Dynamic Active Canadian Dividend ETF et al.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval granted for change of manager of exchange traded mutual funds for the purpose of 5.5(1)(a) NI 81-102, subject to securityholder approval.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, ss. 5.5(1)(a), 5.3, 5.7 and 19.1.
November 17, 2021
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 DYNAMIC ACTIVE CANADIAN DIVIDEND ETF DYNAMIC ACTIVE CROSSOVER BOND ETF DYNAMIC ACTIVE GLOBAL DIVIDEND ETF DYNAMIC ACTIVE PREFERRED SHARES ETF DYNAMIC ACTIVE U.S. DIVIDEND ETF DYNAMIC ACTIVE TACTICAL BOND ETF DYNAMIC ACTIVE U.S. MID-CAP ETF DYNAMIC ACTIVE GLOBAL FINANCIAL SERVICES ETF DYNAMIC ACTIVE INVESTMENT GRADE FLOATING RATE ETF (collectively, the Dynamic ETFs) AND IN THE MATTER OF BLACKROCK ASSET MANAGEMENT CANADA LIMITED AND 1832 ASSET MANAGEMENT L.P. (COLLECTIVELY, THE FILERS)
The principal regulator in the Jurisdiction (the Principal Regulator) has received an application from the Filers for a decision under the securities legislation of the Jurisdiction (the Legislation) approving the change of manager of the Dynamic ETFs from BlackRock Asset Management Canada Limited (BlackRock Canada) to 1832 Asset Management L.P. (1832 L.P.) (the Change of Manager) under subsection 5.5(1)(a) of National Instrument 81-102 Investment Funds (NI 81-102) (the Approval Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(i) the Ontario Securities Commission is the principal regulator for this application; and
(ii) the Filers have 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).
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision unless otherwise defined.
This decision is based on the following facts represented by the Filers:
1. BlackRock Canada is a corporation amalgamated under the laws of the Province of Ontario and is an indirect, wholly-owned subsidiary of BlackRock, Inc., with its head office located in Toronto, Ontario.
2. BlackRock Canada is currently registered as: (i) an investment fund manager, exempt market dealer and portfolio manager in each of the Jurisdictions; and (ii) a commodity trading manager in Ontario and an adviser under the Commodity Futures Act in Manitoba.
3. BlackRock Canada is the manager, trustee and portfolio manager of the Dynamic ETFs.
4. BlackRock Canada is not in default of securities legislation in any of the Jurisdictions.
The Dynamic ETFs
5. The Dynamic ETFs are exchange-traded mutual funds established under the laws of the Province of Ontario pursuant to a master declaration of trust, amended and restated as of January 20, 2020 (the Master Declaration of Trust).
6. Units of the Dynamic ETFs (the Units) are distributed in each of the Jurisdictions under a long form prospectus and ETF facts dated January 26, 2021, as they may be amended from time to time, prepared in accordance with the requirements of National Instrument 41-101 General Prospectus Requirements (NI 41-101) and NI 81-102, as applicable.
7. The Units are currently listed on the Toronto Stock Exchange (the TSX) under the symbols noted in the table below:
Dynamic Active Canadian Dividend ETF
Dynamic Active Crossover Bond ETF
Dynamic Active Global Dividend ETF
Dynamic Active Preferred Shares ETF
Dynamic Active U.S. Dividend ETF
Dynamic Active Tactical Bond ETF
Dynamic Active U.S. Mid-Cap ETF
Dynamic Active Global Financial Services ETF
Dynamic Active Investment Grade Floating Rate ETF
8. Currently, each Dynamic ETF obtains investment exposure indirectly by investing substantially all of its assets in a corresponding underlying investment fund managed by 1832 L.P (collectively, the Dynamic Master Funds).
9. The Filers have entered into a cooperation services agreement dated November 18, 2016, as amended (the Cooperation Services Agreement), pursuant to which they established a co-operative and strategic relationship regarding the establishment, operation, marketing and distribution of the Dynamic ETFs and the underlying Dynamic Master Funds. Under the Cooperation Services Agreement, the Filers provide each other with certain information, review and consent rights to facilitate the relationship and the operation of the Dynamic ETFs and the Dynamic Master Funds. Under the Cooperation Services Agreement, BlackRock Canada agrees to pay a portion of the management fees it receives from the Dynamic ETFs to 1832 L.P. in connection with any investment in a Dynamic Master Fund.
10. Each Dynamic ETF is a reporting issuer under the applicable securities legislation of each of the Jurisdictions.
11. The Dynamic ETFs are not in default of securities legislation in any of the Jurisdictions.
12. 1832 L.P. is an Ontario limited partnership, which is wholly-owned by the Bank of Nova Scotia (BNS). The general partner of 1832 L.P. is 1832 Asset Management G.P. Inc., an Ontario corporation wholly-owned by BNS with its head office located in Toronto, Ontario.
13. 1832 L.P. is registered as (i) a portfolio manager in all of the provinces of Canada and in the Northwest Territories and the Yukon; (ii) an exempt market dealer in all of the provinces of Canada (except Prince Edward Island and Saskatchewan); (iii) an investment fund manager in Ontario, Québec, Newfoundland and Labrador and the Northwest Territories; and (iv) a commodity trading manager in Ontario.
14. 1832 L.P. is the manager, trustee and portfolio manager of the Dynamic Master Funds.
15. 1832 L.P. is not in default of securities legislation in any of the Jurisdictions.
16. The Filers are not related parties. Except pursuant to the Agreement (as defined below) and the Cooperation Services Agreement, there are currently no relationships between the Filers.
The Proposed Transaction
17. On September 8, 2021, BlackRock Canada announced that it and 1832 L.P. had entered into a definitive agreement (the Agreement) pursuant to which 1832 L.P. would acquire and assume trustee, portfolio management and investment fund management duties in respect of the Dynamic ETFs that are currently managed and operated by BlackRock Canada, resulting in the Change of Manager (the Proposed Transaction).
18. The Filers have agreed to pay all of the costs and expenses related to the Proposed Transaction.
19. Closing of the Proposed Transaction is expected to occur on or about December 1, 2021 (Closing), subject to the receipt of all necessary regulatory, TSX and securityholder approvals and the satisfaction or waiver of all other conditions to the Proposed Transaction.
20. It is intended that the Proposed Transaction will result in 1832 L.P. becoming the manager, trustee and portfolio manager of the Dynamic ETFs pursuant to the Master Declaration of Trust.
21. In accordance with National Instrument 81-106 Investment Fund Continuous Disclosure, a press release announcing the Proposed Transaction was issued on September 8, 2021 and the press release and a corresponding material change report were subsequently filed on SEDAR.
22. An amendment to the long form prospectus and ETF facts of the Dynamic ETFs dated January 26, 2021 announcing the proposed Change of Manager were filed on SEDAR on September 8, 2021.
23. Pursuant to section 5.1(1)(b) of NI 81-102, special meetings (the Meeting) of the holders of Units (collectively, the Unitholders) will be held virtually on or about November 17, 2021 for the purpose of seeking approval of the Change of Manager.
24. The notice of the Meeting and the management information circular in respect of the Meeting (together, the Meeting Materials) describing the Proposed Transaction were made available to Unitholders on or about October 15, 2021 and copies thereof were filed on SEDAR following the mailing of Notice and Access documents in accordance with applicable securities legislation, or an exemption therefrom. The Meeting Materials contain sufficient information regarding the Proposed Transaction and all information necessary to allow Unitholders to make an informed decision about the Proposed Transaction. All other information and documents necessary to comply with applicable proxy solicitation requirements of securities legislation for the Meetings were mailed or made available to Unitholders.
25. BlackRock Canada has determined that the Change in Manager is a conflict of interest matter pursuant to section 5.1 of National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107). BlackRock Canada has provided information relating to the Change in Manager to the Independent Review Committee (the IRC) of the Dynamic ETFs as required by section 5.3 of NI 81-107. The IRC has reviewed and provided a positive recommendation in respect of the Change in Manager on the basis that the proposed action achieves a fair and reasonable result for the Dynamic ETFs.
Impact of the Change of Manager
26. Subject to obtaining the Approval Sought, upon Closing, 1832 L.P. will become the manager, trustee and portfolio manager of the Dynamic ETFs pursuant to the Master Declaration of Trust.
27. Upon Closing, the individuals that comprise the IRC of the Dynamic ETFs will cease to be members of the IRC by operation of subsection 3.10(1)(b) of NI 81-107. 1832 L.P. intends to appoint Stephen Griggs (Chair), Steve Donald, Heather Hunter, Simon Hitzig and Jennifer L. Witterick to form the new IRC for the Dynamic ETFs at Closing, who are currently members of the independent review committee of investment funds managed by 1832 L.P., including the Dynamic Master Funds.
28. 1832 L.P. intends to manage and administer the Dynamic ETFs in a substantially similar manner as BlackRock Canada. There is no current intention to change the investment objectives, strategies and management fees of the Dynamic ETFs following the Closing and the Change of Manager. By operation of the Cooperation Services Agreement and the fund-of-fund structure employed by the Dynamic ETFs, 1832 L.P. is already significantly involved in the management of the portfolio to which the Dynamic ETFs are exposed.
29. There is no intention to change the officers, directors or registered individuals of 1832 L.P. The experience and integrity of each of the members of the 1832 L.P. management team is apparent by their education and years of experience in the investment industry. 1832 L.P. submits that such experience and integrity has been established and accepted by the Principal Regulator through the granting of registration to such individuals.
30. The material service providers currently employed by the Dynamic ETFs, including the custodian, transfer agent and auditors, are expected to remain the same following Closing.
31. Upon Closing, the individuals that will be principally responsible for the investment fund management and portfolio management of the Dynamic ETFs will have the requisite integrity and experience as contemplated under section 5.7(1)(a)(v) of NI 81-102. The individual portfolio managers primarily responsible for the performance of the portfolio to which the Dynamic ETFs are currently exposed will remain the same following Closing.
32. The Proposed Transaction will not adversely affect 1832 L.P.'s financial position or its ability to fulfill its regulatory obligations.
33. None of the costs of the Proposed Transaction will be borne by the Dynamic ETFs or their Unitholders. The costs of the transaction will instead be borne by the Filers.
34. The Proposed Transaction is not expected to have any material impact on the business, operations or affairs of the Dynamic ETFs or their Unitholders.
35. Under paragraph 5.5(1)(a) of NI 81-102, the approval of the securities regulatory authority or regulator is required before the manager of an investment fund is changed, unless the new manager is an affiliate of the current manager.
36. The Filers are not affiliates. Therefore, the Approval Sought is required before the Change of Manager can occur.
37. The Approval Sought will not be detrimental to the protection of investors in the Dynamic ETFs or prejudicial to the public interest.
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 Approval Sought is granted, provided that BlackRock Canada obtains the requisite prior approval of Unitholders of the Dynamic ETFs for the Change of Manager.
Investment Funds and Structured Products Branch
Ontario Securities Commission
Application File #: 2021/0510
Sedar #: 3296543