RBC Global Asset Management Inc.

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief granted from subsection 13.5(2)(b) of NI 31-103 and subsection 4.2(1) of NI 81-102 to permit investment funds and managed accounts for which the filer or an affiliate acts as portfolio advisor and/or investment fund manager, to purchase commercial mortgages from, or sell commercial mortgages to, an affiliated entity that originates or administers the mortgages -- relief is subject to conditions.

Applicable Legislative Provisions

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 13.5(2)(b) and 15.1.

National Instrument 81-102 Investment Funds, ss. 4.2(1) and 19.1.

July 27, 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 RBC GLOBAL ASSET MANAGEMENT INC. (the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of: (a) the RBC Funds, RBC Private Pools, PH&N Funds, RBC Corporate Class Funds, RBC Alternative Mutual Funds and RBC ETFs of which the Filer acts as investment fund manager and/or portfolio manager (each, an Existing Public Fund and collectively, the Existing Public Funds) and such other mutual funds, exchange-traded funds and non-redeemable investment funds of which the Filer or an affiliate of the Filer acts as the investment fund manager and/or portfolio manager in the future (the Future Public Funds and, together with the Existing Funds, the Public Funds), (b) certain non-prospectus qualified private pooled funds of which the Filer acts as investment fund manager and/or portfolio adviser (the Existing Private Funds) and such other non-prospectus qualified private pooled funds of which the Filer or an affiliate of the Filer acts as the investment fund manager and/or portfolio adviser in the future (the Future Private Funds and, together with the Existing Private Funds, the Private Funds) and (c) the discretionary managed accounts of clients (each, a Managed Account and collectively, the Existing Managed Accounts) for which the Filer, or an affiliate of the Filer, acts as the portfolio adviser and such other managed accounts as the Filer or an affiliate of the Filer acts as portfolio adviser in the future (the Future Managed Accounts and, together with the Existing Managed Accounts, the Managed Accounts) for a decision under the securities legislation of the Jurisdiction (the Legislation) for relief from:

(a) paragraph 13.5(2)(b)(i) of National Instrument 31-103 -- Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) to permit the Public Funds, the Private Funds and the Managed Accounts to purchase a security from or sell a security to the investment portfolio of a "responsible person" (as defined in NI 31-103); and

(b) section 4.2(1) of National Instrument 81-102 -- Investment Funds (NI 81-102) to permit the Public Funds to purchase a security from or sell a security to an associate or affiliate of the manager, portfolio adviser or trustee of a Fund,

(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 British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, the Northwest Territories, Nunavut and Yukon (together with the Jurisdiction, the Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 -- Definitions (NI 14-101), NI 81-102 or NI 31-103, as applicable, have the same meaning if used in this application, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer.

The Filer

1. The Filer is a corporation formed by amalgamation pursuant to articles of amalgamation dated November 1, 2013 under the federal laws of Canada and its head office is located in Toronto, Ontario.

2. The Filer is an indirect, wholly-owned subsidiary of Royal Bank of Canada.

3. The Filer is registered as an adviser in the category of portfolio manager and as a dealer in the category of exempt market dealer under the securities legislation of each Jurisdiction, is registered as an investment fund manager in each of British Columbia, Ontario, Québec and Newfoundland and Labrador and is also registered in Ontario as a commodity trading manager.

4. The Filer, or an affiliate of the Filer, is or will be, the investment fund manager and/or portfolio manager of each Public Fund.

5. The Filer, or an affiliate of the Filer, is or will be, the investment fund manager and/or the portfolio adviser of each Private Fund.

6. The Filer, or an affiliate of the Filer, is or will be, the portfolio adviser of each Managed Account.

7. The Filer is not in default of any of its obligations under the securities legislation of any Jurisdiction.

8. The Filer is a "responsible person" of the Public Funds, Private Funds and Managed Accounts.

The Public Funds

9. Each Public Fund is, or will be, an investment fund established under the laws of the Province of Ontario or the laws of another Jurisdiction.

10. Each Public Fund is, or will be, subject to NI 81-102, subject to any exemptions therefrom that may be granted by the securities regulatory authorities. Certain of the Public Funds are permitted to hold mortgages in accordance with the exemption set out in section 20.4 of NI 81-102 (Public Mortgage Funds).

11. The securities of the Public Funds are, or will be, offered either by a simplified prospectus and annual information form or long-form prospectus, as applicable, filed in all of the Jurisdictions and, accordingly, each Public Fund is, or will be, a reporting issuer in the Jurisdictions.

12. None of the Existing Public Funds are in default of any of their obligations under the securities legislation of the Jurisdictions.

The Private Funds

13. Each Private Fund is, or will be, established under the laws of the Province of Ontario or the laws of another Jurisdiction.

14. The securities of the Private Funds are, or will be, sold pursuant to an exemption from the prospectus requirements in accordance with National Instrument 45-106 -- Prospectus Exemptions.

15. None of the Existing Private Funds are in default of any of their obligations under the securities legislation of the Jurisdictions.

The Managed Accounts

16. The Filer, or an affiliate of the Filer, provides discretionary investment management services and portfolio advisory services to the Managed Accounts of private clients and institutional groups such as corporate pension plans, foundations and endowments (each, a Client). Each Client enters into a discretionary investment management agreement (a Discretionary Management Agreement) with the Filer, or an affiliate of the Filer, as applicable, which sets out the investment objective(s), strategies and restrictions applicable to the Client's Managed Account.

17. No Managed Account Client is, or will be, a "responsible person" as defined in NI 31-103.

Reasons for Exemption Sought

18. From time to time, each Public Fund, Private Fund and Managed Account proposes to purchase or sell Canadian or U.S. commercial mortgages (each a Mortgage) from or to Royal Bank of Canada or another affiliate of the Filer (RBC) (a Principal Mortgage Trade). RBC acts or will act as lender, originator and/or administrator in respect of each Mortgage.

19. Pursuant to paragraph 13.5(2)(b)(i) of NI 31-103, the Public Funds, the Private Funds and the Managed Accounts are prohibited from purchasing a security from, or selling a security to, the investment portfolio of a responsible person, and therefore prohibits the Filer from engaging in Principal Mortgage Trades.

20. Pursuant to Section 4.2(1) of NI 81-102, the Public Funds are prohibited from purchasing a security from, or selling a security to, an associate or affiliate of the manager, portfolio adviser or trustee of a Public Fund if such person is acting as "principal" and therefore prohibits the Public Funds from engaging in Principal Mortgage Trades with RBC.

21. RBC has a large team of professionals in Canada and the U.S. involved in the sourcing, originating and holding of Mortgages and RBC has sizable exposure to the Mortgages market in Canada and the U.S. The Filer believes that permitting the Public Funds, the Private Funds and the Managed Accounts to purchase Mortgages from RBC will allow the Public Funds, the Private Funds and the Managed Accounts to access investments in a manner that will be efficient for the Public Funds, the Private Funds and the Managed Accounts and permitting the Public Funds, the Private Funds and the Managed Accounts to sell Mortgages to RBC will provide liquidity or access to liquidity for the Public Funds, the Private Funds and the Managed Accounts.

22. Each Public Fund, Private Fund and Managed Account has or will have investment objectives and strategies that permits it hold mortgages. A Public Fund, Private Fund or Managed Account will only purchase Mortgages from RBC that are consistent with, or necessary to meet their investment objective(s). Each Public Fund, Private Fund and Managed Account will only sell Mortgages to RBC if the Filer has determined that disposing of such Mortgages is appropriate for the applicable Public Fund, Private Fund or Managed Account.

23. Each Public Fund, Private Fund, Managed Account and RBC has, or will have, policies and procedures in place to address any potential conflicts of interest that may arise as a result of any purchase or sale of a Mortgage between a Public Fund, Private Fund or Managed Account, as applicable, and RBC.

24. An independent review committee (IRC) has been established for the Public Funds in accordance with the requirements of National Instrument 81-107 -- Independent Review Committee for Investment Funds (NI 81-107).

25. The Filer will refer all Principal Mortgage Trades between a Public Fund or Private Fund, as the case may be, and RBC to the IRC and such trade will comply with any terms and conditions required the IRC for its approval.

26. The Filer will receive no remuneration with respect to any purchase or sale of a Mortgage between a Public Fund, Private Fund or Managed Account, as applicable, and RBC, and with respect to the delivery of a Mortgage, the only expenses which will be incurred by a Public Fund, Private Fund or Managed Account, will be nominal administrative charges levied by the custodian of the Public Fund, Private Fund or Managed Account, as applicable, any charges ordinarily incurred in transferring the Mortgages, if applicable, and any servicing fees of the Mortgages thereafter.

27. A summary of the term, interest rate, amortization and outstanding balance of each Mortgage held in the portfolio of a Public Fund, Private Fund or Managed Account will be available to an investor or a prospective investor from the Filer or an affiliate of the Filer, upon request provided that delivery of such information shall be conditional upon the investor or prospective investor agreeing to treat such information as confidential.

28. Except for Mortgages that are held by a Public Mortgage Fund, the Public Funds will only purchase or sell Mortgages that are "guaranteed mortgages" (as defined in NI 81-102) and no Public Fund shall, after the purchase of any Mortgage, hold more than 10% of its net asset value in guaranteed mortgages.

29. Except for a Public Mortgage Fund, no Public Fund will purchase Mortgages from RBC if, after the purchase, more than 10% of its net asset value would consist of Mortgages purchased from RBC.

30. The Public Mortgage Funds will only hold Mortgages in compliance with the restrictions set forth in section III(2)(2.1) of NP 29 other than paragraph III(2)(2.1)(i).

31. No Public Mortgage Fund will purchase a Mortgage from RBC if, after the purchase, more than 40% of its net asset value would consist of Mortgages purchased from RBC.

32. Until the later of the initial 180 day period following the launch of a Private Fund or until such time that a Private Fund has a net asset value of over $500 million, no Private Fund shall purchase Mortgages from RBC if, after the purchase, more than 50% of its net asset value would consist of Mortgages purchased from RBC.

33. No Managed Account shall purchase Mortgages on an on-going basis from RBC if, after the purchase, more than 50% of its net asset value would consist of Mortgages purchased from RBC.

34. Each Mortgage purchased by a Public Fund, Private Fund or Managed Account from RBC or sold to RBC by a Public Fund, Private Fund or Managed Account will be valued by an independent and reputable firm that specializes in the valuation of commercial mortgages or that provides valuation services by professionals who are active members of the Canadian Institute of Chartered Business Valuators, at a price determined in accordance with the provisions of section III(2)(2.4) of National Policy 29 Mutual Funds Investing in Mortgages (NP 29).

35. Each Public Fund, Private Fund and Managed Account will value the Mortgages in its portfolio in accordance with section III (2)(2.5) of NP 29 as if the Public Fund, Private Fund or Managed Account were subject to such policy.

36. The auditor of the Public Funds and the Private Funds carries out an audit in accordance with Canadian generally accepted auditing standards of the annual financial statements of each Public Fund and Private Fund. The annual financial statements of each Public Fund and Private Fund are prepared in accordance with International Financial Reporting Standards (IFRS) and National Instrument 81-106 Investment Fund Continuous Disclosure as applicable. The financial statements of the Public Funds and the Private Funds present, or will present, the Mortgages at fair value as defined in IFRS 13 Fair Value Measurement, as the same may be amended or replaced from time to time, which sets out a framework for measuring fair value.

37. The Filer believes that the Exemption Sought is in the best interests of the Public Funds, the Private Funds and the Managed Accounts as it will: (a) allow the Public Funds, Private Funds and Managed Accounts to access Mortgages in a more efficient manner and (b) will provide greater liquidity or access to liquidity for the Public Funds, Private Funds and Managed Accounts with respect to the Mortgages.

38. Any decision to purchase or sell Mortgages in a Principal Mortgage Trade on behalf of a Public Fund, Private Fund or Managed Account from or to RBC will be made based on the judgment of the portfolio manager uninfluenced by considerations other than the best interests of the Public Fund, the Private Fund or the Managed Account, as applicable.

39. The Filer is of the view that the Exemption Sought is not prejudicial to the public interest and is in the best interests of the Public Funds and Private Funds and their securityholders and the Clients of the Managed Accounts.

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 is that the Exemption Sought is granted provided that in respect of each sale or purchase of a Mortgage in a Principal Mortgage Trade on behalf of a Public Fund, Private Fund or Managed Account, as applicable, from or to RBC:

(a) the purchase or sale shall be consistent with the investment objective(s) of the Public Fund, Private Fund or Managed Account;

(b) under NI 81-107, the IRC approves any sale or purchase made by a Public Fund or Private Fund in accordance with section 5.2(2) of NI 81-107, the Filer, in respect of any sale or purchase made by a Public Fund, complies with section 5.1 of NI 81-107 and the Filer and the IRC comply with section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with sales or purchases of Mortgages by a Public Fund or Private Fund;

(c) the Filer receives no remuneration with respect to the purchase or sale by the Public Fund, Private Fund or Managed Account, as applicable, and with respect to the delivery of a Mortgage, the only expenses which will be incurred by a Public Fund, Private Fund or Managed Account will be nominal administrative charges levied by the custodian of the Public Fund, Private Fund or Managed Account, as applicable, any charges ordinarily incurred in transferring the Mortgages, if applicable, and any servicing fees of the Mortgages thereafter;

(d) each Mortgage purchased by a Public Fund, Private Fund or Managed Account from RBC or sold to RBC by a Public Fund, Private Fund or Managed Account is valued by an independent and reputable firm that specializes in the valuation of commercial mortgages or that provides valuation services by professionals who are active members of the Canadian Institute of Chartered Business Valuators, at a price determined in accordance with the provisions of section III(2)(2.4) NP 29;

(e) except for a Public Mortgage Fund, no Public Fund will purchase Mortgages from RBC if, after the purchase, more than 10% of its net asset value would consist of Mortgages purchased from RBC;

(f) no Public Mortgage Fund will purchase a Mortgage from RBC if, after the purchase, more than 40% of its net asset value would consist of Mortgages purchased from RBC;

(g) until the later of the initial 180 day period following the launch of a Private Fund or until such time that a Private Fund has a net asset value of over $500 million, no Private Fund shall purchase Mortgages from RBC if, after the purchase, more than 50% of its net asset value would consist of Mortgages purchased from RBC;

(h) no Managed Account shall purchase Mortgages on an on-going basis from RBC if, after the purchase, more than 50% of its net asset value would consist of Mortgages purchased from RBC;

(i) the financial statements of the Public Fund or Private Fund, as applicable, present the Mortgages at fair value as defined in IFRS 13 Fair Value Measurement, as the same may be amended or replaced from time to time;

(j) the Filer will disclose to each investor of any Private Fund and each Client of any Managed Account: (i) that purchases and/or sales of Mortgages between the Private Fund or Managed Account, as applicable, and RBC may occur from time to time; (ii) how the price in respect of any sale or purchase in (i) above will be determined; and (iii) the valuation procedure that will be undertaken in respect of any sale or purchase described in (i) above;

(k) a Public Fund's simplified prospectus and annual information form or long-form prospectus, as applicable, will disclose at inception, or in the case of an Existing Public fund, the time of its next renewal, a summary of the nature and terms of the Exemption Sought including: (i) that purchases and/or sales of Mortgages between the Public Fund and RBC may occur from time to time; (ii) how the price in respect of any sale or purchase in (i) above will be determined; and (iii) the valuation procedure that will be undertaken in respect of any sale or purchase described in (i) above, along with the conditions imposed by this decision;

(l) the Filer or an affiliate of the Filer will provide the investors of any Existing Private Fund and any Existing Managed Account with written notice of the fact that the Private Fund or Existing Managed Account, as applicable, may from time to time purchase Mortgages from RBC or sell Mortgages to RBC and provide a summary of the nature and terms of the Exemption Sought, along with the conditions imposed by this decision;

(m) the term sheet or confidential offering memorandum, as applicable, of any Future Private Fund that purchases a Mortgage from RBC or sells a Mortgage to RBC will disclose a summary of the nature and terms of the Exemption Sought, along with the conditions imposed by this decision;

(n) the Discretionary Management Agreement or other documentation in respect of any Managed Account that purchases a Mortgage from RBC or sells a Mortgage to RBC authorizes purchases and/or sales of Mortgages between the Managed Account and RBC from time to time; and

(o) the Public Funds, Private Funds and Managed Accounts will keep written records that include details of the Mortgages received or delivered by the Public Fund, Private Fund or Managed Account, as applicable, and the value assigned to such Mortgages for a period of five years following the end of the financial year in which the Mortgage was received or delivered by the Public Fund, Private Fund or Managed Account.