SLGI Asset Management Inc.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief from self-dealing restrictions in paragraph 13.5(2)(b) to permit portfolio advisor to managed accounts to cause in-specie transfers of managed account assets to newly established mutual funds, under common management, to facilitate a reorganization of the managed accounts to hold their assets through underlying pooled funds. Relief is subject to the usual terms and conditions.
Applicable Legislative Provisions
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 13.5(2)(b) and 15.1.
June 27, 2023
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
SLGI ASSET MANAGEMENT INC. (the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application (the Application) from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) exempting the Filer from the prohibitions in paragraph 13.5(2)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) which prohibits a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as an adviser, to purchase or sell a security from or to the investment portfolio of (i) a responsible person, (ii) an associate of a responsible person, or (iii) an investment fund for which a responsible person acts as an adviser, in order to permit a one-time reorganization (the Exemption Sought) that results in:
(a) the Funds (defined below) for which the Filer acts as portfolio manager to purchase securities from managed accounts that are investment portfolios of Sun Life Assurance Company of Canada (SLA) for which the Filer acts as portfolio manager (the Managed Accounts and each a Managed Account), each being an account of:
(i) a responsible person; and
(ii) an associate of a responsible person; and
(b) the Managed Accounts to sell securities to the Funds, each of which is an investment portfolio of:
(i) an associate of a responsible person; and
(ii) an investment fund for which a responsible person acts as an adviser;
and as consideration for any such purchase and sale of securities, the Managed Accounts making good delivery of portfolio securities to the Funds in exchange for units of the applicable Fund (each such transfer of securities, an In-Specie Transfer).
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 subsection 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 the Jurisdiction, the Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 -- Definitions, National Instrument 81-102 Investment Funds (NI 81-102), NI 31-103 or the Legislation have the same meaning in this Application (unless otherwise defined herein).
Representations
This decision is based on the following facts represented by the Filer:
The Filer and SLA
1. The Filer is a corporation formed under the laws of Ontario with its head office located in Toronto, Ontario. The Filer is registered as (a) an investment fund manager in the provinces of Ontario, Quebec and Newfoundland and Labrador, (b) a portfolio manager in Ontario, (c) a commodity trading manager in Ontario and (d) a mutual fund dealer in Ontario.
2. The Filer is an indirect wholly owned subsidiary of Sun Life Financial Inc. (SLF), a company the shares of which are listed on, among others, the Toronto Stock Exchange, and as such is part of the Sun Life group of companies.
3. SLA is an insurance company authorized to carry on business under the Insurance Companies Act (Canada) and regulated by the Office of the Superintendent of Financial Institutions. SLA is an indirect wholly owned subsidiary of SLF.
4. As a result of both the Filer and SLA being subsidiaries of SLF, the Filer and SLA are affiliates.
5. Neither the Filer nor SLA are in default of securities legislation of any of the Jurisdictions.
The Managed Accounts and the Funds
6. The Filer offers discretionary investment management services to SLA through the Managed Accounts. Pursuant to the investment management agreement between SLA and the Filer, SLA has appointed the Filer to act as portfolio manager in connection with SLA's investment portfolio with full discretionary authority to trade in securities for the Managed Accounts without obtaining the specific consent of SLA to execute each trade.
7. The Filer will be the investment fund manager of certain newly created investment funds (each a Fund, and collectively, the Funds). Each Fund will be established as a trust under the laws of Ontario.
8. The Funds will not be reporting issuers in any of the Jurisdictions and will not be subject to NI 81-102. Units of the Funds will be sold pursuant to exemptions from prospectus requirements under applicable securities legislation of the Jurisdictions.
9. The Funds are not in default of the securities legislation of any of the Jurisdictions.
In-Specie Transfers
10. The Managed Accounts currently own certain investments and the Filer has determined that it is operationally preferable for the Managed Accounts to hold these investments through the Funds, rather than directly.
11. The Filer proposes to establish the Funds and effect a reorganization of the investments in the Managed Accounts (the Proposed Reorganization) by having the Managed Accounts purchase units of the Funds (the Fund Securities) and, in satisfaction of the purchase price, cause the Managed Accounts to deliver these portfolio securities to the Funds.
12. Following the Proposed Reorganization, SLA will remain the owner of the investments, through ownership of the Funds which own the investments. SLA will be the only securityholder of the Funds at the time of the Proposed Reorganization.
Necessity for the Exemption Sought
13. The Filer is the registered adviser of the Funds and the Managed Accounts, and accordingly the Filer is a "responsible person" within the meaning of NI 31-103.
14. SLA is an affiliate of the Filer. Certain officers and/or directors of the Filer are also officers and/or directors of SLA who have knowledge and information related to the Proposed Reorganization. Accordingly, SLA has access to, or participates in formulating, an investment decision or advice made by the Filer on behalf of a client and is therefore a "responsible person" within the meaning of NI 31-103.
15. The Filer is deemed to own beneficially securities beneficially owned by its affiliates, and accordingly, the Filer is deemed to own the outstanding securities of SLA owned by SLF. Accordingly, SLA is an associate of the Filer under the Legislation, and thus is an associate of a "responsible person" within the meaning of NI 31-103.
16. The Filer is the trustee of each Fund, and therefore the Funds will be each be an "associate" of the Filer.
17. Absent the Exemption Sought, the Filer would be precluded by subsection 13.5(2)(b) of NI 31-103 from causing the Managed Accounts to sell portfolio securities to the Funds and from causing the Funds to purchase securities from the Managed Accounts.
Generally
18. For each In-Specie Transfer by a Managed Account to a Fund, the portfolio securities transferred to the Fund in satisfaction of the purchase price of Fund Securities:
(a) will be valued on the same valuation day on which the purchase price of the Fund Securities is determined;
(b) will be valued as if the securities were portfolio assets of the Fund, as contemplated by section 9.4(2)(b)(iii) of NI 81-102; and
(c) will be acceptable to the Filer, as portfolio manager of the Fund, and consistent with the Fund's investment objectives.
19. The value of each Managed Account's portfolio securities will be equal to the issue price of the Fund Securities of each Fund for which they are used as payment.
20. Each Fund will, at the time of the In-Specie Transfer, be permitted to purchase the portfolio securities of each Managed Account being delivered to it.
21. The account statement next prepared for the Managed Accounts will describe the portfolio securities delivered to the Funds and the value assigned to such securities.
22. Each Fund will keep written records of the In-Specie Transfers, including records of each purchase of portfolio securities and the terms thereof, for a period of five years commencing after the end of the financial year in which the trade occurred, the most recent two years in a reasonably accessible place.
23. The Filer will not receive any compensation in respect of any issuance of Fund Securities. There will be no fees payable by any of the Managed Accounts or the Funds in respect of any delivery of portfolio securities further to an In-Specie Transfer.
24. In-Specie Transfers will be subject to (i) compliance with the Filer's trading policies that are consistent with applicable securities legislation, and (ii) the oversight of the Compliance Department of the Filer to ensure that the transaction represents the business judgment of the Filer acting in its discretionary capacity with respect to each Fund and Managed Account, uninfluenced by considerations other than the best interests of the Funds and the Managed Accounts.
25. The Filer will obtain the prior written consent of SLA before it engages in the In-Specie Transfers.
26. The In-Specie Transfers are one-time transactions to facilitate the Proposed Reorganization and the Filer has determined that the Proposed Reorganization is in the best interests of the Managed Accounts.
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 Exemption Sought is granted provided that:
(a) the Filer obtains the prior written consent of SLA before it engages in an In-Specie Transfer and the authorization has not been revoked;
(b) for each In-Specie Transfer by a Managed Account to a Fund, the portfolio securities transferred to the Fund in satisfaction of the purchase price of Fund Securities:
(i) will be valued on the same valuation day on which the purchase price of the Fund Securities is determined;
(ii) will be valued as if the securities were portfolio assets of the Fund, as contemplated by section 9.4(2)(b)(iii) of NI 81-102; and
(iii) will be acceptable to the Filer, as portfolio manager of the Fund, and consistent with the Fund's investment objectives;
(c) the value of the portfolio securities will be equal to the issue price of the Fund Securities of each Fund for which they are used as payment;
(d) each Fund will, at the time of payment, be permitted to purchase the portfolio securities of each Managed Account being delivered to it;
(e) the account statement next prepared for the Managed Accounts describes the portfolio securities delivered to the Funds and the value assigned to such securities;
(f) each Fund keeps written records of the In-Specie Transfers, including records of each purchase of portfolio securities and the terms thereof, for a period of five years commencing after the end of the financial year in which the trade occurred, the most recent two years in a reasonably accessible place; and
(g) the Filer does not receive any compensation in respect of any issuance of Fund Securities. There will be no fees payable by any of the Managed Accounts or the Funds in respect of any delivery of portfolio securities further to an In-Specie Transfer.