Starlight Investments Capital LP

Headnote

National Policy 11-203 Process for Exemptive Relief in Multiple Jurisdictions -- relief granted to permit investment funds subject to NI 81-102 to invest in securities of related underlying investment funds that are not reporting issuers -- subject to the underlying funds valuation by a third party administrator, IRC approval and other usual conditions.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 2.2(1)(a), 2.5(2)(a), and 2.5(2)(c) and 19.1.

January 19, 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 STARLIGHT INVESTMENTS CAPITAL LP (the Filer) AND THE TOP FUNDS (as defined below)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) granting an exemption to:

Starlight Global Infrastructure Fund and Starlight Global Real Estate Fund (the Initial Top Funds) and any additional mutual funds established in the future (theFuture Top Funds, and together with the Initial Top Funds, the Top Funds and individually a Top Fund), which are subject to National Instrument 81-102 -- Investment Funds (NI 81-102) and are managed by the Filer, or an affiliate of the Filer, from the following prohibitions in the Legislation (the Exemption Sought):

(a) section 2.2(1)(a) of NI 81-102, which would prohibit each Top Fund that is a mutual fund from investing in securities of the Underlying Pooled Funds (as defined below), such that, after the purchase, the Top Fund would hold securities representing more than 10 percent of: (i) the votes attaching to the outstanding voting securities of an Underlying Pooled Fund; or (ii) the outstanding equity securities of an Underlying Pooled Fund;

(b) section 2.5(2)(a) of NI 81-102, which would prohibit each Top Fund that is a mutual fund from investing in securities of the Underlying Pooled Funds, which Existing Underlying Pooled Funds (as defined below) are, and Future Underlying Pooled Funds (as defined below) will be, mutual funds that are not subject to NI 81-102;

(c) section 2.5(2)(c) of NI 81-102, which would prohibit each Top Fund that is a mutual fund from investing in securities of the Underlying Pooled Funds, which Existing Underlying Pooled Funds are not, and Future Underlying Pooled Funds will not be, reporting issuers in any jurisdiction.

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for the application; and

(b) the Filer has provided notice that section 4.7(1)(c) of Multilateral Instrument 11-102 -- Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (together with the Jurisdiction, the Canadian Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 -- Definitions and MI 11-102 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 limited partnership formed under the Limited Partnerships Act (Ontario), with its head office in Toronto, Ontario.

2. The Filer is registered as an investment fund manager, portfolio manager and exempt market dealer in each of Ontario, Québec, and Newfoundland and Labrador, and as a portfolio manager and an exempt market dealer in each of Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island and Saskatchewan.

3. The Filer is, or will be, the investment fund manager or portfolio manager of each Top Fund and each Underlying Pooled Fund.

4. The Filer is not a reporting issuer in any of the Canadian Jurisdictions and is not in default of securities legislation in any of the Canadian Jurisdictions.

5. An officer and/or director of the Filer, or an affiliate of the Filer, may have a "significant interest" (as such term is defined in section 110(2)(a) of the Securities Act (Ontario)) in an Underlying Pooled Fund from time to time. A person or company who is a substantial security holder of a Top Fund, the Filer, or an affiliate of the Filer, may also have a significant interest in an Underlying Pooled Fund from time to time.

6. The Filer is, or will be, "responsible persons" of the Top Funds and the Underlying Pooled Funds, as that term is defined in National Instrument 31-103 -- Registration Requirements, Exemptions and Ongoing Registrant Obligations.

The Top Funds

7. The Top Funds are, or will be, an investment fund, to which NI 81-102 applies, organized and governed by the laws of a Canadian Jurisdiction.

8. Each Top Fund has distributed, distributes, or will distribute, its securities pursuant to a simplified prospectus prepared pursuant to NI 81-101 -- Mutual Fund Prospectus Disclosure (NI 81-101) and Form 81-101F1 or a long form prospectus prepared pursuant to NI 41-101 -- General Prospectus Requirements (NI 41-101) and Form 41-101F2.

9. Securities of each Top Fund are, or will be, qualified for distribution in the Canadian Jurisdictions.

10. The Top Funds are, or will be, reporting issuers in the Canadian Jurisdictions in which their securities are distributed.

11. None of the Initial Top Funds are in default of securities legislation in any of the Canadian Jurisdictions.

12. The investment objectives and strategies of the Top Funds permit and will permit the Top Funds to invest in one or more of the Underlying Pooled Funds.

13. Each Top Fund is subject to National Instrument 81-107 -- Independent Review Committee for Investment Funds (NI 81-107) and the Filer has established an independent review committee (an IRC) in order to review conflict of interest matters pertaining to the Top Funds as required by NI 81-107.

14. No Top Fund that will hold securities of an Underlying Pooled Fund will vote any of those securities.

The Underlying Pooled Funds

15. The Starlight Private Global Infrastructure Pool and the Starlight Private Global Real Estate Pool (the Existing Underlying Pooled Funds) are, and such other similar investment funds as may be established and managed by the Filer, or an affiliate or associate of the Filer, in the future (the Future Underlying Pooled Funds, and together with the Existing Underlying Pooled Funds, the Underlying Pooled Funds) will be, a "mutual fund", as such term is defined under the Legislation, formed as a trust under the laws of Ontario pursuant to a declaration of trust.

16. The investment objective of Starlight Private Global Real Estate Pool is to achieve long-term capital appreciation and regular current income by investing globally in private real estate investments and in real estate investment trusts and equity securities of corporations participating in the residential and commercial real estate sector.

17. The investments of the Starlight Private Global Real Estate Pool, which primarily consist of real estate securities, are primarily illiquid and the units of the Starlight Private Global Real Estate Pool therefore have limited liquidity.

18. The investment objective of Starlight Private Global Infrastructure Pool is to achieve long-term capital appreciation and regular current income by investing globally in private infrastructure and infrastructure-related investments and in publicly-traded companies with direct or indirect exposure to infrastructure.

19. The investments of the Starlight Private Global Infrastructure Pool, which primarily consist of infrastructure related securities, are primarily illiquid and the units of the Starlight Private Global Infrastructure Pool therefore have limited liquidity.

20. The Existing Underlying Pooled Funds hold at least 20% of invested capital in publicly traded global equity securities, and to a lesser extent, debentures and bonds and up to 80% of invested capital in institutional private equity funds managed by third parties. Third party administrators provide quarterly valuations for all of the private equity fund investments held by the Existing Underlying Pooled Funds, and all public securities held are listed securities and valued by the Filer's administrator.

21. The private equity investments held by the Underlying Pooled Funds are not, and will not be, investment funds as defined under the Securities Act (Ontario).

22. The Existing Underlying Pooled Funds are not and the Future Underlying Pooled Funds will not be reporting issuers in any of the Canadian Jurisdictions or listed on any recognized stock exchange. Units of the Underlying Pooled Funds are, or will be, sold pursuant to exemptions from the prospectus requirements in accordance with National Instrument 45-106 -- Prospectus Exemptions.

23. The Existing Underlying Pooled Funds are not in default of the securities legislation of any of the Canadian Jurisdictions.

24. The Existing Underlying Pooled Funds are valued monthly and redeemable quarterly at a redemption price per unit equal to the series net asset value per unit on the redemption date.

25. For any particular redemption date, an Underlying Pooled Fund is not required to pay redemption proceeds in cash for units representing more than 5% of the average number of units outstanding for the 90-day period immediately preceding the applicable redemption date.

26. The Filer has one valuation policy for the calculation of net asset value (NAV), which applies to both the Top Funds and the Underlying Pooled Funds. The Filer calculates NAV for the Underlying Pooled Funds in accordance with Part 14 of National Instrument 81-106 -- Investment Fund Continuous Disclosure (NI 81-106).

27. No Top Fund will actively participate in the business or operations of the Underlying Pooled Funds.

28. In addition, a Top Fund will not invest, directly or indirectly, in an Underlying Pooled Fund unless, at the time of purchase, at least 20% of the units of such Underlying Pooled Fund are directly or indirectly held by unitholders that are not affiliated or associated with the Filer (not including any holdings made through the Top Fund).

29. The Underlying Pooled Funds qualify or will qualify as mutual fund trusts under the Income Tax Act, and are investment funds that are or will be widely held by accredited investors.

Top Fund on Underlying Pooled Fund Structure

30. An investment by a Top Fund in an Underlying Pooled Fund, will be compatible with the investment objective and strategy of the Top Fund.

31. As noted above, a unit of an Underlying Pooled Fund will be considered an "illiquid asset" within the meaning of NI 81-102. Consequently, if the Exemption Sought is granted, a Top Fund will acquire securities of an Underlying Pooled Fund, whether directly or indirectly, in compliance with section 2.4 of NI 81-102. As a result, a Top Fund will not be able to purchase units of an Underlying Pooled Fund if immediately after purchase, more than 10% of the net asset value of the Top Fund would be made up of "illiquid assets".

32. The IRC of the Top Funds will review and provide its approval, including by way of standing instructions, for the purchase of units of the Underlying Pooled Funds, directly or indirectly, by the Top Funds, in accordance with section 5.2(2) of NI 81-107.

Generally

33. The Filer does not anticipate that any fees or sales charges would be incurred, directly or indirectly, by a Top Fund with respect to an investment in an Underlying Pooled Fund.

34. Absent the Exemption Sought, a Top Fund would by prohibited by section 2.5(2)(a) and 2.5(2)(c) from purchasing or holding securities of an Underlying Pooled Fund because the Underlying Pooled Funds are not subject to NI 81-102.

35. Due to the potential size disparity between the Top Funds and the Underlying Pooled Funds, it is possible that a relatively small investment, on a percentage of net asset value basis, by a relatively larger Top Fund in an Underlying Pooled Fund could result in such Top Fund holding securities representing more than 10 percent of: (i) the votes attaching to the outstanding voting securities of such Underlying Pooled Fund; or (ii) the outstanding equity securities of that Underlying Pooled Fund, contrary to the restrictions in section 2.2(1)(a) of NI 81-102.

36. If the IRC becomes aware of an instance where a Filer or an affiliate of a Filer, in its capacity as manager of a Top Fund, did not comply with the terms of this decision, or a condition imposed by securities legislation or the IRC in its approval, the IRC of such Top Fund will, as soon as practicable, notify in writing the securities regulatory authority or regulator in the jurisdiction under which the Top Fund is organized.

37. A Top Fund's investment in an Underlying Pooled Fund will represent the business judgment of a responsible person uninfluenced by considerations other than the best interests of the Top Fund.

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, provided that:

(a) the private equity investments held by the Underlying Pooled Funds are, or will be valued by a third-party administrator;

(b) the investments in the Underlying Pooled Funds are included as part of the calculation for the purposes of the illiquid asset restriction in section 2.4 of NI 81-102 for a Top Fund;

(c) in respect of an investment by a Top Fund in an Underlying Pooled Fund, no sales or redemption fees will be paid as part of the investment in the Underlying Pooled Fund;

(d) in respect of an investment by a Top Fund in an Underlying Pooled Fund, no management fees or incentive fees will be payable by the Top Fund that, to a reasonable person, would duplicate a fee payable by an Underlying Pooled Fund for the same service;

(e) where applicable, a Top Fund's investment in an Underlying Pooled Fund, whether direct or indirect, will be disclosed to investors in such Top Fund's quarterly portfolio holding reports, financial statements and/or fund facts/ETF facts documents;

(f) the prospectus of a Top Fund discloses, or will disclose in the next renewal or amendment thereto following the date of a decision evidencing the Exemption Sought, the fact that the Top Fund may invest, directly or indirectly, in an Underlying Pooled Fund, which are investment funds managed by the Filer;

(g) the IRC of a Top Fund will review and provide its approval, including by way of standing instructions, prior to the purchase of an Underlying Pooled Fund, directly or indirectly, by the Top Fund, in accordance with section 5.2(2) of NI 81-107;

(h) the manager of each Top Fund complies with section 5.1 of NI 81-107 and the manager and the IRC of each Top Fund complies with section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with the transactions;

(i) where an investment is made by a Top Fund in an Underlying Pooled Fund, the annual and interim management reports of fund performance for the Top Fund disclose the name of the related person in which an investment is made, being an Underlying Pooled Fund; and

(j) where an investment is made by a Top Fund in an Underlying Pooled Fund, the records of portfolio transactions maintained by the Top Fund include, separately for every portfolio transaction effected by the Top Fund through any affiliate of the Filer, the name of the related person in which an investment is made, being an Underlying Pooled Fund.