The Securities Commission granted exemptive relief to investment funds managed by Edgehill Partners and EHP Funds Inc. (the Filers) from certain investment restrictions and reporting requirements under securities legislation. This decision allows non-reporting issuer top funds to invest in reporting issuer underlying funds under common management without breaching conflict of interest investment restrictions or self-dealing prohibitions.
Key points of the decision include:
1. The top funds may invest in underlying funds even if they become substantial securityholders or if an officer/director of the manager or a substantial securityholder has a significant interest in the underlying funds.
2. The investment fund manager is exempt from filing a report for each transaction between the top funds and related underlying funds.
3. The investment fund manager is also exempt from obtaining written consent from top fund clients before purchasing securities of an underlying fund where a responsible person is a partner, officer, or director.
Conditions for the relief include:
– Top funds must distribute securities in Canada using prospectus exemptions.
– Investments must align with the top funds’ fundamental investment objectives.
– Transactions must be at objective prices.
– Top funds cannot invest more than 10% of their net asset value in other investment funds, with certain exceptions.
– No duplicate management or sales fees are allowed.
– The investment fund manager cannot vote the securities of the underlying funds held by the top funds, except under specific circumstances.
– Disclosure requirements to investors about the fund-on-fund structure and potential conflicts of interest.
– Annual notification to investors of their rights to receive documents related to the underlying funds.
The decision is based on the belief that the fund-on-fund structure is efficient and beneficial for diversification and cost-effectiveness. The relief is subject to the conditions ensuring transparency, investor protection, and alignment with the top funds’ objectives.
The legal framework for the decision includes sections 111(2)(b), 111(2)(c), 111(4), 113, and 117(1)1 of the Securities Act (Ontario), as well as paragraph 13.5(2)(a) of National Instrument 31-103.