The Securities Commission granted an exemption to certain mutual funds managed by the Filers, allowing them to invest more than 10% of their equity in non-reporting, related underlying pools managed by Northleaf Capital Partners, which are not subject to National Instrument 81-102 Investment Funds (NI 81-102). This decision is based on the condition that these investments are treated as illiquid assets and do not exceed 10% of the net asset value of the investing mutual fund, among other stipulations.
The exemption was sought because the mutual funds (Top Funds) could inadvertently breach the control restriction in section 2.2(1) of NI 81-102 due to the size disparity between the Top Funds and the Northleaf Funds. The Filers argued that the Top Funds would not actively participate in the business or operations of the Northleaf Funds and would be treated as arm’s-length investors.
The decision was made under the securities legislation of Ontario, with the Ontario Securities Commission acting as the principal regulator. The Filers provided notice that they intend to rely on subsection 4.7(1) of Multilateral Instrument 11-102 Passport System in other Canadian jurisdictions.
The conditions for the exemption include that the Top Funds will not actively participate in the Northleaf Funds’ operations, will be treated as arm’s-length investors, will not hold more than 20% of the Northleaf Funds’ equity or voting securities, and will not pay duplicative fees. Additionally, investments in Northleaf Funds must be disclosed to investors, and the manager of the Top Funds must comply with relevant sections of National Instrument 81-107 Independent Review Committee for Investment Funds regarding conflict of interest matters.
The decision allows the Top Funds to diversify their portfolios with private market investments, which the Filers believe will provide unique opportunities and potentially improve risk-adjusted returns for investors.