Invesco Canada Ltd.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- existing and future investment funds granted exemption to invest up to 10% of net assets in securities of Luxembourg mutual funds regulated by the Commission de Surveillance du Secteur Financier -- subject to conditions.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, ss. 2.5(2)(a), (c), and 19.1.
May 13, 2022
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 INVESCO CANADA LTD. (the Filer)
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of each investment fund subject to the provisions of National Instrument 81-102 Investment Funds (NI 81-102) of which the Filer is, or in the future will be, the manager (collectively, the Funds), for a decision under the securities legislation of the Jurisdiction (the Legislation):
(a) revoking the Existing Decisions (as defined below); and
(b) replacing the Existing Decisions with a decision providing an exemption from paragraphs 2.5(2)(a)(i) and (c) of NI 81-102 to permit each Fund to invest up to 10% of its net asset value (the NAV) in securities of investment funds formed under Invesco Funds (IFS, as further described below), a Luxembourg collective asset-management vehicle constituted as an umbrella fund with segregated liability between sub-funds and authorized by the Commission de Surveillance du Secteur Financier (Luxembourg) (CSSF) pursuant to the UCITS Regulations (as defined below) (SICAV Funds, as further described below) (the Fund on Fund Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission (the OSC) is the principal regulator for the application; and
(b) the Filer has 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 Ontario, the Jurisdictions).
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this Application, unless otherwise defined.
EU Directives means EU Council Directive 2009/65/EC of 13 July 2009 on the Coordination of Laws, Regulations and Administrative Provisions relating to UCITS (as defined below), as amended by Directive 2014/91/EU of the European Parliament and Council of 23 July 2014 as regards depositary functions, remuneration policies and sanctions and as may be further amended, supplemented or consolidated.
Existing Decisions means: (a) the decision dated July 27, 2018 granting relief to certain Funds with investment strategies allowing exposure to emerging market corporate issuers to invest up to 10% of their NAV in a specified SICAV Fund (namely, Invesco Emerging Market Corporate Bond Fund); and (b) the preceding decision dated March 30, 2012 granting relief to a Fund (namely, Invesco Intactive Strategic Yield Portfolio) to invest up to 10% of its NAV in a specified SICAV Fund (namely, Invesco Emerging Market Corporate Bond Fund) and in a fund that was a sub-fund of Invesco Series 2, an umbrella fund constituted as a unit trust under trust deed in Ireland (namely, Invesco Emerging Markets Bond Fund).
IFS means Invesco Funds, an umbrella SICAV, open-ended company governed by, and registered as a UCITS under, the laws of Luxembourg.
IVZ means Invesco Ltd.
KIID means a SICAV Fund's Key Investor Information Document that contains disclosure similar to that required to be included in a fund facts document prepared under NI 81-101.
NI 41-101 means National Instrument 41-101 General Prospectus Requirements as amended from time to time.
NI 81-101 means National Instrument 81-101 Mutual Fund Prospectus Disclosure, as amended from time to time.
SICAV means société d'investissment à capital variable.
SICAV Fund Manager means Invesco Management S.A., the promoter, management company and distributor of each SICAV Fund.
SICAV Funds means each of the existing sub-funds of IFS and other sub-funds established in the future under IFS.
UCITS means Undertaking for Collective Investments in Transferable Securities.
UCITS Notices means the circulars, FAQs and letters issued by the CSSF.
UCITS Regulations means the regulations issued by European Union member states that implement the EU Directives.
The Filer and the Funds
1. The Filer:
(a) is a corporation amalgamated under the laws of Ontario, having its head office in Toronto, Ontario;
(b) is a wholly-owned indirect subsidiary of IVZ;
(c) is registered as: (i) an investment fund manager in Ontario, Québec and Newfoundland & Labrador, (ii) an adviser in the category of portfolio manager and exempt market dealer in each province of Canada; (iii) a mutual fund dealer in Alberta, British Columbia, Nova Scotia, Ontario, Prince Edward Island and Quebec; and (iv) a Commodity Trading Manager in Ontario;
(d) is, or will be, the manager of each of the Funds; and
(e) is not, or will not be, in default of securities legislation in any of the Jurisdictions.
2. Each Fund:
(a) is, or will be, an investment fund established under the laws of a Jurisdiction of Canada;
(b) is, or will be, a reporting issuer under the laws of some or all of the Jurisdictions;
(c) is, or will be, governed by NI 81-102, subject to any relief therefrom granted by the securities regulatory authorities; and
(d) is not, or will not be, in default of securities legislation in any of the Jurisdictions.
3. The securities of each Fund are, or will be, qualified for distribution in some or all of the Jurisdictions under a simplified prospectus prepared in accordance with NI 81-101 or a prospectus prepared in accordance with NI 41-101.
4. The Filer wishes for the July 27, 2018 Existing Decision and the preceding March 30, 2012 Existing Decision to be replaced with a decision granting the Fund on Fund Relief so that other Funds it manages may, from time to time, if otherwise appropriate, invest up to 10% of NAV of the Fund in securities of a SICAV Fund.
The SICAV Fund Manager and the SICAV Funds
5. The SICAV Fund Manager:
(a) is an indirect wholly-owned subsidiary of IVZ and as of February 7, 2022, the SICAV Fund Manager managed approximately US$50.2 billion;
(b) is the promoter, management company and distributor of the SICAV Funds;
(c) is responsible for the investment management, distribution and marketing of the SICAV Funds;
(d) provides an investment program for the SICAV Funds and manages the investments of the SICAV Funds' assets;
(e) must conduct its business with due skill, care and diligence;
(f) is subject to the supervision of the directors of IFS; and
(g) is subject to regulatory oversight by the CSSF and is thus subject to substantially equivalent regulatory oversight as the Filer, which is principally regulated by the OSC.
6. IFS is:
(a) an open-ended investment company organized as a société anonyme under the laws of Luxembourg and qualifies as a SICAV; and
(b) registered as a UCITS under the EU Directives.
7. The SICAV Funds:
(a) are sub-funds of IFS and each SICAV Fund has segregated liability from other SICAV Funds;
(b) qualify as UCITS and are subject to, and their securities are distributed in certain European and Asian countries pursuant to, the EU Directives and the UCITS Regulations; and
(c) are regulated by the CSSF.
8. As securities of the SICAV Funds are not "index participation units" as defined in NI 81-102 (IPUs), the exception in section 2.5(3)(a) of NI 81-102 for fund on fund investments in IPUs is not available.
9. The following third parties are involved in providing services in respect of the SICAV Funds:
(a) The Bank of New York Mellon SA/NV, Luxembourg Branch acts as depositary, registrar and transfer agent and administration agent and paying agent for IFS and the SICAV Funds; and
(b) PricewaterhouseCoopers LLP serves as auditor.
Regulatory requirements and regimes
10. The SICAV Funds are subject to the following regulatory requirements and restrictions pursuant to, and among others, the EU Directives, which are substantially similar to the requirements and restrictions set forth in NI 81-102:
(a) Each SICAV Fund is subject to a robust risk management framework through prescribed rules on governance, risk, regulation of service providers and safekeeping of assets;
(b) Other than securities issued or guaranteed by an EU member state or a non-member state accepted by the CSSF, and bonds issued or guaranteed by credit institutions in an EU member state or a non-member state accepted by the CSSF, each SICAV Fund is restricted to investing a maximum of 10% of its NAV in a single issuer;
(c) Each SICAV Fund is subject to investment restrictions designed to limit its holdings of illiquid securities to 10% or less of its NAV;
(d) Each SICAV Fund is subject to investment restrictions designed to limit holdings of transferrable securities which are not listed on a stock exchange or regulated market to 10% or less of its NAV;
(e) The rules governing the use of derivatives by the SICAV Funds are comparable to the rules regarding the use of derivatives under NI 81-102 with respect to the permissible types of derivatives and counterparty concentration. For Funds that are not alternative funds, the differences between the two regimes relate to: (i) counterparty credit ratings; (ii) maximum exposure to options; and (iii) having to hold cash and collateral together with the market value of the derivatives equal to the underlying market exposure of the derivatives (on a mark-to-market basis) where the funds use derivatives for investment purposes;
(f) The rules governing securities lending by the SICAV Funds are comparable to the rules regarding securities lending under NI 81-102 including, the inability to pledge non-cash collateral, and the right to immediately recall the securities loaned. The differences between NI 81-102 and the rules pertaining to the SICAV Funds relate to the following: (i) the type and amount of collateral; (ii) the person who may be appointed as agent for securities lending; (iii) the types of securities that may be purchased with collateral received; and (iv) the overall securities lending limits;
(g) Each SICAV Fund makes its NAV available to the public at the close of business each day;
(h) Each SICAV Fund is required to prepare a prospectus that discloses material facts pertaining to such SICAV Fund. The prospectus provides disclosure that is similar to the disclosure required to be included in a simplified prospectus under NI 81-101 or in a prospectus under NI 41-101;
(i) Each share class of the SICAV Fund publishes a KIID which contains disclosure similar to that required to be included in a fund facts document prepared under NI 81-101 or an ETF facts document under NI 41-101;
(j) Each SICAV Fund is a conventional mutual fund subject to investment restrictions and practices that are substantially similar to those applicable to the Funds;
(k) Each SICAV Fund is available for purchase by the public and is generally not considered a hedge fund;
(l) Each SICAV Fund is considered to be an "investment fund" and a "mutual fund" within the meaning of applicable Canadian securities legislation;
(m) Each SICAV Fund is required to produce annual and interim financial statements and is required to notify investors of material changes to the SICAV Fund;
(n) The SICAV Fund Manager is subject to approval by the CSSF to permit it to manage and provide portfolio management to each SICAV Fund and is subject to a management company services agreement which sets out a duty of care and a standard of care requiring the SICAV Fund Manager to act in the best interest of each SICAV Fund and the shareholders of each SICAV Fund;
(o) All activities of the SICAV Fund Manager must be conducted at all times in accordance with the EU Directives, the UCITS Regulations and the UCITS Notices and the investment policy of each SICAV Fund and is at all times subject to the supervision of the board of directors of IFS; and
(p) The auditor of each SICAV Fund is required to prepare an audited set of accounts for each SICAV Fund at least annually.
Investment by Funds in the SICAV Funds
11. Any Fund that invests in a SICAV Fund will be permitted to do so in accordance with its investment objectives and strategies as disclosed or to be disclosed in the Fund's prospectus or simplified prospectus.
12. In particular, the investment strategies of each Fund stipulate, or will stipulate, that the Fund may invest a portion of its assets in other investment funds, domestic and foreign, which will permit each Fund to invest in a SICAV Fund.
13. The prospectus or simplified prospectus of each Fund provides, or will provide, all disclosure mandated for investment funds investing in other investment funds.
14. There will be no duplication of management fees or incentive fees as a result of an investment by a Fund in a SICAV Fund.
15. The amount of loss that could result from an investment by a Fund in a SICAV Fund will be limited to the amount invested by the Fund in such SICAV Fund.
16. No sales charges or redemption fees will be paid by a Fund relating to a subscription for, or redemption of, securities of a SICAV Fund.
17. On July 27, 2018, the Filer was granted the Existing Decision that was preceded by the Existing Decision dated March 30, 2012.
Rationale for Investment in the SICAV Funds
18. The Filer believes that it is in the best interests of the Funds that they be permitted to invest in the SICAV Funds, because such investment would provide an efficient and cost-effective way for the Funds to achieve diversification and obtain unique exposures to the markets in which the SICAV Funds invest.
19. The investment objectives and strategies of the Funds, which contemplate or will contemplate investment in global or international securities, permit or will permit the allocation of assets to global or international securities. As economic conditions change, the Funds may reallocate assets, including on the basis of asset class or geographic region. A Fund will invest in a SICAV Fund to gain exposure to certain unique strategies in global or international markets in circumstances where it would be in the best interests of the Fund to do so through an investment in an investment fund offered elsewhere rather than through investments in individual securities. For example, a Fund will invest in the SICAV Funds in circumstances where certain investment strategies preferred by the Funds are either not available or not cost effective to be implemented through investments in individual securities.
20. While it may be possible for:
(a) the Filer to qualify funds similar to the SICAV Funds in Canada, it may not be desirable to do where the Filer, in its opinion, believes that the market for that type of fund in Canada is not sufficiently large such that the fund will be economically viable; or
(b) the Funds to invest directly in the securities in which the SICAV Funds invest, it may not be desirable to do where the Fund will make a limited investment (10% of the NAV of a Fund) and it would thus be more economical from a trading costs and liquidity perspective and a diversification perspective to invest in securities of a SICAV Fund rather than directly in the underlying securities of the SICAV Fund.
21. Investment by a Fund in a SICAV Fund meets, or will meet, the investment objectives of such Fund.
22. An investment by a Fund in securities of each SICAV Fund will represent the business judgement of responsible persons uninfluenced by considerations other than the best interests of the Fund.
23. Absent the Requested Relief, the July 27, 2018 Existing Decision and the preceding March 30, 2012 Existing Decision, the investment restriction in:
(a) paragraph 2.5(2)(a) of NI 81-102 would prohibit a Fund that is a mutual fund from purchasing or holding securities of a SICAV Fund because the SICAV Fund is not subject to NI 81-102; and
(b) paragraph 2.5(2)(c) of NI 81-102 would prohibit a Fund that is a mutual fund from purchasing or holding securities of a SICAV Fund because the SICAV Fund is not a reporting issuer in the local jurisdiction.
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:
(a) the Existing Decisions are hereby revoked and replaced with this Decision; and
(b) the Fund on Fund Relief is granted provided that:
i. investment by a Fund in the SICAV Funds is consistent with the fundamental investment objectives and investment strategies of the applicable Fund;
ii. the SICAV Funds qualify as UCITS and are distributed in accordance with the EU Directives and the UCITS Regulations, which subject the SICAV Funds to investment restrictions and practices that are substantially similar to those that govern the Funds;
iii. the investment of the Funds in the SICAV Funds otherwise complies with section 2.5 of NI 81-102 when investing in the SICAV Funds, including that a Fund will not invest in a SICAV Fund if, taken at market value at the time of investment, the SICAV Fund holds more than 10% of the SICAV Fund's NAV in other SICAV Funds;
iv. the simplified prospectus or prospectus of the Funds will provide all applicable disclosure mandated for investment funds investing in other investment funds;
v. a Fund does not invest in a SICAV Fund if, immediately after the investment, more than 10% of its NAV, taken at market value at the time of the investment, would consist of investments in SICAV Funds; and
vi. a Fund shall not acquire any additional securities of a SICAV Fund and shall dispose of any securities of a SICAV Fund then held in the event the regulatory regime applicable to the SICAV Funds is changed in any material way.
Manager, Investment Funds and Structured Products Branch
Ontario Securities Commission
Application File #: 2022/0105
SEDAR Project #: 3346724