Brandes Investment Partners & Co.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from paragraphs 2.5(2)(a) and (c) of National Instrument 81-102 Investment Funds to allow the mutual fund to invest in an underlying mutual fund in the United States -- the underlying mutual fund is subject to the United States Investment Company Act of 1940 -- Investment in the underlying mutual fund is limited to 10% of the fund's net asset value -- Relief subject to terms and conditions based on investment restrictions of NI 81-102 such that the fund cannot do indirectly via investment in the underlying mutual fund what it cannot do directly under NI 81-102.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, ss. 2.5(2)(a) and (c), and 19.1.
February 23, 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 BRANDES INVESTMENT PARTNERS & CO. (THE FILER)
The principal regulator in the Jurisdiction has received an application from the Filer, on behalf of the Fund (as defined below), for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Fund from the following provisions of National Instrument 81-102 Investment Funds (NI 81-102), in order to permit the Fund to invest in securities of the Underlying Fund (as defined below), which is not an investment fund subject to NI 81-102, whose securities are not or have not been offered under a simplified prospectus in accordance with National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) and which is not a reporting issuer in a local jurisdiction:
(a) paragraph 2.5(2)(a) to permit the Fund to invest in securities of the Underlying Fund even though the Underlying Fund is not subject to NI 81-102; and
(b) paragraph 2.5(2)(c) to permit the Fund to invest in securities of the Underlying Fund even though the Underlying Fund is not a reporting issuer in any Canadian Jurisdiction (as defined below)
(collectively, the Exemption Sought)
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 section 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 Ontario, the Canadian Jurisdictions).
Terms defined in MI 11-102, NI 81-102, National Instrument 14-101 Definitions and National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107) have the same meaning if used in this decision , unless otherwise defined.
Fund means T. Rowe Price Global Allocation Fund;
Investment Company Act means the United States Investment Companies Act of 1940.
T. Rowe Price means T. Rowe Price (Canada), Inc.
Underlying Fund means T. Rowe Price Dynamic Global Bond Fund.
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation incorporated under the laws of Nova Scotia with its registered head office in Toronto, Ontario. The Filer operates under the retail trade name Bridgehouse Asset Managers.
2. The Filer is registered as: (a) an investment fund manager in Ontario, Quebec, and Newfoundland and Labrador; (b) as a portfolio manager in each of the Canadian Jurisdictions; and (c) as an exempt market dealer in each of the Canadian Jurisdictions.
3. The Filer or an affiliate of the Filer acts or will act as the manager of the Fund.
4. The Filer is not in default of securities legislation is any of the Canadian Jurisdictions.
5. The Fund is an investment fund organized and governed by the laws of Ontario.
6. The Fund is governed by the applicable provisions of NI 81-102, subject to any exemptions therefrom that have been, or may in the future be, granted by the securities regulatory authorities.
7. The Fund is a reporting issuer in all of the Canadian Jurisdictions.
8. The Fund is subject to NI 81-107.
9. The fundamental investment objective of the Fund is to achieve a combination of long-term capital appreciation and income by investing in a broadly diversified global portfolio that includes global stocks, bonds and short-term securities, and alternative investments.
10. T. Rowe Price became the sub-advisor of the Fund on January 30, 2023. T. Rowe Price is currently registered as a portfolio manager and exempt market dealer in each of Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador (where it is also registered as an investment fund manager), Nova Scotia, Ontario (where it is also registered as an investment fund manager), Prince Edward Island, Québec (where it is also registered as an investment fund manager) and Saskatchewan.
11. The Fund will be based on an existing T. Rowe Price strategy called the "T. Rowe Price Global Allocation" strategy which T. Rowe Price manages in a mutual fund format in the United States and a SICAV format in Europe. In either format (the U.S. mutual fund or the SICAV) T. Rowe Price will invest up to 10% of a fund's assets in the Underlying Fund (or in the case of the SICAV, the underlying SICAV equivalent to the Underlying Fund) in order to gain exposure to a global fixed income mandate that requires a large amount of capital to manage effectively. T. Rowe Price would like to implement the same approach for the Fund by investing up to a maximum of 10% of the Fund's total assets in the Underlying Fund.
12. The Fund is not in default of applicable securities legislation in any of the Canadian Jurisdictions.
The Underlying Fund
13. The Underlying Fund is, in the United States, a registered investment company under the Investment Company Act and a publicly offered mutual fund under the Investment Company Act.
14. The Underlying Fund will not be managed by, or advised by, the Filer or an affiliate of the Filer.
15. The requirements/industry standards relating to reporting, fund governance and investment restrictions in the U.S. applicable to the Underlying Fund are comparable to those in the Canadian regulations.
16. The Underlying Fund will not hold more than 10% of its net asset value (NAV) in securities of another investment fund unless: (i) the Underlying Fund is a clone fund, as defined in NI 81-102, (ii) the other investment fund is a money market fund, as defined in NI 81-102, or (iii) securities of the other investment fund are index participation units (IPUs).
17. The Fund will not pay sales fees or redemption fees in relation to its purchase or redemption of the securities of the Underlying Fund which to a reasonable person would duplicate a fee payable by an investor in the Fund.
18. The Fund will not pay management or incentive fees which to a reasonable person would duplicate a fee payable by the Underlying Fund for the same service.
19. Absent the Exemption Sought, an investment by the Fund in the Underlying Fund would:
a. be prohibited by paragraph 2.5(2)(a)(i) of NI 81-102 because the Underlying Fund is not subject to NI 81-102;
b. be prohibited by paragraph 2.5(2)(c) of NI 81-102 because the Underlying Fund is not a reporting issuer in any Canadian Jurisdiction; and
c. not qualify for the exception in paragraph 2.5(3)(a) of NI 81-102 because the securities of the Underlying Fund are not IPUs.
The Benefits of the Fund Investing in the Underlying Fund
20. An investment by the Fund in securities of the Underlying Fund will represent the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Fund and will be made in accordance with the investment objective of the Fund.
21. In the Filer's view, there does not exist other investment options for the Fund that would provide the same or comparable benefits that investing in Underlying Fund provides while fulfilling the Fund's objective.
22. The key benefits of the Fund investing in the Underlying Fund are greater choice, improved portfolio diversification and potentially enhanced returns. For example:
a. an investment in the Underlying Fund will provide the Fund with access to specialized knowledge expertise and/or analytical resources of the investment adviser to the Underlying Fund;
b. the Underlying Fund provides a potentially better risk profile, diversification and improved liquidity/tradability than direct holdings of asset classes to which the Underlying Fund provides exposure; and
c. the investment strategies of the Underlying Fund offer broader exposure to asset classes, sectors and markets than those available in the existing Canadian investment fund market.
23. The Filer submits that having the option to allocate a limited portion of the Fund's assets to Underlying Fund will increase diversification opportunities and may improve the Fund's overall risk profile.
24. An investment in the Underlying Fund by the Fund is an efficient and cost effective alternative to obtaining exposure to securities held by the Underlying Fund rather than purchasing those securities directly in the Fund.
25. An investment in the Underlying Fund by the Fund should pose limited investment risk to the Fund because the Underlying Fund will be subject to the Investment Company Act, subject to any exemption therefrom that may in the future be granted by the applicable securities regulatory authority.
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 investment by the Fund in securities of the Underlying Fund is in accordance with the investment objectives of the Fund;
(b) the Fund does not purchase securities of the Underlying Fund if, immediately after the purchase, more than 10% of the net assets value of the Fund, in aggregate, taken at market value at the time of the purchase, would consist of securities of the Underlying Fund or any other underlying fund that is not subject to NI 81-102 and not a reporting issuer in any Canadian Jurisdiction;
(c) the Fund does not short sell securities of the Underlying Fund;
(d) the Underlying Fund is, immediately before the purchase by the Fund of securities of the Underlying Fund, an investment company subject to the Investment Company Act in good standing with the United States Securities and Exchange Commission; and
(e) the prospectus of the Fund discloses, or will disclose in the next renewal of its prospectus following the date of this decision, in the investment strategy section, the fact that the Fund has obtained the Exemption Sought to permit investments in the Underlying Fund on the terms described in this decision.
Manager, Investment Funds and Structured Products Branch
Ontario Securities Commission
Application File #: 2023/0018
SEDAR File #: 3480321