Redwood Asset Management Inc. et al.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval granted for change of manager of mutual funds -- change of manager is not detrimental to unitholders or the public interest -- change of manager to be approved by the funds' unitholders at a special meeting of unitholders.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, ss. 5.5(1)(a), 5.5(3), 5.7.
March 12, 2018
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 REDWOOD ASSET MANAGEMENT INC. (Redwood) AND NINEPOINT PARTNERS LP (the Purchaser, and together with Redwood, the Filers) AND UIT ALTERNATIVE HEALTH FUND (the Fund)
The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for approval of the proposed change of manager of the Fund from Redwood to the Purchaser (the Change of Manager) under section 5.5(1)(a) of National Instrument 81-102 Investment Funds (NI 81-102) (the Approval 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 Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in all of the provinces and territories of Canada.
Terms defined in NI 81-102, National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filers:
1. Redwood is a corporation incorporated under the laws of the Province of Ontario with its head office in Toronto, Ontario.
2. Redwood is the manager, portfolio manager, promoter and trustee of the Fund. Redwood is registered as an investment fund manager in Ontario, Quebec and Newfoundland and Labrador, as a portfolio manager in Ontario, and as an exempt market dealer in Alberta, British Columbia, Ontario and Quebec.
3. Redwood is not in default of any requirements under applicable securities legislation.
4. The Fund is an open-ended mutual fund trust created pursuant to a master declaration of trust under the laws of Ontario dated September 16, 2016, as amended on March 13, 2017 and June 28, 2017 (the Declaration of Trust).
5. The units of the Fund are currently offered for sale in each Jurisdiction under a simplified prospectus, annual information form and fund facts dated September 25, 2017, as amended from time to time, prepared in accordance with the requirements of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101).
6. The Fund is a reporting issuer under the applicable securities legislation of each Jurisdiction and is not in default of any requirements under applicable securities legislation.
7. The Purchaser is a limited partnership under the laws of the Province of Ontario with its head office in Toronto, Ontario.
8. The Purchaser is registered as an investment fund manager in Ontario, Quebec and Newfoundland & Labrador, as a portfolio manager in Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia and Newfoundland & Labrador, and as an exempt market dealer in Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Newfoundland & Labrador and Quebec.
9. The Purchaser operates a family of mutual funds (the Ninepoint Funds) that are currently offered for sale in each of the Jurisdictions under simplified prospectuses, annual information forms and fund facts dated April 25, 2017 and January 26, 2018, as amended from time to time prepared in accordance with the requirements of NI 81-101.
10. The Purchaser is not in default of any requirements under applicable securities legislation.
The Proposed Transaction
11. The Purchaser has entered into a definitive asset purchase agreement (the Purchase Agreement) pursuant to which the Purchaser has agreed to purchase from Redwood the right to manage the Fund as provided in the material contracts, in consideration for a payment of an amount equal to the total cost to complete the transaction (the Proposed Transaction).
12. The Proposed Transaction is scheduled to close on April 16, 2018 (the Closing). This Proposed Transaction will result in a change of manager and trustee of the Fund.
13. The Proposed Transaction is subject to the receipt of all necessary regulatory and unitholder approvals and the satisfaction or waiver of all other conditions to the Proposed Transaction.
14. The Filers are seeking approval of the securities regulatory authorities of the Proposed Transaction in a single application characterized for a change of manager under section 5.5(1)(a) of NI 81-102.
15. In accordance with National Instrument 81-106 Investment Fund Continuous Disclosure, a press release announcing the Proposed Transaction was issued on January 29, 2018 and subsequently filed on SEDAR. In addition, a material change report was filed on February 1, 2018 and details of the Proposed Transaction were included in amendments to the simplified prospectus, annual information form and fund facts for the Fund dated February 2, 2018.
16. As required by National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107), Redwood presented the Proposed Transaction to the independent review committee (IRC) for a recommendation on February 8, 2018. The IRC reviewed the potential conflict of interest matters related to the Proposed Transaction, including the change in management fees and provided its positive recommendation for the Proposed Transaction, after determining that the Proposed Transaction, if implemented, would achieve a fair and reasonable result for the Fund.
17. The approval of unitholders of the Fund is required under section 5.1(1)(b) of NI 81-102. A special meeting of the unitholders of the Fund (the Meeting) will be held on or about March 19, 2018 for the purposes of seeking approval from unitholders of the Fund for the matters relating to the Proposed Transaction. Unitholders will be asked to vote on the proposed Change of Manager, the change of trustee from Redwood to the Purchaser (the Change of Trustee), and the change in management fees charged to the Fund (the Fee Change).
18. The notice of Meeting and management information circular in respect of the Meeting (the Meeting Materials) describing the Proposed Transaction, the Change of Manager, the Change of Trustee and the Fee Change were mailed to unitholders of the Fund on or about February 15, 2018 and copies thereof were filed on SEDAR. The Meeting Materials contain sufficient information regarding the business, management and operations of the Purchaser, including details of its officers and directors, and all information necessary to allow unitholders to make an informed decision about the Proposed Transaction, the Change of Manager, the Change of Trustee and the Fee Change. The Change of Manager, the Change of Trustee and the Fee Change will not proceed unless unitholders of the Fund approve the changes at the Meeting.
Impact of Change of Manager on the Fund
19. Upon Closing, the Purchaser will become the investment fund manager, portfolio manager and trustee of the Fund.
20. CIBC Mellon Trust Company will remain as custodian of the Fund.
21. Faircourt Asset Management Inc. will remain as sub-adviser of the Fund.
22. RBC Investor Services Trust will be appointed the transfer agent of the Fund.
23. KPMG LLP will be appointed as auditor of the Fund. Pursuant to paragraph 5.3.1 of NI 81-102, the IRC has approved the change of auditor and the notice to unitholders of the change of auditor will be included in the Meeting Materials and provided at least 60 days before the effective date of the change.
24. The current members of the IRC of the Fund will cease to act as members pursuant to Section 3.10(1)(b) of NI 81-107 and it is anticipated that the Purchaser will replace the current members of the IRC of the Fund with the current members of the IRC of the Ninepoint Funds upon Closing. Currently, the IRC of the Ninepoint Funds consists of Lawrence A. Ward, W. William Woods and Eamonn McConnell.
25. The Purchaser will assume and amend the Declaration of Trust that governs the Fund (the New Declaration of Trust) to reflect the Purchaser as the new trustee and to make certain other changes. Notice of the change and the major differences between the Declaration of Trust and the New Declaration of Trust will be described in the Meeting Materials.
26. The Purchaser intends to manage and administer the Fund in a similar manner as Redwood. There is no current intention to change the investment objectives of the Fund.
27. The Fund will not bear any of the costs and expenses associated with the Proposed Transaction.
28. The individuals that will be principally responsible for the investment fund management of the Fund upon Closing have the requisite integrity and experience, as required under Section 5.7(1)(a)(v) of NI 81-102.
29. Other than as required to reflect the Proposed Transaction, the Purchaser does not currently contemplate any changes to the material contracts of the Fund.
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 Approval Sought is granted.