Equate Asset Management Inc. and Equate Asset Management Total Return Fund
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Mutual fund that is not a reporting issuer granted extensions of the annual financial statement filing and delivery deadlines and the interim financial statement filing and delivery deadlines under NI 81-106 to permit the fund to file and deliver annual financial statements within 120 days of its most recently completed financial year and to file and deliver interim financial statements within 90 days of its most recently completed interim period -- Fund invests the majority of its assets in Underlying Funds with later financial reporting deadlines -- Relief subject to conditions including disclosure of extended financial reporting deadlines in the offering memorandum of the Fund.
Applicable Legislative Provisions
National Instrument 81-106 Investment Fund Continuous Disclosure, ss. 2.2, 2.4, 5.1(2) and 17.1.
March 28, 2024
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 EQUATE ASSET MANAGEMENT INC. (the Filer) AND EQUATE ASSET MANAGEMENT TOTAL RETURN FUND (the Fund)
DECISION
Background
The Ontario Securities Commission (the OSC) has received an application from the Filer on behalf of itself, and as investment fund manager of the Fund, under the securities legislation of the Jurisdiction (the Legislation), requesting relief from section 2.2, section 2.4, paragraph 5.1(2)(a) and paragraph 5.1(2)(b) of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106).
In accordance with Part 4 of Multilateral Instrument 11-102 Passport System (MI 11-102) and section 3.6 of National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions (NP 11-203), the OSC has been selected as the principal regulator (the Principal Regulator) for the purposes of this application, as the head office of the Filer is in Oakville, Ontario.
In accordance with subsection 4.7(2) of MI 11-102, the Filer gives notice to the Principal Regulator pursuant to paragraph 4.7(1)(c) of MI 11-102 that the requested relief is to be relied upon by the Filer in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, Northwest Territories, Nunavut and Yukon (together with Ontario, the Canadian Jurisdictions).
The Filer and the Fund, request a decision under the Legislation, pursuant to section 17.1 of NI 81-106, exempting the Fund from:
(a) the requirement in section 2.2 of NI 81-106 that the Fund files its audited annual financial statements and auditor's report (the Annual Financial Statements) on or before the 90th day after the Fund's most recently completed financial year (the Annual Filing Deadline);
(b) the requirement in paragraph 5.1(2)(a) of NI 81-106 that the Fund delivers to securityholders its Annual Financial Statements and auditor's report by the Annual Filing Deadline (the Annual Delivery Requirement);
(c) the requirement in section 2.4 of NI 81-106 that the Fund files its unaudited interim financial report (the Interim Financial Statements) on or before the 60th day after the Fund's most recently completed interim period (the Interim Filing Deadline); and
(d) the requirement in paragraph 5.1(2)(b) of NI 81-106 that the Fund delivers to securityholders its Interim Financial Statements by the Interim Filing Deadline (the Interim Delivery Requirement)
(collectively, the Exemption Sought).
Interpretation
Terms defined in National Instrument 14-101 -- Definitions, National Instrument 81-102 Investment Funds or in MI 11-102 have the same meaning if used in this decision, unless otherwise defined herein.
Representations
The decision is based on the following facts represented by the Filer:
The Filer
1. The Filer is a corporation incorporated under the laws of Canada, with its registered head office located in Oakville, Ontario.
2. The Filer is currently registered as follows:
(a) in the each of the provinces of British Columbia, Alberta, Ontario and Saskatchewan as a dealer in the category of exempt market dealer and as an adviser in the category of portfolio manager; and
(b) in the province of Ontario in the category of investment fund manager.
3. The Filer is the portfolio manager, trustee and investment fund manager of the Fund.
4. The Filer is not in default of securities legislation in any of the Canadian Jurisdictions.
The Fund
5. The Fund is a trust formed under the laws of the Province of Ontario.
6. The Fund is a "mutual fund" for purposes of the Legislation.
7. Units of the Fund are offered for sale on a continuous basis to qualified investors in the Canadian Jurisdictions pursuant to exemptions from the prospectus requirements under the Legislation or National Instrument 45-106 -- Prospectus Exemptions (NI 45-106).
8. Units of the Fund have been, and will only be, distributed in Canada pursuant to exemptions from the prospectus requirement in accordance with the Legislation or NI 45-106.
9. The Fund is not a reporting issuer in any of the Canadian Jurisdictions.
10. The Fund is not in default of securities legislation in any of the Canadian Jurisdictions.
11. The Fund has a financial year-end of December 31.
12. Units of the Fund are redeemable daily.
13. The net asset value of the Fund is determined daily in accordance with the Fund's declaration of trust by an independent third-party fund administrator.
14. The Fund invests in certain investment funds and income trusts (the Underlying Funds).
15. The Fund seeks to achieve its investment objective by primarily holding a diversified portfolio of Underlying Funds, which are expected to include a mix of publicly and privately offered equity and fixed-income mutual funds as well as privately offered funds with exposure to private equity, private credit, infrastructure, and real estate portfolios.
16. The Underlying Funds are investment funds, private equity funds and real estate investment trusts that are not reporting issuers.
17. The majority of the Underlying Funds' financial year-end is December 31.
18. All of the Underlying Funds currently invested in by the Fund are managed by entities unrelated to the Filer.
19. The Filer believes that the Fund's investment in the Underlying Funds offers benefits not available through direct investment in the companies, other issuers or assets held by the Underlying Funds.
20. The holdings of the Fund in the Underlying Funds will be disclosed in the Fund's Annual Financial Statements and Interim Financial Statements.
21. As of December 31, 2023, approximately sixty-two percent of the Fund's assets were invested in the Underlying Funds.
22. The declaration of trust of the Fund permits the annual financial statements and auditor's report and the interim financial reports of the Fund to be filed and delivered in accordance with securities legislation.
Financial Statement Filing and Delivery Requirements
23. Section 2.2 and paragraph 5.1(2)(a) of NI 81-106 requires the Fund to file and deliver its annual audited financial statements and auditor's report by the Annual Filing Deadline. As the Fund's financial year-end is December 31, it has a filing and delivery deadline of March 31.
24. Section 2.4 and paragraph 5.1(2)(b) of NI 81-106 requires the Fund to file and deliver its interim financial reports by the Interim Filing Deadline. As the Fund's interim period-end is June 30, it has an interim filing and delivery deadline of August 29.
25. Section 2.11 of NI 81-106 provides an exemption from the filing requirements of the audited annual financial statements and auditor's report, and interim financial reports if, among other things, the Fund delivers such statements and reports in accordance with Part 5 of NI 81-106 by the Annual Filing Deadline and Interim Filing Deadline, as applicable.
26. The delivery requirements for the annual financial statements and the interim financial reports for Underlying Funds do not always match up with the Annual Delivery Requirement and the Interim Delivery Requirement, as applicable, and in any event, do not allow the Fund, the Filer and auditor, as applicable, an appropriate amount of time to prepare the required financial statements and reports of the Fund.
27. In accordance with IFRS 13 -- Fair Value Measurement, issued by the International Accounting Standards Board, the Underlying Funds are Level 2 assets, whose value must be confirmed with reference to their audited financial statements before the auditor of the Fund can complete the audit of the Fund's financial statements. In order to formulate an opinion on the financial statements of the Fund, the Fund's auditor requires audited financial statements of the Underlying Funds in order to audit the information contained in the Fund's financial statements.
28. The auditor of the Fund has advised the Filer that they may be unable to express an unmodified audit opinion in accordance with subsection 2.7(3) of NI 81-106 if the audited financial statements of the Underlying Funds are not completed and available to the Fund sufficiently in advance of the Annual Filing Deadline and Annual Delivery Requirement.
29. If the Exemption Sought is granted, the Fund will notify (the Notice) its respective securityholders that it has received and intends to rely on relief from the Annual Filing Deadline and Annual Delivery Requirement and the Interim Filing Deadline and the Interim Delivery Requirement.
30. If the Exemption Sought is granted, unitholders of the Fund may, within 2 business days from the date of the Notice redeem their units of the Fund at the greater of: (a) the net asset value of the units of the Fund held (the Redemption Value); or (b) the original purchase price of the units of the Fund held (the Original Purchase Value).
31. The Filer will reimburse the Fund if the Original Purchase Value exceeds the Redemption Value.
32. The Underlying Funds are, or will be, suitable and desirable investments for the Fund. The Underlying Funds may have financial reporting deadlines that are not aligned with the filing and delivery deadlines contemplated by NI 81-106 and that are applicable to the Funds. In addition, even if such reporting deadlines are aligned, they do not allow for sufficient time for the Filer, the Fund, and the auditor of the Fund, as applicable, to prepare the applicable financial statements and reports in a manner to meet the deadlines set out in NI 81-106.
33. It is impractical for the Fund to obtain audited financial statements from the Underlying Funds with sufficient time for the Fund's auditors to review them before the Annual Filing Deadline, and the alternative procedures are unduly expensive.
34. The Fund therefore seeks an extension of the Annual Filing Deadline and Annual Delivery Requirement to permit delivery on or before 120 days of the Fund's year-end, to enable the Fund's auditor to first receive the audited financial statements and reports of the relevant Underlying Funds so as to be able to prepare the Fund's audited financial statements and auditor's report.
35. The Fund therefore seeks an extension of the Interim Filing Deadline and Interim Delivery Requirement to permit delivery on or before 90 days of the Fund's most recently completed interim period, to enable such Fund to first receive the interim financial statements and reports from the relevant Underlying Funds, as applicable, so as to be able to prepare the Fund's interim financial reports.
36. Owing to the Fund's investment in Underlying Funds, apart from the timing challenges imposed by producing audited financial statements and interim financial reports in accordance with the Annual Filing Deadline and the Interim Filing Deadline, the delivery of such financial statements and reports prepared within the applicable time frames could be detrimental to investors, as such statements and reports may be based on estimates which are subject to change. Such a rationale is equally applicable to the audited annual financial statements as it is to the interim financial reports. In the Filer's view, in such circumstances, investors are better served by having annual financial statements and interim financial reports delivered: (i) in the case of audited annual financial statements, on or before 120 days following the Fund's year-end rather than the Annual Filing Deadline; and (ii) in the case of interim financial reports, on or before 90 days following the Fund's most recent interim period rather than the Interim Filing Deadline.
37. If the Exemption Sought is granted, an updated offering memorandum for the Fund will be provided to investors of the Fund, or such investors will be otherwise notified that: (i) audited annual financial statements and auditor's reports for the Fund will be delivered to each respective investor on or before 120 days of the Fund's financial year-end; and (ii) unaudited interim financial reports for the Fund would be delivered to each respective investor on or before 90 days following the end of each interim period of the Fund.
38. For the reasons set forth above, it is submitted that it would not be prejudicial to the public interest for the Exemption Sought to be granted.
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 for so long as:
1. The Fund has a financial year ended December 31.
2. The Fund's investment strategy is to primarily invest its assets directly or indirectly in one or more Underlying Funds that are private or other unlisted investment entities managed by independent managers.
3. The Fund invests the majority of its assets in one or more Underlying Funds.
4. No less than 25% of the total assets of a Fund at the time the Fund makes the initial investment decision in the Underlying Fund(s), are invested in investment entities that have financial reporting periods that end on December 31 of each year and are subject to the requirement that their annual financial statements be delivered on or before the 90th day of their financial year ends and interim financial statements be delivered on or before the 60th day of their most recent interim period.
5. The offering memorandum of the Fund provided to prospective investors will be updated to disclose:
(a) the Annual Financial Statements of the Fund may be filed and delivered on or before the 120th day after the Fund's most recently completed financial year-end; and
(b) the Interim Financial Statements of the Fund may be filed and delivered on or before the 90th day after the Fund's most recently completed interim period.
6. On behalf of the Fund, the Filer will disclose to the Fund's investors that such Fund has received and intends to rely on relief from the Annual Filing Deadline, the Interim Filing Deadline, the Annual Delivery Requirement and the Interim Delivery Requirement under section 2.2, section 2.4, paragraph 5.1(2)(a) and paragraph 5.1(2)(b) of NI 81-106.
7. The Fund's declaration of trust will permit the Annual Financial Statements of the Fund and Interim Financial Statements of the Fund to be filed and delivered in accordance with the Exemption Sought.
8. The Fund is not a reporting issuer in any Canadian Jurisdiction, and the Filer is a corporation incorporated under the laws of Canada and has the necessary registrations to carry out its operations in each jurisdiction of Canada in which it operates.
9. The conditions in section 2.11 of NI 81-106 will be met, except for subsection 2.11(b), and:
(a) the Annual Financial Statements will be delivered to the Fund's investors in accordance with Part 5 of NI 81-106 on or before the 120th day after the Fund's most recently completed financial year-end; and
(b) the Interim Financial Statements will be delivered to the Fund's investors in accordance with Part 5 of NI 81-106 on or before the 90th day after the Fund's most recently completed interim period.
10. This decision will terminate within one year of the coming into force of any amendment to NI 81-106 or another rule that substantially modifies how the Annual Filing Deadline, the Interim Filing Deadline, the Annual Delivery Requirement, or the Interim Delivery Requirement applies in connection with mutual funds under the Legislation.
Application File #: 2024/0057
SEDAR+ File #: 06080589