Majestic Asset Management LLC and the Top Funds
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Mutual funds that are not a reporting issuers granted 90-day extension of the annual financial statement filing and delivery deadlines under NI 81-106 -- Top Funds invests the majority of its assets in Underlying Funds -- Underlying Funds are subject to a variety of financial reporting deadlines, in some cases extending beyond annual financial statement filing and delivery deadline under NI 81-106 -- Relief granted provided that no less than 25% of the total assets of the Top Fund as at its financial year end of December 31 are invested in Underlying Funds that have financial reporting periods that end on December 31 of each year and subject to laws of their jurisdictions that require their annual financial statements to be delivered within 120 days of their financial year ends.
Applicable Legislative Provisions
National Instrument 81-106 Investment Fund Continuous Disclosure, ss. 2.2, 5.1(2) and 17.1.
December 19, 2022
IN THE MATTER OF THE SECURITIES LEGISLATION OF QUEBEC AND ONTARIO (the "Jurisdictions") AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF MAJESTIC ASSET MANAGEMENT LLC (the "Filer") AND THE TOP FUNDS (as defined below)
DECISION
Background
The securities regulatory authority or regulator in each of the Jurisdictions (the "Decision Maker") has received an application on behalf of the Filer, as investment fund manager of the Northfront Alternative Asset Fund (the "Northfront Fund"), Morningside Vintage Secondary 2022 , L.P. (the "Morningside Fund") and TURN8 Opportunity Fund L.P. (the "TURN8 Fund") (collectively, the "Initial Top Funds") and any other existing or future mutual fund that is not and will not be, a reporting issuer, and that is, or will be, managed by the Filer and may invest in underlying funds (the "Underlying Funds" and each an "Underlying Fund") as part of its investment strategy (the "Future Top Funds", and together with the Initial Top Funds, the "Top Funds" and each a "Top Fund") for a decision under the securities legislation of the Jurisdiction (the "Legislation") exempting the Filer and the Top Funds from:
1. the requirement in section 2.2 of National Instrument 81-106 Investment Fund Continuous Disclosure ("NI 81-106") that the Top Funds file their audited annual financial statements and auditor's report on or before the 90th day after the Top Funds' most recently completed financial year (the "Annual Filing Deadline") (the "relief from the Annual Filing Deadline");
2. the requirement in paragraph 5.1(2)(a) of NI 81-106 that the Top Funds deliver their annual financial statements on or before the 90th day after the Top Funds' most recently completed financial year (the "Annual Delivery Requirement") (the "relief from the Annual Delivery Requirement");
(collectively, the "Requested Relief").
Under the Process for Exemptive Relief Application in Multiple Jurisdictions (for dual application):
(a) the Autorité des marchés financiers has been selected as the principal regulator for this application.
(b) The Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System is intended to be relied upon for each equivalent provision of the laws of the provinces and territories of Canada, other than Ontario.
(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Interpretation
Terms defined in Regulation 14-101 respecting Definitions (chapter V-1.1, r. 3) and Regulation 11-102 respecting Passport System (chapter V-1.1, r. 1) 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 liability company formed under the laws of Delaware and having its head office in Brossard, Quebec.
2. The Filer is registered as a portfolio manager, exempt market dealer, investment fund manager, in Ontario and Quebec, commodity trading manager in Ontario and as a derivatives portfolio manager in Quebec.
3. The Filer is not a reporting issuer in any jurisdiction and is not in default of securities legislation of any jurisdiction of Canada.
4. The Filer is the investment fund manager of each of the Initial Top Funds and is or will be the investment fund manager of each Top Fund. The Filer or a third party will act as asset manager of each Top Fund.
The Initial Top Funds
The Northfront Fund
5. The Northfront Fund is an open-ended trust established under the laws of the Province of Quebec by an amended and restated trust agreement dated May 1, 2014.
6. The Northfront Fund's objective is to give investors positive returns that are less correlated to traditional public market investments. In order to achieve its investment objective, the Northfront Fund will invest across alternative assets, predominantly Underlying Funds, private equity, private corporate fixed income securities and structured products.
Morningside Fund
7. The Morningside Fund is a limited partnership formed under the laws of the Province of Ontario by a limited partnership agreement establishing the Partnership dated as at September 28, 2021, as may be amended from time to time. Morningside Diamond GP inc., the general partner of the Morningside Fund, retained the Filer as the fund manager to provide certain management, administration and other services in connection with the Morningside Fund.
8. The objective of the Morningside Fund is to obtain exposure to private equity assets by way of investment in Underlying Funds managed by third-party asset managers, including through secondary market transactions.
TURN8 Fund
9. The TURN8 Fund is a limited partnership formed under the laws of the Province of Québec by a limited partnership agreement establishing the Partnership dated as at April 5, 2022, as may be amended from time to time. TURN8 Opportunity Fund GP Inc., the general partner of the TURN8 Fund, retained the Filer as the fund manager to provide certain management, administration and other services to the TURN8 Fund.
10. The objective of the TURN8 Fund is to achieve higher returns than public markets through investments that are uncorrelated to the movements in public markets. To achieve its investment objective, the TURN8 Fund will predominantly invest in Underlying Funds focused on a portfolio of private investments such as private equity, private infrastructure and private real estate development projects.
The Top Funds
11. Each Top Fund will be a "mutual fund" for the purposes of the Legislation.
12. Securities of each Top Fund will only be offered for sale on a continuous basis to qualified investors in all provinces and territories in Canada pursuant to an exemption from the prospectus requirements under National Instrument 45-106 Prospectus and Registration Exemptions ("NI 45-106").
13. Units of each Top Fund will only be distributed in Canada pursuant to exemptions from the prospectus requirement in accordance with NI 45-106.
14. None of the Top Funds is, or will be, a reporting issuer in any province or territory of Canada.
15. Each Top Fund will have a financial year-end of December 31.
16. In addition, each Top fund may also invest in units of one or more Underlying Funds in which the investment objective will be consistent with the Top Fund's investment objective and strategy.
17. The Filer believes that investing in the Underlying Funds in accordance with each of the Top Fund's investment objective and strategy offers benefits not available through a direct investment in the companies, other issuers or assets held by the Underlying Fund.
18. 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. As each Top Fund has a long-term investment horizon, 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.
19. The net asset value of the Top Funds (the "NAV") will either be calculated daily, monthly or quarterly and in respect of Top Funds that are closed-end funds, the NAV will be calculated at least annually and may be estimated semi-annually based on the Underlying Funds' most recent valuation conducted by the manager of the relevant Underlying Funds.
20. The holdings of each Top Fund of securities of the Underlying Funds will be disclosed in the financial statements.
Financial Statements
21. Generally, section 2.2 and subsection 5.1(2)(a) of NI 81-106 require a Top Fund to file and deliver its annual audited financial statements by the Annual Filing Deadline. As each Top Funds' financial year-end is December 31, they each have a filing and delivery deadline of March 31.
22. Section 2.11 of NI 81-106 provides an exemption (the "Filing Exemption") from the Annual Filing Deadline if, among other things, an investment fund delivers its annual financial statements in accordance with part 5 of NI 81-106 by the Annual Filing Deadline.
23. In order to formulate an opinion on the financial statements on each Top Fund, the Top Fund's auditors require audited financial statements of the respective Underlying Funds in order to audit the information contained in the Top Fund's financial statements. The auditors of the Top Funds have advised the Filer that they will be unable to complete the audit of each Top Fund's annual financial statements until the audited financial statements of the Underlying Funds are completed and available to the respective Top Fund.
24. The Underlying Funds may be domiciled in Canada, the United States or other international jurisdictions.
25. The Underlying Funds may have varying financial year-ends and may be subject to a variety of financial reporting deadlines. For example, assets of the Top Funds may be invested in Underlying Funds whose constating documents will be in Underlying Funds that are governed by laws that require the financial statements to be filed within 120 days of the financial year end of the Underlying Fund.
26. In most cases, the Top Funds will not be able to obtain the financial statements of the Underlying Funds sooner than the deadline for filing the financial statements of the Underlying Funds and, in all cases, no sooner than other investors of the Underlying Funds receive the financial statements of the Underlying Funds.
27. The investors of each Top Fund will be provided with an offering memorandum that will disclose or will be otherwise notified that annual audited financial statements for the Top Fund will be filed and delivered within 180 days of financial year end.
28. The Filer will notify investors in the Top Funds that it has received and intends to rely on relief from the Annual Filing Deadline and Annual Delivery Requirement.
29. The Filer does not anticipate it will be able to rely on the Filing Exemption since it is unable to prepare and deliver the financial statements and auditor's report within ninety (90) days after the Top Fund's most recently completed financial year.
30. It is expected that each Top Fund will not be able to file the annual audited financial statements of the Top Fund by the Annual Filing Deadline. As a result, the Top Fund will not be able to meet the Annual Delivery Requirement. The Filer expects this timing delay in the completion of its annual audited financial statements to occur every year for the foreseeable future.
31. Each Top Fund therefore seeks an extension of the Annual Filing Deadline and Annual Delivery Requirement to June 30 of each year, to enable the Top Fund's auditors to first receive the audited financial statements of the Underlying Funds so as to be able to prepare the Top Fund's annual audited financial statements.
Decision
Each of the Decision Makers are satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the Decision Makers under the Legislation is that the Requested Relief is granted to a Top Fund for so long as:
1. The Top Fund has a financial year ended December 31.
2. The investment objective of the Top Fund involves investing in Underlying Funds.
3. The Top Fund invests the majority of its assets in Underlying Funds.
4. No less than 25% of the total assets of the Top Fund as at its financial year end of December 31 are invested in investment entities that have financial reporting periods that end on December 31 of each year and are subject to laws of their jurisdictions or have constating documents requiring their financial statements to be delivered within 120 days of their financial year ends.
5. The offering memorandum provided to unitholders regarding the Top Fund, if any, discloses that annual audited financial statements for the Top Fund will be filed and delivered within 180 days of financial year end, subject to regulatory approval.
6. The Top Fund notifies its unitholders that the Top Fund has received and intends to rely on the Requested Relief.
7. The Top Fund is not a reporting issuer and the Filer is a limited liability company formed under the laws of Delaware with its head office in Brossard, Quebec and 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 180th day after the Top Fund's most recently completed financial year; or
(b) the conditions in section 2.11 of NI 81-106 are met, except for subsection 2.1 l(b), and the annual audited financial statements are delivered to unitholders in accordance with Part 5 of NI 81-106 on or before the 180th day after the Top Fund's most recently completed financial year.
9. The Requested Relief 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 or Annual Delivery Requirement applies in connection with mutual funds under the Legislation.