Gluskin Sheff + Associates Inc. -- ss. 74(1), 144(1)

Headnote

Relief from the prospectus requirement of the Act to permit distribution of pooled fund securities to managed accounts held by non-accredited investors on an exempt basis -- NI 45-106 contains carve-out for managed accounts in Ontario prohibiting portfolio manager from making exemption distribution of securities of its proprietary pooled funds to its managed account clients in Ontario unless client qualifies as an accredited investor or invests $150,000 per fund -- portfolio manager provides bona fide portfolio management services to high net worth clients -- may also provide services to clients that are not accredited investor but have close relationship to accredited investor client -- portfolio manager permitted to make exempt distribution of proprietary pooled funds to managed account clients who are not accredited investors with a close relationship to a client that is an accredited investor provided written notice is sent to those clients advising them of relief granted -- portfolio manager not permitted to distribute proprietary pooled fund securities to parties other than managed account clients.

Statutes Cited

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 53, 74.

February 10, 2010

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O. 1990, c. S.5, AS AMENDED

(the "Act")

AND

IN THE MATTER OF

GLUSKIN SHEFF + ASSOCIATES INC.

(the "Filer")

RULING

(Subsections 74(1) and 144(1) of the Act)

Background

The Ontario Securities Commission (the "Commission") has received an application from the Filer, on behalf of itself and any open-ended investment fund that is not a reporting issuer and for which the Filer acts or will act as manager and portfolio manager (the "GS+A Funds") for a ruling:

(i) pursuant to subsection 74(1) of the Act, that distributions of securities of the GS+A Funds to managed accounts of Clients (as defined below) for which the Filer provides discretionary investment management services will not be subject to the prospectus requirement under section 53 of the Act (the "Prospectus Requirement"); and

(ii) pursuant to subsection 144(1) of the Act, to revoke and replace the Current Relief (as defined below)

(collectively, the Requested Relief).

Interpretation

Defined terms contained in the Act and in National Instrument 14-101 Definitions have the same meaning in this ruling unless they are defined in this ruling.

Representations

This ruling is based on the following facts represented by the Filer:

1. The Filer is incorporated under the laws of Ontario. Its head office is in Toronto, Ontario.

2. The Filer is registered as a portfolio manager, exempt market dealer and mutual fund dealer with the Commission. The Filer is also registered as a portfolio manager in British Columbia, Alberta, Manitoba, Quebec, New Brunswick, Nova Scotia and Northwest Territories.

3. The Filer is or will be the manager, trustee and portfolio manager of any GS+A Fund structured as a trust and is or will be the manager and portfolio manager of any GS+A Fund structured as a limited partnership. Each of the GS+A Funds is or will be offered pursuant to exemptions from the prospectus requirements.

4. The Filer offers discretionary portfolio management services to individuals, corporations and other entities (each a "Client") seeking wealth management or related services through a managed account ("Managed Account").

5. The Filer generally acts as portfolio manager to Clients who are "accredited investors" within the meaning of National Instrument 45-106 Prospectus and Registration Exemptions ("NI 45-106"). However, from time to time, the Filer may agree to provide services to Clients who are not "accredited investors".

6. The Filer's normal minimum aggregate balance for the Managed Accounts of a Client is $3 million. From time to time, the Filer may accept certain Clients with less than $3 million under management due to their close relationship with a Client that does meet the account minimum.

7. A significant majority of the Filer's Clients are accredited investors. Any Client that is not an "accredited investor" will typically have a close relationship with a Client that is an accredited investor.

8. The vast majority of non-accredited investor Clients are "Secondary Clients" as that term is defined under exemptive relief granted to the Filer by the Commission on August 5, 2005 (the "Current Relief"). The Current Relief grants the Filer relief from the Prospectus Requirement to distribute securities of the GS+A Funds to such Secondary Clients in amounts that are less than $150,000. A condition of the Current Relief is that the Secondary Clients meet that definition at all times.

9. From time to time, the Filer may also have a small number of Managed Accounts that are held by Clients who are not accredited investors or Secondary Clients (Non-Exempt Clients). These Non-Exempt Clients are typically Clients who, due to a change in circumstances are no longer accredited investors or Secondary Clients, or who may otherwise have a relationship with a current Client but the relationship does not meet the definition of a Secondary Client under the Current Relief.

10. The Filer's usual practice is to not provide its services to Non-Exempt Clients. However, in certain limited cases, the Filer has determined that it may wish to provide its services to Non-Exempt Clients, often due to the strength of the pre-existing relationship between the Non-Exempt Client and the Filer or another Client.

11. The Filer cannot rely on the accredited investor exemption in NI 45-106 or on the Current Relief to provide its services to Managed Accounts held by Non-Exempt Clients.

12. All of the Managed Accounts are serviced by individual portfolio managers of the Filer who meet the proficiency requirements of an advising representative (or associate advising representative) under Ontario securities law.

13. Pursuant to a written agreement (the "Account Agreement") between the Filer and each Client, the Filer makes investment decisions for each Managed Account and has full discretionary authority to trade in securities for each Managed Account without obtaining the specific consent of the applicable Client to the trade. The Account Agreement further sets out how the Managed Account operates and informs the Client of the Filer's various rules, procedures and policies.

14. At the initial meeting between a new Client and a portfolio manager, the portfolio manager establishes the Client's general investment goals and objectives. Typically, the portfolio manager then makes written investment recommendations to the Client that describes the strategies that the Filer shall employ to meet these objectives.

15. After the initial meeting, the Filer's portfolio manager offers to meet at least once per year with his/her Clients (or more frequently as required) to review the performance of their account and their investment goals.

16. The Filer sends each Client a quarterly account statement showing current holdings in his/her Managed Account. Upon request, Clients may receive monthly account statements from the Filer. In addition, the Filer sends Clients trade confirmations for each purchase or sale of securities of the GS+A Funds. The portfolio manager is available to review and discuss with Clients all account statements.

17. The Filer has determined that to best fulfill its fiduciary duty to its Clients, all or a portion of the asset mix in its Clients' portfolios should be invested in the GS+A Funds.

18. The GS+A Funds are, or will be, established by the Filer with a view to achieving efficiencies in the delivery of portfolio management services to its Clients' Managed Accounts. The Filer will not be paid any compensation with respect to the distribution of the GS+A Funds' securities to the Managed Accounts.

19. Investments in individual securities may not be appropriate for the Clients with smaller Managed Accounts, since they may not receive the same asset diversification benefits and may, as a result of the minimum commission charges, incur disproportionately higher brokerage commissions relative to the Clients with larger Managed Accounts.

20. To give all of its Clients the benefit of asset diversification, access to investment products with a very high minimum investment threshold and economies of scale on brokerage commission charges, the Filer proposes to cause certain of its Clients, including those that do not qualify as "accredited investors", to invest in securities of the GS+A Funds, without the Client needing to invest a minimum of $150,000 in each GS+A Fund, subject to each Client's risk tolerance.

21. Each GS+A Fund will pay all administration fees and expenses relating to its operation, including any management or performance fees paid to the Filer. None of the GS+A Funds charge a commission to investors. Where the Filer invests on behalf of a Managed Account in a GS+A Fund that would otherwise pay a management fee and/or performance fee to the Filer as advisor, the necessary steps will be taken to ensure that there will be no duplication of fees between a Managed Account and the GS+A Fund. Terms of the fees are detailed in each Client's Account Agreement.

22. While a Managed Account qualifies as an "accredited investor" in each province and territory outside Ontario, NI 45-106 contains a carve out for Managed Accounts in Ontario when the securities being purchased by the Managed Account are those of an investment fund. Absent the relief being requested, the GS+A Funds are prohibited in Ontario from distributing, and the Filer is effectively prohibited from investing in, securities of the GS+A Funds for the Managed Accounts, in reliance upon the "accredited investor" exemption in NI 45-106 in circumstances where the individual Client who is the beneficial owner of the Managed Account is not otherwise qualified as an "accredited investor". Reliance upon the $150,000 minimum investment exemption available under NI 45-106 may not be appropriate for smaller Managed Accounts as this might require a disproportionately high percentage of the account to be invested in a single GS+A Fund.

23. Under the exempt distribution rule applicable in each province and territory outside Ontario, there is no restriction on the ability of Managed Accounts to purchase investment fund securities on an exempt basis. Under NI 45-106, a Managed Account in each province and territory outside Ontario can acquire securities of the GS+A Funds as an "accredited investor".

Ruling

The Commission being satisfied that the relevant tests contained in subsections 74(1) and 144(1) of the Act have been met, the Commission rules that the Requested Relief is granted provided that:

(a) securities of the GS+A Funds distributed pursuant to the relief from the Prospectus Requirement contained in this ruling shall only be distributed to Managed Accounts;

(b) for each Client that becomes a Client of the Filer after the date of this ruling that will invest in securities of one or more GS+A Funds through a Managed Account pursuant to this ruling, the Filer shall deliver to such Client, 60 days prior to effecting a trade in securities of a GS+A Fund in reliance on this ruling, written disclosure advising of:

(i) the nature of the relief granted under this ruling, and

(ii) the fact that the ruling permits the Client to invest in an investment fund product which the Client otherwise would not be allowed to invest in on an exempt basis through their Managed Account; and

(c) this ruling will terminate upon the coming into force of any legislation or rule of the Commission exempting a trade by a fully managed account in Ontario in securities of investment funds from the Prospectus Requirement.