fund pursuant to the application legislation of their principal jurisdiction.
November 2, 2012.