TD Asset Management Inc.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from conflict of interest/self-dealing provisions in 111 of the Securities Act, section 13.5 of NI 31-103, and section 4.1 of NI 81-102 to facilitate investment by investment funds subject to NI 81-102 into related underlying investment entities that are not reporting issuers -- relief also granted from related party transaction reporting requirements in section 117 of the Securities Act -- reporting requirement substantially similar to existing related party transaction reporting requirements under National Instrument 81-106 Investment Fund Continuous Disclosure -- relief subject to certain conditions.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 111(2)(b), (c), 111(4), 113 117.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 13.5(2)(a) 15.1.
July 16, 2020
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 TD ASSET MANAGEMENT INC. (TDAM or the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application (the Application) from TDAM on its behalf and on behalf of each existing investment fund that is a reporting issuer and to which National Instrument 81-102 -- Investment Funds (NI 81-102) and National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107) apply, for which the TDAM or an affiliate of the TDAM (collectively, the "Filer") acts as manager (the Existing NI 81-102 Funds), and each investment fund to be established in the future, that will be a reporting issuer and to which NI 81-102 and NI 81-107 will apply, for which the Filer acts as manager (the Future NI 81-102 Funds and together with the Existing 81-102 Funds the 81-102 Funds), which invest or will invest in: (i) TD Greystone Infrastructure Fund (Global Master) L.P. (the Master Infrastructure Pool) and TD Greystone Infrastructure Fund (Canada) L.P. II (Feeder Infrastructure Pool II and together with the Master Infrastructure Pool, the Infrastructure Pools); and (ii) TD Greystone Real Estate LP Fund (the Real Estate Pool and together with the Infrastructure Pools, the Underlying Entities and each an Underlying Entity), for a decision under the securities legislation of the Jurisdiction (the Legislation):
1. exempting the 81-102 Funds from the restriction in the Legislation which prohibits:
(a) an investment fund from knowingly making an investment in a person or company in which the investment fund, alone or together with one or more related investment funds, is a substantial security holder; and
(b) an investment fund from knowingly making an investment in an issuer in which:
(i) any officer or director of the investment fund, its management company or distribution company or an associate of any of them, or
(ii) any person or company who is a substantial security holder of the investment fund, its management company or its distribution company, has a significant interest; and
(c) an investment fund, its management company or its distribution company from knowingly holding an investment described in paragraph (a) or (b) above (collectively, the Related Issuer Relief);
2. exempting the Filer, with respect to the 81-102 Funds, from the restriction in the Legislation that prohibits a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as adviser, to invest in securities of any issuer in which a responsible person or an associate of a responsible person is a partner, officer or director, unless the fact is disclosed to the client and the written consent of the client to the investment is obtained before the purchase (the Consent Requirement Relief);
3. exempting the Filer, with respect to the 81-102 Funds, from the requirement to prepare a report in accordance with the requirements of the Legislation of every transaction of purchase of securities from or sale of securities to any related person or company (the Reporting Relief); and
4. exempting the 81-102 Funds from the restriction in the Legislation which prohibits a dealer managed investment fund from knowingly making an investment in a class of securities of an issuer, of which a partner, director, officer or employee of the dealer manager of the investment fund, or a partner, director, officer or employee of an affiliate or associate of the dealer manager of the investment fund, is a partner, director or officer, unless the partner, director, officer or employee:
(a) does not participate in the formulation of investment decisions made on behalf of the dealer managed investment fund;
(b) does not have access before implementation to information concerning investment decisions made on behalf of the dealer managed investment fund; and
(c) does not influence, other than through research, statistical and other reports generally available to clients, the investment decisions made on behalf of the dealer managed investment fund;
(the Self-Dealing Relief and collectively with the Reporting Relief, the Consent Requirement Relief and the Related Issuer Relief, the Requested Relief). The Requested Relief is required in order to enable the 81-102 Funds to invest in an Underlying Entity.
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;
(b) the Filer has provided notice that subsection 4.7(2) of Multilateral Instrument 11-102 Passport System (MI 11-102) that:
(i) the Related Issuer Relief and the Reporting Relief is to be relied upon by TDAM and the 81-102 Funds in Alberta; and
(ii) the Consent Requirement Relief is to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (together with the Jurisdiction, the Jurisdictions).
Interpretation
Terms defined in the Legislation, MI 11-102 and National Instrument 14-101 -- Definitions have the same meanings in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
TDAM
1. TDAM is a corporation continued under the laws of the province of Ontario.
2. TDAM is a wholly-owned subsidiary of The Toronto-Dominion Bank, a Schedule 1 Canadian chartered bank. The head office of TDAM is located in Toronto, Ontario.
3. TDAM is registered in: (i) each of the Jurisdictions as an adviser in the category of portfolio manager (PM) and as a dealer in the category of exempt market dealer; (ii) Ontario, Québec, Saskatchewan and Newfoundland and Labrador in the category of investment fund manager (IFM); (iii) Ontario in the category of commodity trading manager; and (iv) Québec as a derivatives portfolio manager.
4. TDAM, or an affiliate of TDAM, is, or will be, the IFM and PM of the 81-102 Funds.
5. The Underlying Entities are managed and advised by TDAM.
6. TDAM is not in default of securities legislation.
7. An officer and/or director of TDAM, or an affiliate of TDAM, may have a "significant interest" (as such term is defined in section 110(2)(a) of the Ontario Act and section 184(l)(b) of the Alberta Act) in an Underlying Entity from time to time. A person or company who is a substantial security holder of an 81-102 Fund, TDAM, or an affiliate of TDAM, may also have a significant interest in an Underlying Entity from time to time.
8. The Filer is, or will be, "responsible persons" of the 81-102 Funds and the Underlying Entities, as that term is defined in National Instrument 31-103 -- Registration Requirements, Exemptions and Ongoing Registrant Obligations.
9. The PM of an 81-102 Fund may be a "dealer manager" as such term is defined in NI 81-102.
The 81-102 Funds
10. Each 81-102 Fund is, or will be, a "mutual fund", as such term is defined under the Ontario Act, to which NI 81-102 applies.
11. An 81-102 Fund may be a "dealer managed investment fund" as such term is defined in NI 81-102.
12. Each 81-102 Fund has, or will have, as applicable, a prospectus, a simplified prospectus, an annual information form, ETF Facts, and/or Fund Facts, prepared in accordance with National Instrument 41-101 General Prospectus Requirements or National Instrument 81-101 Mutual Fund Prospectus Disclosure, as applicable.
13. Securities of each 81-102 Fund are, or will be, qualified for distribution in the Jurisdictions.
14. Each 81-102 Fund is, or will be, a reporting issuer under the securities legislation of one or more Jurisdictions.
15. None of the Existing 81-102 Funds are in default of securities legislation in any of the Jurisdictions.
16. The investment objectives and strategies of an 81-102 Fund will permit the 81-102 Fund to invest in one or more Underlying Entities.
17. Each 81-102 Fund is subject to 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 81-102 Funds as required by NI 81-107.
The Underlying Entities -- the Infrastructure Pools
18. The Master Infrastructure Pool is an investment product established as a limited partnership formed under the laws of Cayman Islands. The General Partner of the Master Infrastructure Pool is TD Greystone Infrastructure Fund (Global Master) GP Inc., which is an affiliate of TDAM.
19. The investment objective of the Master Infrastructure Pool is to provide sustainable long-term returns by investing in a diversified global infrastructure portfolio that complies with established risk and portfolio limits. Permitted infrastructure assets in which the Master Infrastructure Pool may invest include:
(a) transportation, including roads, rail, ports and airports;
(b) contracted generation;
(c) power transmission and distribution;
(d) renewable energy, including wind, hydro, solar and waste-to-energy;
(e) pipelines, including oil, gas and refined products;
(f) utilities, including water, wastewater and energy;
(g) telecommunications;
(h) social infrastructure, including hospitals, prisons and schools;
(i) rolling stock and parking; and
(j) other assets that are expected to generate predictable cash flows over the long-term and exhibit sustainable competitive advantages.
20. Feeder Infrastructure Pool II is an investment product established as a limited partnership under the laws of Ontario. The General Partner of Feeder Infrastructure Pool II is TD Greystone Infrastructure Fund Canada GP Inc., which is an affiliate of TDAM.
21. The investment objective of Feeder Infrastructure Pool II is to provide sustainable long term returns from infrastructure assets by investing in units of the Master Infrastructure Pool.
22. Feeder Infrastructure Pool II and the Master Infrastructure Pool have substantially similar investment objectives in that they each seek sustainable long term returns from infrastructure assets.
23. The Infrastructure Pools are not considered to be investment funds under securities law but, in certain respects, operate in a manner similar to an investment fund. The Infrastructure Pools are administered by TDAM, as manager. Their assets are managed by TDAM, as PM, and the custodian of the Infrastructure Pools calculates a net asset value that is used for purposes of determining the purchase and redemption price of the units of each Infrastructure Pool.
24. Each Infrastructure Pool is not a reporting issuer in any jurisdiction of Canada. Units of the Infrastructure Pools are, or will be, sold pursuant to exemptions from the prospectus requirements in accordance with National Instrument 45-106 Prospectus Exemptions (NI 45-106).
25. The Infrastructure Pools are not in default of the securities legislation of any of the Jurisdictions.
26. The investments of the Infrastructure Pools, which consist primarily of infrastructure assets (or in the case of Feeder Infrastructure Pool II, units of the Master Infrastructure Pool) are primarily illiquid and the units of the Infrastructure Pools therefore have limited liquidity.
27. The Infrastructure Pools are valued and redeemable quarterly.
28. The value of the portfolio assets of the Master Infrastructure Pool is independently determined by one or more internationally recognized accounting firms and/or appraisal firms that is arm's length to TDAM, the Real Estate Pool, the Infrastructure Pools, and all other investment funds or vehicles managed by TDAM (IF Independent Appraiser). An IF Independent Appraiser independently values such portfolio assets on a quarterly basis. A quarterly valuation of one or more of such assets may be refreshed by an IF Independent Appraiser during an interim period if the portfolio adviser of the Master Infrastructure Pool determines that a significant valuation event has occurred. The auditor of the Infrastructure Pools will not act as an IF Independent Appraiser. Feeder Infrastructure Pool II invests in the Master Infrastructure Pool at the net asset value of the Master Infrastructure Pool, which is based on the valuation prepared by the IF Independent Appraiser.
29. To the extent feasible and practicable, each IF Independent Appraiser will be rotated on three-year intervals.
30. In addition, an 81-102 Fund will not invest, directly or indirectly, in an Infrastructure Pool unless, at the time of purchase, at least 20% of the units of the Master Infrastructure Pool are directly or indirectly held by unitholders that are not affiliated or associated with TDAM (not including any holdings made through the 81-102 Fund).
31. No 81-102 Fund will actively participate in the business or operations of the Infrastructure Pool.
The Underlying Entities -- the Real Estate Pool
32. The Real Estate Pool is an investment product established as a limited partnership under the laws of Ontario. The General Partner of the Real Estate Pool is TD GMI Real Estate Inc., which is an affiliate of TDAM.
33. The Real Estate Pool is not considered to be an investment fund under securities law but, in certain respects, operates in a manner similar to an investment fund. The Real Estate Pool is administered by TDAM, as manager. Its assets are managed by TDAM, as PM, and the custodian of the Real Estate Pool calculates a net asset value that is used for purposes of determining the purchase and redemption price of its units.
34. The investment objective of the Real Estate Pool is to seek superior long-term total returns by investing in a diversified Canadian real estate portfolio. Under its investment strategy, the Real Estate Pool may also invest in equity interests in, and mortgages of, Canadian real estate, securities or bonds where the underlying asset is a mortgage or real estate, cash and short-term investments.
35. The Real Estate Pool is not a reporting issuer in any of the Jurisdictions. Units of the Real Estate Pool are sold solely to accredited investors pursuant to exemptions from the prospectus requirements in accordance with NI 45-106.
36. The Real Estate Pool is not in default of the securities legislation of any of the Jurisdictions.
37. The investments of the Real Estate Pool, which consist primarily of interests in real estate, are primarily illiquid and the units of the Real Estate Pool therefore have limited liquidity.
38. The Real Estate Pool is valued and redeemable quarterly, although "non-significant" redemptions (a redemption request that is for less than $1,000,000 and 10% of the Real Estate Pool's liquidity available for investment) may, at TDAM's discretion, be made on a monthly basis.
39. The value of the portfolio assets of the Real Estate Pool is independently determined by one or more accounting firms and/or appraisal firms accredited through the Appraisal Institute of Canada that is arm's length to TDAM, the Real Estate Pool, the Infrastructure Pools and all other investment funds or vehicles managed by TDAM (RE Independent Appraiser) on a quarterly basis, which quarterly valuation may be refreshed by the RE Independent Appraiser if TDAM determines that a significant valuation event has occurred. The Real Estate Pool's auditor will not act as a RE Independent Appraiser. The Real Estate Pool's net asset value is based on the valuation of the portfolio assets determined by the RE Independent Appraiser(s).
40. To the extent feasible and practicable, each RE Independent Appraiser will be rotated on three-year intervals.
41. In addition, an 81-102 Fund will not invest, directly or indirectly, in the Real Estate Pool unless, at the time of purchase, at least 20% of the units of the Real Estate Pool are directly or indirectly held by unitholders that are not affiliated or associated with TDAM (not including any holdings made through the 81-102 Fund).
42. No 81-102 Fund will actively participate in the business or operations of the Real Estate Pool.
Fund-on-Underlying Entity Structure
43. An investment by an 81-102 Fund in a Feeder LP (as defined below), and directly or indirectly in an Underlying Entity, will be compatible with the investment objective and strategies of the 81-102 Fund.
44. If an investment by an 81-102 Fund in the Master Infrastructure Pool is made indirectly, such investment will be made in Feeder Infrastructure Pool II. If an investment by an 81-102 Fund in the Real Estate Pool is made indirectly, such investment will be made in a newly established feeder limited partnership (the Feeder Real Estate Pool and together with Feeder Infrastructure Pool II, the Feeder LPs). Each Feeder LP will directly acquire and hold units of its applicable Underlying Entity. Each Feeder LP is not, or will not be, considered to be an investment fund
45. The majority of the assets of a Feeder LP will be invested in its applicable Underlying Entity. The remainder of the Feeder LP's portfolio will be liquid, comprised of cash and cash equivalents.
46. It is anticipated that each Feeder LP will be redeemable on a quarterly basis. Units of a Feeder LP will be considered an "illiquid asset" within the meaning of NI 81-102.
47. As noted above, a unit of an Underlying Entity will also likely be considered an "illiquid asset" within the meaning of NI 81-102. Consequently, if the Requested Relief is granted, an 81-102 Fund will acquire securities of an Underlying Entity, whether directly or indirectly, in compliance with section 2.4 of NI 81-102. As a result, an 81-102 Fund will not be able to purchase units of a Feeder LP if, immediately after purchase, more than 10% of the net asset value of the 81-102 Fund would be made up of "illiquid assets".
48. The IRC of the 81-102 Funds will review and provide its approval, including by way of standing instructions, for the purchase of units of the Underlying Entities, directly or indirectly, by the 81-102 Funds, in accordance with section 5.2(2) of NI 81-107.
Generally
49. The amount invested from time to time, directly or indirectly, in an Underlying Entity by an 81-102 Fund, together with one or more other 81-102 Funds (collectively, the Other 81-102 Funds), may exceed 20% of the outstanding voting securities of such Underlying Entity. As a result, an 81-102 Fund could, together with one or more Other 81-102 Funds, become a substantial security holder of an Underlying Entity. Each 81-102 Fund and the Other 81-102 Funds are "related investment funds", as such term is defined in section 106(1) of the Ontario Act and section 181(1) of the Alberta Act by virtue of common management by TDAM.
50. An 81-102 Fund will not invest in an Underlying Entity if, immediately after the purchase, the 81-102 Fund would hold securities representing more than 10% of: (i) the votes attaching to the outstanding voting securities of the Underlying Entity; or (ii) the outstanding equity securities of the Underlying Entity.
51. The proposed investment structure may result in an 81-102 Fund, directly or indirectly, investing in an Underlying Entity in which an officer or director of TDAM or an affiliate of TDAM has a significant interest and/or an 81-102 Fund, directly or indirectly, investing in an Underlying Entity in which a person or company who is a substantial security holder of the 81-102 Fund, TDAM or an affiliate of TDAM has a significant interest.
52. The Filer does not anticipate that any fees or sales charges would be incurred, directly or indirectly, by an 81-102 Fund with respect to an investment in an Underlying Entity.
53. In the absence of the Related Issuer Relief, each 81-102 Fund would be precluded from directly or indirectly purchasing and holding securities of an Underlying Entity due to the investment restrictions contained in the Legislation.
54. The proposed investment structure may also result in an 81-102 Fund directly or indirectly investing in an Underlying Entity in which a responsible person or an associate of a responsible person is a partner, officer or director, or performs a similar function or occupies a similar position.
55. In the absence of the Consent Requirement Relief, TDAM or its affiliates would be precluded from causing an 81-102 Fund to directly or indirectly invest in an Underlying Entity in these circumstances unless the consent of each investor in the 81-102 Fund is obtained. Each 81-102 Fund may have a large number of investors and, as a result, obtaining the consent of each such investor is not practical.
56. According to the Legislation, every management company shall, in respect of each investment fund to which it provides services or advice, file a report of every transaction of purchase or sale of securities between the investment fund and any related person or company within 30 days after the end of the month in which it occurs.
57. In the absence of the Reporting Relief, the Filer, or an affiliate of the Filer acting as the management company (as defined in the applicable securities laws) of the 81-102 Funds would be required to file a report of every purchase and sale of securities of the Underlying Entities by the 81-102 Funds or every purchase or sale effected by the 81-102 Funds through any related person or company with respect to which the related person or company received a fee either from the 81-102 Funds or from the other party to the transaction or from both within 30 days after the end of the month in which such purchase or sale occurs (the Reporting Requirement).
58. It would be costly and time-consuming for the 81-102 Funds to comply with the Reporting Requirement, the costs of which will ultimately be borne by the investors.
59. National Instrument 81-106 Investment Fund Continuous Disclosure requires the 81-102 Funds to prepare and file annual and interim management reports of fund performance that include a discussion of transactions involving related parties to the 81-102 Funds. Such disclosure is similar to that required under the Reporting Requirement and fulfills its objective to inform the general public about the transactions involving related parties to the 81-102 Funds.
60. A director, officer or employee of a PM of an 81-102 Fund, or a director, officer or employee of an associate or an affiliate of a PM of an 81-102 Fund, may also be a partner, director or officer of an Underlying Entity. Consequently, as an 81-102 Fund may be a "dealer managed investment fund", the restrictions in subsection 4.1(2) of NI 81-102 may apply to an investment by an 81-102 Fund in an Underlying Entity.
61. Subsection 6.2(2) of NI 81-107 provides an exemption for investment funds from the "investment fund conflict of interest investment restrictions" (as defined in NI 81-102) for purchases of related issuer securities if the purchase is made on an exchange. However, the exemption in subsection 6.2(2) of NI 81-81-107 does not apply to purchases of non-exchange-traded securities and therefore does not apply to purchases of an Underlying Entity by an 81-102 Fund.
62. Section 6.2(2) of NI 81-107 also does not provide an exemption from the restrictions in subsection 4.1(2) of NI 81-102, and therefore the Self-Dealing Relief is required in the circumstances.
63. If the IRC becomes aware of an instance where a Filer or an affiliate of a Filer, in its capacity as manager of an 81-102 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 the 81-102 Fund will, as soon as practicable, notify in writing the securities regulatory authority or regulator in the jurisdiction under which the 81-102 Fund is organized.
64. An 81-102 Fund's investment in an Underlying Entity will represent the business judgment of a responsible person uninfluenced by considerations other than the best interests of the 81-102 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 Revocation is granted and the Exemption Sought is granted provided that:
(a) a direct or indirect investment by an 81-102 Fund in an Underlying Entity will be compatible with the investment objective and strategy of such 81-102 Fund and included as part of the calculation for the purposes of the illiquid asset restriction in section 2.4 of NI 81.102;
(b) in respect of an investment by an 81-102 Fund in an Underlying Entity, no sales or redemption fees will be paid as part of the investment in the Underlying Entity;
(c) in respect of an investment by an 81-102 Fund in an Underlying Entity, no management fees or incentive fees will be payable by the 81-102 Fund that, to a reasonable person, would duplicate a fee payable by an Underlying Entity for the same service;
(d) where applicable, an 81-102 Fund's investment in an Underlying Entity, whether direct or indirect, will be disclosed to investors in such 81-102 Fund's quarterly portfolio holding reports, financial statements and/or fund facts/ETF facts documents;
(e) the prospectus of the 81-102 Fund discloses, or will disclose in the next renewal or amendment thereto following the date of a decision evidencing the Requested Relief, the fact that the 81-102 Fund may invest, directly or indirectly, in an Underlying Entity, which are investment vehicles managed by the Filer;
(f) the IRC of the 81-102 Fund will review and provide its approval, including by way of standing instructions, prior to the purchase of an Underlying Entity, directly or indirectly, by the 81-102 Fund, in accordance with section 5.2(2) of NI 81-107;
(g) the manager of the 81-102 Fund complies with Section 5.1 of NI 81-107 and the manager and the IRC of the 81-102 Fund comply with Section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with the transactions;
(h) where an investment is made by an 81-102 Fund in an Underlying Entity, the annual and interim management reports of fund performance for the 81-102 Fund disclose the name of the related person in which an investment is made, being an Underlying Entity;
(i) where an investment is made by an 81-102 Fund in an Underlying Entity, the records of portfolio transactions maintained by the 81-102 Fund include, separately for every portfolio transaction effected by an 81-102 Fund through any affiliate of the Filer, the name of the related person in which an investment is made, being an Underlying Entity.
The Consent Requirement Relief and the Self-Dealing Relief
"Darren McKall"
Manager, Investment Funds and Structured Products Branch
Ontario Securities Commission
The Related Issuer Relief and the Reporting Relief
"Raymond Kindiak"
Commissioner
Ontario Securities Commission
"Mary Anne De Monte-Whelan"
Commissioner
Ontario Securities Commission