Under paragraph 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, a registered firm must not permit an individual to act as a dealing, advising or associate advising representative of the registered firm if the individual is registered as a dealing, advising or associate advising representative of another registered firm. The Filers are affiliated entities and have valid business reasons for the individuals to be registered with both firms. The Filers have policies in place to handle potential conflicts of interest. The Filers are exempted from the prohibition for current and future representatives.
Applicable Legislative Provisions
Multilateral Instrument 11-102 Passport System, s. 4.7.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 4.1 and 15.1.
September 4, 2014
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 BAILLIE GIFFORD & CO LIMITED (BG&Co Ltd) AND BAILLIE GIFFORD OVERSEAS LIMITED (BGO and, together with BG&Co Ltd, the Filers)
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 relief, pursuant to section 15.1 of National Instrument 31-103 -- Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), from the requirement in paragraph 4.1(1)(b) of NI 31-103 to permit the current advising representatives and associate advising representatives of a Filer and any future advising representatives and associate advising representatives of a Filer (the Representatives) to also be advising representatives or associate advising representatives (as applicable) of the other Filer (the Dual Registration) in order to provide portfolio management services to clients of both Filers (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
1. the Ontario Securities Commission is the principal regulator for this Application, and
2. the Filers have provided notice that section 4.7 of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Manitoba, Alberta, Quebec and Newfoundland and Labrador (together with the Jurisdiction, the Filing Jurisdictions).
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filers:
1. BG&Co Ltd has applied for registration as a portfolio manager in Ontario. The head office of BG&Co Ltd is in Edinburgh, Scotland.
2. BGO is registered as a portfolio manager in the Filing Jurisdictions and, in the Jurisdiction, relies on the exemption from the investment fund manager registration requirement set out in section 4 of Multilateral Instrument 32-102 -- Registration Exemptions for Non-Resident Investment Fund Managers (MI 32-102). The head office of BGO is in Edinburgh, Scotland.
3. The Filers are not in default of any requirements of securities legislation in any of the Filing Jurisdictions.
4. The Filers are wholly owned subsidiaries of the same parent entity, Baillie Gifford & Co, a Scottish partnership, and are therefore affiliates.
5. BGO currently acts as the adviser and investment manager for a number of segregated and pooled funds under the Baillie Gifford name domiciled outside of the United Kingdom, including Baillie Gifford investment funds based in Ontario (BG Funds Canada), which consist of international portfolios of equities and fixed income securities, the units of which are sold to institutional investors. BGO also manages segregated international portfolios for institutional investors.
6. It is proposed that BG&Co Ltd assume the role of adviser and investment manager for BG Funds Canada. Under the Alternative Investment Fund Managers Directive (AIFMD) of the European Union, an investment fund manager based in the European Economic Area (EEA) that manages a non-EEA pooled fund that is not within the Undertakings for Collective Investment of Transferable Securities (UCITS) of the European Union, governing investment funds marketed to the public across the EAA, will be required to be authorised as an Alternative Investment Fund Manager (AIFM). BGO, as it is based in the United Kingdom, and as manager of BG Funds Canada, would be required to be authorised as an AIFM under the AIFMD. It is proposed that BG&Co Ltd will act as AIFM for all Baillie Gifford collective funds within the scope of the AIFMD in order to provide synergies in governance while providing the necessary expertise in managing collective investment and pooled vehicles. Consequently, it is proposed that BG&Co Ltd be appointed to act as adviser and investment fund manager of BG Funds Canada. BGO would continue to manage segregated portfolios for institutional investors and advise BG Funds Canada to the extent portfolio management is delegated by BG&Co Ltd.
7. Each of the current Representatives of BGO is, and each of the future Representatives of BGO will be, registered in the Filing Jurisdictions as an advising representative, and it is proposed that they also act as advising representatives of BG&Co Ltd.
8. The Representatives advise and provide portfolio management services to BG Funds Canada on behalf of BGO and to institutional clients of BGO. It is proposed that the Representatives provide portfolio management services to:
(a) BG Funds Canada on behalf of BG&Co Ltd and on behalf of BGO to the extent portfolio management is delegated by BG&Co Ltd to BGO, and
(b) institutional clients of BGO.
9. The Filers propose to register Representatives with both BGO and BG&Co Ltd as needed to provide the portfolio management services to the clients of the Filers, as outlined herein.
10. There are valid business reasons for the Representatives to be registered with both Filers, as Baillie Gifford investment management will be restructured so that BG&Co Ltd, which will be subject to the AIFMD, will be the manager of BG Funds Canada, and BGO, which will not be subject to the AIFMD, will manage segregated client accounts. In addition, having the same individuals act as Representatives for BG&Co Ltd in connection with its management of BG Funds Canada and also act as Representatives for BGO in connection with its management of segregated client accounts would maximize efficiency and consistency across the mandates carried out under the Baillie Gifford name.
11. The Representatives will be subject to the applicable compliance requirements and policies and procedures of both Filers.
12. The Filers' management will ensure that the Representatives will have sufficient time and resources to adequately serve both firms and will limit the number of client relationships of such Representatives, as required.
13. In order to minimize client confusion, the relationship between the Filers, and the Dual Registration, will be fully disclosed in writing to clients of each of the Filers prior to the respective Representative providing investment management services to the applicable client.
14. The Filers have policies and procedures addressing any conflicts of interest that may arise as a result of the Dual Registration and the Filers believe that they will be able to appropriately deal with these conflicts, should they arise.
15. There is adequate supervision of any identified conflicts of interest to ensure that Representatives, and each of the Filers, can deal appropriately with any conflict of interest that may arise. The Representatives are currently, and will continue to be, under the supervision of both Filers and are subject to all policies and procedures addressing conflicts of interest that may arise as a result of the Dual Registration.
16. The Representatives shall act in the best interests of all clients of the Filers and will deal fairly, honestly and in good faith with those clients.
17. The Filers are affiliates and their interests are aligned.
18. In the absence of the Exemption Sought, each Filer would be prohibited under the Dual Registration restriction in paragraph 4.1(1)(b) of NI 31-103 from permitting a Representative to act as an advising or associate advising representative of the other Filer even though the Filers are affiliates.
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 Exemption Sought is granted provided that:
i) the circumstances described above in paragraphs 11 to 16 (inclusive) remain in place; and
ii) BG&Co Ltd is registered as an adviser in the category of portfolio manager in the Filing Jurisdictions and, in the Jurisdiction, relies on the exemption from the investment fund manager registration requirement set out in section 4 of MI 32-102.