Mio Partners, Inc.

Decision

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Application for relief from the investment fund manager registration requirement and the dealer registration requirement in order to allow current and former partners and certain current “senior-level” employees of a global management consulting firm the opportunity to voluntarily participate in investment opportunities alongside other partners and employees of the firm, globally – the filer is a wholly-owned subsidiary of the firm – the investment funds advised by the filer are or will be established outside of Canada – the filer’s head office or principal place of business is in the United States and the filer is appropriately registered in the United States – the filer distributes to no more than 100 “Canadian Eligible Investors” – the filer shall not receive any trade-based compensation – the participation in an investment opportunity by a “Canadian Eligible Individual” is voluntary – the filer is subject to the standard conditions applicable to a non-registered exempt international firm

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1), 25(4), 74.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 8.16, 8.18.
Multilateral Instrument 32-102 Registration Exemptions for Non-Resident Investment Fund Managers, ss. 1, 3, 4.
National Instrument 45-106 Prospectus Exemptions, ss. 1.1, 2.3.

July 19, 2016

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
MIO PARTNERS, INC.
(the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer, a wholly-owned subsidiary of McKinsey & Company (McKinsey), for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Filer from:

(a)           the investment fund manager registration requirement in the Legislation (the Investment Fund Manager Relief) in respect of it acting as an investment fund manager for the Funds (as defined below); and

(b)           the dealer registration requirement in the Legislation (the Dealer Relief) in respect of it distributing securities of the Funds under the Accredited Investor Exemption (as defined below) to Canadian Eligible Investors (as defined below) associated with McKinsey.

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

(a)           the Ontario Securities Commission (OSC) is the principal regulator for this application, and

(b)           the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon:

i.              in Alberta, British Columbia and Québec (together with Ontario, the Jurisdictions) in respect of the Dealer Relief; and

ii.             in Québec in respect of the Investment Fund Manager Relief.

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 corporation organized under the laws of the state of Delaware, United States. The Filer’s head office and principal place of business is located in New York, New York.

2.             The Filer does not have a place of business in any jurisdiction in Canada.

3.             The Filer is a wholly-owned subsidiary of McKinsey, an internationally recognized global management consulting firm owned by more than 1,400 partners across Europe, the Americas, Asia Pacific, the Middle East and Africa, with offices in more than 60 countries.

4.             The Filer provides investment advice on a discretionary basis exclusively to: (i) privately offered investment funds for eligible employees of McKinsey, McKinsey's subsidiaries and affiliates, and former partners of McKinsey (collectively, the Funds), and (ii) the McKinsey Master Retirement Trust (a pension plan sponsored by McKinsey), other McKinsey pension or benefit plans, and investment vehicles established to facilitate investments by the McKinsey Master Retirement Trust and other McKinsey sponsored plans. It does not provide services to any persons or companies other than such McKinsey related entities and individuals.

5.             The Filer is registered as an investment adviser with the United States Securities and Exchange Commission (the SEC) under the United States Investment Advisers Act of 1940, as amended. The Filer is also registered as a commodity pool operator with the United States Commodity Futures Trading Commission (CFTC) and, in this capacity, it is a member of the National Futures Association (NFA).

6.             The Filer is not required to register as a broker-dealer in the United States because it is not a “broker” or “dealer” as defined in sections 3(a)(4) and 3(a)(5) of the Securities Exchange Act of 1934 (the Exchange Act). The associated persons of the Filer and the Funds fall within the exemption provided by Rule 3a4-1 under the Exchange Act.

7.             The Filer is not registered under the securities legislation of any of the provinces or territories in Canada in any capacity.

8.             The Filer is not in default of securities legislation in any jurisdiction in Canada.

The Proposed Investment Opportunity

9.             The Filer periodically provides certain eligible persons at McKinsey the opportunity to invest in the Funds for which the Filer serves as the investment adviser, and, for Canadian purposes, also the investment fund manager (each an Investment Opportunity and collectively, the Investment Opportunities). The Funds are organized to provide an opportunity for these eligible persons to invest in investment funds which would normally be inaccessible due to their high cost of entry.

10.          The Funds advised by the Filer are or will be established outside of Canada.

11.          The assets of the Funds are generally invested, either directly or indirectly, in private, non-registered investment vehicles managed by unaffiliated registered portfolio managers.

12.          Each Investment Opportunity is or will be offered solely to (each a McKinsey Eligible Individual and collectively, the McKinsey Eligible Individuals): (i) current and former McKinsey partners, and (ii) certain current employees of McKinsey and the Filer.

13.          A McKinsey Eligible Individual may invest personally in an Investment Opportunity or through trusts or other entities settled or controlled by a McKinsey Eligible Individual or benefiting a McKinsey Eligible Individual (each a McKinsey Eligible Investor and collectively, the McKinsey Eligible Investors).

14.          Each Investment Opportunity is made available to McKinsey Eligible Individuals globally, subject to the rules and regulations of the local jurisdiction.

15.          Participation in an Investment Opportunity by a McKinsey Eligible Individual is voluntary, and the McKinsey Eligible Individual will not be induced to participate in an Investment Opportunity by expectation of partnership, employment or continued partnership and employment.

16.          In the event a McKinsey Eligible Individual is interested in an Investment Opportunity, the Filer’s client service team will provide a private placement memorandum, the Funds’ limited partnership agreement (or other applicable government agreements), subscription agreement and other ancillary documentation, as applicable. The features and terms of the securities being offered will be fully disclosed in fund subscription documents.

17.          Only McKinsey Eligible Investors who are "accredited investors" as defined in Regulation D under section 4(2) of the United States Securities Act of 1933, as amended, (and, in the case of certain funds, “qualified purchasers”) are eligible to invest in the Funds.

Canadian Eligible Investors

18.          McKinsey currently has Canadian offices in the provinces of Alberta, British Columbia, Ontario and Québec. There are currently less than 100 prospective McKinsey Eligible Individuals resident in the provinces of Alberta, British Columbia, Ontario and Québec (each a Canadian Eligible Individual and collectively, the Canadian Eligible Individuals).

19.          In the Jurisdictions, each Investment Opportunity is or will be offered solely to Canadian Eligible Individuals. A Canadian Eligible Individual may invest personally in an Investment Opportunity or through trusts or other entities settled or controlled by the Canadian Eligible Individual or benefiting the Canadian Eligible Individual (each a Canadian Eligible Investor and collectively, the Canadian Eligible Investors).

20.          Further to rubric (ii) of representation #12 above, as concerns current employees of McKinsey, a Canadian Eligible Individual that is a current employee of McKinsey must have been employed by McKinsey for at least five years and employed as a business analyst, associate, consultant, manager or in a designation of analogous scope in order to participate in an Investment Opportunity.

21.          Each Canadian Eligible Investor shall also qualify as an "accredited investor" as such term is defined under National Instrument 45-106 Prospectus Exemptions (NI 45-106). It is not certain that all Canadian Eligible Investors will be "permitted clients" as defined under National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) or Multilateral Instrument 32-102 Registration Exemptions for Non-resident Investment Fund Managers (MI 32-102), as applicable.

22.          The “accredited investor” prospectus exemption under section 2.3 of NI 45-106 (the Accredited Investor Exemption) will be relied upon in connection with the distribution to Canadian Eligible Investors.

23.          Canadian Eligible Investors will not receive any advice from the Filer as to whether investments in the Funds are suitable and there is no limit on how much each Canadian Eligible Investor can invest in the Funds.

24.          No trade based fees or commission are charged to Canadian Eligible Investors by the Filer in connection with participation in an Investment Opportunity.

Why is the relief needed?

25.          There are currently six Canadian Eligible Investors already invested in the Funds. Each of the six Canadian Eligible Investors initially invested in the Funds prior to September 27, 2012, being the date upon which MI 32-102 was adopted. Accordingly, at the time of such initial investments, the distribution of the securities of the Funds to the Canadian Eligible Investors did not require the Filer to register as an investment fund manager. In connection with these distributions, the Filer took the position that it was not in the business of trading in securities and, therefore, did not register as a dealer.

26.          The Filer is currently relying on the “no active solicitation” exemption in subsection 3(b) of MI 32-102 from the requirement to register as an investment fund manager.

27.          The Filer is requesting the Investment Fund Manager Relief and the Dealer Relief in order to continue to be able to provide Canadian Eligible Investors with the opportunity to invest in Funds from time-to-time alongside McKinsey Eligible Investors globally.

28.          The Filer has applied for Investment Fund Manager Relief because, subsequent to September 27, 2012, the distribution of securities of the Funds to Canadian Eligible Investors resident in Ontario or Québec would require the Filer to register as an investment fund manager or to rely on an exemption provided under MI 32-102. The Filer cannot rely on the “permitted clients” exemption in section 4 of MI 32-102 because, although the Canadian Eligible Investors all qualify as “accredited investors”, not all of them are “permitted clients”.

29.          The Filer has also applied for Dealer Relief in connection with these distributions. There is no exemption from the dealer registration requirement available to the Filer. The “plan administration exemption” set out in section 8.16 of NI 31-103 is not available because, amongst other things, the securities being issued pursuant to the Investment Opportunities are not being issued pursuant to a “plan of the issuer”. Furthermore, because the Canadian Eligible Investors do not all qualify as “permitted clients” and the fact that the Filer is not registered as a dealer nor does it engage in the business of a dealer in its home jurisdiction, the “international dealer” exemption set out in section 8.18 of NI 31-103 is also not available.

30.          The Filer submits that there would be minimal regulatory benefit to requiring the Filer to register as an investment fund manager and dealer for the limited purpose of the Investment Opportunities.

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 Investment Fund Manager Relief is granted provided that:

1.             All securities of the Funds distributed in the local jurisdiction are distributed under the Accredited Investor Exemption to a Canadian Eligible Investor.

2.             Securities of the Funds shall be distributed to no more than 100 Canadian Eligible Investors across the Jurisdictions.

3.             The Filer is registered as an investment adviser with the SEC in good standing.

4.             The Filer is registered as a commodity pool operator with the CFTC and is a member of the NFA in good standing.

5.             The head office and principal place of business of the Filer is in the United States;

6.             The Filer is incorporated, formed or created under the laws of a foreign jurisdiction.

7.             None of the Funds is a reporting issuer in any jurisdiction of Canada.

8.             The Filer has submitted to the securities regulatory authority in the local jurisdiction a completed Submission to Jurisdiction and Appointment of Agent for Service in the form attached as Appendix “A” hereto.

9.             The Filer has notified each Canadian Eligible Investor in writing of all of the following:

(a)           the Filer is not registered in the local jurisdiction to act as an investment fund manager;

(b)           the foreign jurisdiction in which the head office or principal place of business of the Filer is located;

(c)           all or substantially all of the assets of the Filer may be situated outside of Canada;

(d)           there may be difficulty enforcing legal rights against the Filer because of the above; and

(e)           the name and address of the agent for service of process of the Filer in the local jurisdiction.

10.          If the Filer relied on the Investment Fund Manager Relief during the 12 month period preceding December 1 of a year, it must notify the securities regulatory authority in the local jurisdiction, by December 1 of that year, of the following:

(a)           the fact that it relied upon the Investment Fund Manager Relief;

(b)           for all investment funds for which it acts as an investment fund manager, the total assets under management expressed in Canadian dollars, attributable to securities beneficially owned by residents of the local jurisdiction as at the most recently completed month.

11.          The Filer files with the securities regulatory authority in the local jurisdiction, a completed Notice of Regulatory Action in the form attached as Appendix “B” hereto within 10 days of the date on which the Filer began relying on the Investment Fund Manager Relief.

12.          The Filer must notify the securities regulatory authority in the local jurisdiction, of any change to the information previously submitted in the Notice of Regulatory Action in the form attached as Appendix “B” hereto within 10 days of the change.

13.          The Filer complies with the filing and fee payment requirements applicable to an unregistered investment fund manager under OSC Rule 13-502 Fees (OSC Rule 13-502).

The decision of the principal regulator under the Legislation is that the Dealer Relief is granted provided that:

1.             Securities of the Funds shall be distributed to no more than 100 Canadian Eligible Investors across the Jurisdictions.

2.             The Filer will not receive any trade-based compensation for the distributions made to Canadian Eligible Investors.

3.             Participation in an Investment Opportunity by a Canadian Eligible Individual is voluntary, and the Canadian Eligible Individual will not be induced to participate in an Investment Opportunity by expectation of partnership, employment or continued partnership and employment.

4.             The Filer is registered as an investment adviser with the SEC in good standing.

5.             The Filer is registered as a commodity pool operator with the CFTC and is a member of the NFA in good standing.

6.             The Filer is registered in a category of registration, or operates under an exemption from registration, under the securities legislation of the United States that permits it to distribute securities of the Funds to McKinsey Eligible Investors, including Canadian Eligible Investors.

7.             The head office and principal place of business of the Filer is in the United States;

8.             The Filer has submitted to the securities regulatory authority in the local jurisdiction a completed Submission to Jurisdiction and Appointment of Agent for Service in the form attached as Appendix “A” hereto.

9.             The Filer has notified each Canadian Eligible Investor in writing of all of the following:

(a)           the Filer is not registered in the local jurisdiction to make the trade;

(b)           the foreign jurisdiction in which the head office or principal place of business of the Filer is located;

(c)           all or substantially all of the assets of the Filer may be situated outside of Canada;

(d)           there may be difficulty enforcing legal rights against the Filer because of the above; and

(e)           the name and address of the agent for service of process of the Filer in the local jurisdiction.

10.          The Filer files with the securities regulatory authority in the local jurisdiction, a completed Notice of Regulatory Action in the form attached as Appendix “B” hereto within 10 days of the date on which the Filer began relying on the Dealer Relief.

11.          The Filer must notify the securities regulatory authority in the local jurisdiction, of any change to the information previously submitted in the Notice of Regulatory Action in the form attached as Appendix “B” hereto within 10 days of the change.

12.          The Filer complies with the filing and fee payment requirements applicable to an unregistered exempt international firm under OSC Rule 13-502 as if the Filer relied on the international dealer exemption in section 8.18 of NI 31-103.


“Monica Kowal”
Commissioner
Ontario Securities Commission

“Grant Vingoe”
Commissioner
Ontario Securities Commission