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iCapital Network Canada Ltd. and The Top Funds
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Mutual funds that are not reporting issuers 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 funds to file and deliver annual financial statements within 183 days of their most recently completed financial year and to file and deliver interim financial statements within 120 days of their most recently completed interim period -- Funds invest the majority of their assets in Underlying Funds with later financial reporting deadlines -- Funds will have two different financial year end dates -- Relief subject to conditions including disclosure of extended financial reporting deadlines in the offering memorandum of the Fund -- Relief granted with conditions -- Decision includes revocation of prior relief from annual and interim financial statement filing and delivery deadlines under NI 81-106.
Applicable Legislative Provisions
National Instrument 81-106 Investment Fund Continuous Disclosure, ss. 2.2, 2.4, 5.1(2) and 17.1.
Securities Act, R.S.O. 1990, c. S.5, as am., s. 144.
October 4, 2023
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF ICAPITAL NETWORK CANADA LTD. (the Filer) AND THE TOP FUNDS (as Defined Below)
DECISION
Background
The principal regulator of the Jurisdiction has received an application from the Filer, as investment fund manager of HarbourVest Global Private Solution Canada Access Fund (the Global Private Solution Access Fund) and iDirect Private Markets Access Fund (Canada) (previously, iCapital KKR Private Markets Access Fund (Canada)) (the Private Markets Access Fund and together with the Global Private Solution Access Fund, the Initial Top Funds) and any other existing or future investment fund that is not and will not be a reporting issuer, that is or will be organized under the laws of a jurisdiction of Canada, and that is, or will be, managed by the Filer and invests or will invest directly or indirectly in underlying funds (Underlying Funds) as part of its investment strategy (the Other Top Funds and together with the Initial Top Funds, the Top Funds) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) in respect of the fund-on-fund structures (described below):
(a) revoking and replacing the Previous Decision (as defined below); and
(b) exempting the Filer and the Top Funds from the following requirements of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106):
(i) the requirement in section 2.2 that the Top Funds file their audited annual financial statements and auditor's report (the Annual Financial Statements) on or before the 90th day after the Top Funds' most recently completed financial year (Annual Filing Deadline);
(ii) the requirement in section 2.4 that the Top Funds file their interim financial statements (the Interim Financial Statements and collectively with the Annual Financial Statements, the Financial Statements) on or before the 60th day after the Top Funds' most recently completed interim period (Interim Filing Deadline);
(iii) the requirement in paragraph 5.1(2)(a) that the Top Funds deliver to the securityholders their Annual Financial Statements by the Annual Filing Deadline (the Annual Delivery Requirement); and
(iv) the requirement in paragraph 5.1(2)(b) that the Top Funds deliver to the securityholders their Interim Financial Statements by the Interim Filing Deadline (the Interim Delivery Requirement),
(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 (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 Québec, New Brunswick, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Saskatchewan and Yukon (the Other Jurisdictions and, together with the Jurisdiction, the Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 Definitions, MI 11-102 and NI 81-106 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
The Filer
1. The Filer is a corporation incorporated under the Canada Business Corporations Act (CBCA) with its principal place of business in Toronto, Ontario.
2. The Filer is registered as an Exempt Market Dealer and Portfolio Manager in Alberta, British Columbia, Manitoba, Ontario, Québec and Newfoundland and Labrador, and as an Investment Fund Manager in Ontario, Québec and Newfoundland and Labrador.
3. The Filer is not a reporting issuer in any jurisdiction of Canada and is not in default of securities legislation of any jurisdiction of Canada.
4. The Filer is, or will be, the investment fund manager of the Initial Top Funds, and is, or will be, the investment fund manager of each of the Top Funds.
The Top Funds
5. The Private Markets Access Fund is, and the Global Private Solution Access Fund will be, organized as a trust pursuant to a master declaration of trust.
6. Each Other Top Fund is or will be organized as a trust or a limited partnership under the laws of a jurisdiction of Canada.
7. The Filer has, and will continue to have, its principal place of business in Toronto, Ontario. The Top Funds are not, and will not be, reporting issuers in any jurisdiction of Canada and the Private Markets Access Fund and each existing Other Top Fund is not in default of securities legislation of any jurisdiction of Canada.
8. Each Top Fund is, or will be, a "mutual fund" for the purposes of the Legislation.
9. Securities of the Top Funds are, or will be, offered for sale and distribution to qualified investors in all Canadian provinces and territories pursuant to exemptions from the prospectus requirements under the Legislation or National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106).
10. Securities of each Top Fund will only be distributed in Canada pursuant to exemptions from the prospectus requirement in accordance with the Legislation or NI 45-106.
11. The Private Markets Access Fund has a financial year end of March 31 and the Global Private Solution Access Fund will have a financial year end of December 31. Each Other Top Fund has, or will have, a financial year end of December 31 or March 31, as applicable.
12. The investment strategy of each Top Fund is, or will be, to primarily invest, directly or indirectly, in securities, units or other interests of one or more Underlying Funds which are private or other unlisted investment entities managed by an independent manager, the Filer or an affiliate of the Filer.
13. The investment strategy of the Private Markets Access Fund is to primarily invest the Private Markets Access Fund's assets indirectly in an Underlying Fund that is a private investment entity managed by an independent manager. The Private Markets Access Fund seeks to provide long-term capital appreciation by providing exposure to the Underlying Fund's portfolio which consists primarily of private equity investment interests of any type, sponsored or advised by an independent manager, including primary offerings and secondary acquisitions of interests in alternative investment funds that pursue private equity strategies and co-investment opportunities in operating companies.
14. The Global Private Solution Access Fund, through its investment in the applicable Underlying Fund, will seek to provide a private equity-focused solution for holders of units of the Global Private Solution Access Fund, with a mix of investments designed to accelerate capital deployment and to provide cash flow to support limited liquidity in a private portfolio. The Global Private Solution Access Fund intends to achieve this objective by primarily investing the Global Private Solution Access Fund's assets in the applicable Underlying Fund.
15. The Filer believes that the formation and offering of the Top Funds that invest in the Underlying Funds provides Canadian investors access to asset classes and underlying managers that would not otherwise be available to such investors and offers benefits not available through a direct investment in the companies, other issuers or assets held by the Underlying Funds.
16. The Filer engages in a due diligence process when selecting Underlying Funds for each Top Fund.
17. Securities of the Underlying Funds are typically redeemable at various intervals, but in some cases may not be redeemable until the termination of the Underlying Funds. Each Top Fund is able to manage its own liquidity requirements taking into consideration the frequency at which the securities of the Underlying Funds may be redeemed.
18. The net asset value of each Top Fund (NAV) is or will be calculated at least on a monthly or quarterly basis, as of the last business day of each month or quarter, as applicable (the Valuation Date). Investors of each Top Fund are or will be provided with the NAV on a monthly or quarterly basis within 45 days (where the NAV is provided monthly) or 90 days (where the NAV is provided quarterly) of each Valuation Date.
19. The holdings of each Top Fund in securities of the Underlying Funds will be disclosed in the Financial Statements.
20. The Underlying Funds may be subject to differing financial reporting deadlines, which may arise under the laws of the Underlying Fund's jurisdiction of formation, the constating documents of the Underlying Fund and/or contractual obligations of the Underlying Fund.
The Previous Decision
21. The Filer obtained a previous decision dated February 16, 2023 (the Previous Decision) exempting the Filer and the top funds under the Previous Decision, including the Private Markets Access Fund (the Previous Decision Top Funds), from the Annual Filing Deadline, the Interim Filing Deadline, the Annual Delivery Requirement and the Interim Delivery Requirement in order to (i) extend the Annual Filing Deadline and Annual Delivery Requirement to permit delivery of the annual financial statements of a Previous Decision Top Fund within 180 days of the Previous Decision Top Fund's most recently completed financial year, and (ii) extend the Interim Filing Deadline and Interim Delivery Requirement to permit delivery of the interim financial statements of a Previous Decision Top Fund within 120 days of the Previous Decision Top Fund's most recently completed interim period.
22. The Global Private Solution Access Fund will invest in an Underlying Fund, being HarbourVest Global Private Solution SICAV S.A. -- Diversified Private Equity Fund, a sub-fund of HarbourVest Global Private Solution SICAV S.A., which Underlying Fund makes available its finalized audited annual financial statements within six (6) months of its most recently completed financial year and its finalized unaudited financial statements for the semi-annual period ending on June 30 of each year within three (3) months of its most recently completed semi-annual period.
23. The Underlying Fund in which the Global Private Solution Access Fund will invest is expected to provide substantially final audited annual financial statements to the Filer eight calendar days before the completion of its most recently completed financial year, which would provide the Filer with the time to finalize the Annual Financial Statements of the Global Private Solution Access Fund within six (6) months of its most recently completed financial year (i.e. by June 30). However, such audited annual financial statements of the Underlying Fund cannot be considered final until they have been approved by the securityholders of the Underlying Fund on or before June 30.
24. Accordingly, the Filer wishes to revoke and replace the Previous Decision to extend the Annual Filing Deadline and Annual Delivery Requirement to permit delivery of the Annual Financial Statements of a Top Fund within 183 days of the Top Fund's most recently completed financial year (which exceeds the 180 days required by the Previous Decision) as the Global Private Solution Access Fund will only receive the finalized audited annual financial statements of the applicable Underlying Fund within six (6) months of its most recently completed financial year.
25. The Filer also wishes to revoke and replace the Previous Decision to require that the Underlying Funds be subject to laws of their jurisdictions or have constating documents or contractual obligations that require or permit annual financial statements of the Underlying Funds to be made available within 183 days of their financial year ends and/or interim financial statements to be made available within 92 days of their most recent interim period.
Financial Statements
26. Section 2.2 and subsection 5.1(2)(a) of NI 81-106 require the Top Funds to file and deliver their Annual Financial Statements to the securityholders by the Annual Filing Deadline. As the financial year-end for the Top Funds is or will be December 31 or March 31, the filing and delivery deadline for the Annual Financial Statements would be March 31 or June 29, as applicable.
27. Section 2.4 and subsection 5.1(2)(b) of NI 81-106 require the Top Funds to file and deliver their Interim Financial Statements to the securityholders by the Interim Filing Deadline. As the financial year-end for the Top Funds is or will be December 31 or March 31, the filing and delivery deadline for the Interim Financial Statements would be August 29 or November 29, as applicable.
28. Section 2.11 of NI 81-106 provides an exemption (the Filing Exemption) from the obligation to file the Annual Financial Statements within the Annual Filing Deadline and the Interim Financial Statements within the Interim Filing Deadline if, among other things, a mutual fund that is not a reporting issuer delivers its Annual Financial Statements and Interim Financial Statements in accordance with part 5 of NI 81-106.
29. In order to formulate an opinion on the Annual Financial Statements of each Top Fund, the Top Fund's auditor requires audited financial statements of the respective Underlying Funds in order to audit the information contained in the Top Fund's Annual Financial Statements. The auditors of the Top Funds' have advised the Filer that they will be unable to complete the audit of the Top Funds' Annual Financial Statements until the audited financial statements of the Underlying Funds are completed and available to the Top Funds.
30. The Underlying Funds may have varying financial year-ends and may be subject to a variety of financial reporting deadlines. Therefore, in most cases, the Top Funds will not be able to obtain the finalized financial statements of the Underlying Funds prior to the Annual Filing Deadline or the Interim Filing Deadline for filing the Financial Statements and, in all cases, no sooner than other investors in the Underlying Funds receive the financial statements of the Underlying Funds.
31. With respect to Underlying Funds managed by an affiliate of the Filer, the added costs associated with having the Underlying Funds change their financial reporting deadlines in order to provide their financial statements at an earlier date outweigh the expected benefit to the unitholders of the Top Funds.
32. The offering memorandum of each Top Fund that will be provided to investors will disclose that: (i) the Annual Financial Statements for the Top Fund will be filed and delivered within 183 days of the Top Fund's financial year-end, and (ii) the Interim Financial Statements for the Top Fund will be delivered within 120 days following the end of each interim period of the Top Fund.
33. The Top Funds will notify their securityholders that they have received and intend to rely on the Exemption Sought.
34. The Top Funds do not anticipate they will be able to meet the conditions in subsection 2.11(b) of the Filing Exemption given that they do not expect to be able to deliver their Annual Financial Statements by the Annual Filing Deadline and their Interim Financial Statements by the Interim Filing Deadline. The Top Funds expect this timing delay in the completion of their Financial Statements to occur every year for the foreseeable future.
35. Each Top Fund therefore seeks an extension of the Annual Filing Deadline and Annual Delivery Requirement to permit delivery within 183 days of the Top Fund's most recently completed financial year, to enable the Top Fund's auditors to first receive the audited annual financial statements of the Underlying Funds so as to be able to prepare the Top Fund's Annual Financial Statements.
36. Each Top Fund seeks an extension of the Interim Filing Deadline and Interim Delivery Requirement to permit delivery within 120 days of the Top Fund's most recently completed interim period, to enable the Top Fund to first receive the unaudited interim financial statements of the Underlying Funds so as to be able to determine the NAV and prepare the Top Fund's Interim Financial Statements.
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 to a Top Fund provided that:
1. The Top Fund has, or will have, a financial year end of December 31 or March 31, as applicable.
2. The Top 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, the Filer or an affiliate of the Filer.
3. The Top Fund invests the majority of its assets in one or more Underlying Funds.
4. No less than 25% of the total assets of the Top Fund as at its financial year end of December 31 or March 31, as applicable, are invested in Underlying Fund(s) that have financial year ends corresponding to such Top Fund and are subject to laws of their jurisdictions or have constating documents or contractual obligations that require or permit annual financial statements of the Underlying Fund(s) to be made available within 183 days of their financial year ends and/or interim financial statements of the Underlying Fund(s) to be made available within 92 days of their most recent interim period.
5. The offering memorandum provided to securityholders regarding the Top Fund discloses that:
a. the Annual Financial Statements of the Top Fund will be filed and delivered on or before the 183rd day after the Top Fund's most recently completed financial year; and
b. the Interim Financial Statements of the Top Fund will be filed and delivered on or before the 120th day after the Top Fund's most recently completed interim period.
6. The Top Fund notifies its securityholders that it has received and intends to rely on relief from the filing and delivery requirements under section 2.2, 2.4 and subsections 5.1(2)(a) and 5.1(2)(b) of NI 81-106.
7. The Top Fund is not a reporting issuer and the Filer has the necessary registrations to carry out its operations in each jurisdiction of Canada in which it operates.
8.
a. The audited annual financial statements of the Top Fund are filed on or before the 183rd day after the Top Fund's most recently completed financial year and the interim financial statements of the Top Fund are filed on or before the 120th day after the Top Fund's most recently completed interim period; or
b. The conditions in section 2.11 of NI 81-106 are met, except for paragraph 2.11(b), and the annual audited financial statements are delivered to securityholders of the Top Fund in accordance with Part 5 of NI 81-106 on or before the 183rd day after the Top Fund's most recently completed financial year and the interim financial statements are delivered to securityholders of the Top Fund in accordance with Part 5 of NI 81-106 on or before the 120th day after the Top Fund's most recently completed interim period.
9. The Exemption Sought terminates within one year of the coming into force of any amendment to NI 81-106 or other rule that modifies how the Annual Filing Deadline, Annual Delivery Requirement, Interim Filing Deadline, or Interim Delivery Deadline Requirement applies in connection with mutual funds under the Legislation.
"Darren McKall"
Manager, Investment Funds and Structured Products
Ontario Securities Commission
Application File #: 2023/0269