Securities Law & Instruments

Headnote

 

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Approval granted for change of manager of mutual fund –– change of manager is not detrimental to securityholders or the public interest – change of manager to be approved by the funds’ securityholders at a special meeting of securityholders.

 

Applicable Legislative Provisions

 

National Instrument 81-102 Investment Funds, ss. 5.5(1)(a), 5.5(3), 5.7.

 

December 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

MARQUEST ASSET MANAGEMENT INC.

(Marquest or the Current Manager)

 

AND

 

IN THE MATTER OF

LORICA INVESTMENT COUNSEL INC.

(Lorica or the Proposed Manager)

(Marquest and Lorica, collectively, the Filers)

 

AND

 

MARQUEST CANADIAN FIXED INCOME FUND

(the Fund)

 

DECISION

 

Background

 

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 a change of manager of the Fund from the Current Manager to the Proposed Manager (the Change of Manager), in accordance with paragraph 5.5(1)(a) of National Instrument 81-102 – Investment Funds (NI 81-102) (the Requested Approval).

 

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 (the Principal Regulator); and

 

(b)           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 British Columbia, Alberta, Saskatchewan, Mani-toba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfound-land and Labrador, Northwest Territories, Nunavut and Yukon Territory (together with Ontario, the Jurisdictions).

 

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 Filers:

 

The Current Manager

 

1.             Marquest is a privately-owned corporation existing under the OBCA and based in Toronto.

 

2.             Marquest is the manager and trustee of the Fund. Marquest is registered as portfolio manager, investment fund manager and as an exempt market dealer in each of the provinces of Ontario, British Columbia, Alberta, Saskatchewan, Quebec, New Brunswick and Newfoundland and Labrador.

 

3.             Marquest’s head office is located at 161 Bay Street, 27th Floor, Toronto, Ontario M5J 2S1.

 

4.             Marquest is not in default of any requirements under applicable securities legislation.

 

The Fund

 

5.             The Fund is an open-ended mutual fund established under the laws of the Province of Ontario by a declaration of trust, as amended.

 

6.             Units of the Fund have been distributed in each of the Jurisdictions under a simplified prospectus, annual information form and fund facts each dated July 10, 2018 prepared in accordance with the requirements of National Instrument 81-101 – Mutual Fund Prospectus Disclosure.

 

7.             The Fund is a reporting issuer under the applicable securities legislation of the Jurisdictions.

 

8.             The Fund is not in default of applicable securities legislation in any of the Jurisdictions.


9.             The Fund will not bear any of the costs and expenses associated with the Proposed Transaction (as defined below).

 

Details of the Proposed Transaction

 

10.          On October 24, 2018, Marquest announced that it and Lorica Investment Counsel Inc. (Lorica) entered into a definitive purchase agreement (the Purchase Agreement) pursuant to which Lorica will acquire the rights of Marquest to manage the Fund (the Proposed Transaction). Under the terms of the Purchase Agreement, the Proposed Transaction will be completed on or about December 31, 2018, subject to receipt of unit-holder approvals and all necessary approvals of applicable securities regulatory authorities or such other date as Marquest and Lorica agree to, but in any event no later than March 31, 2019 (the Closing).

 

11.          Pursuant to paragraph 5.1(1)(b) of NI 81-102, a special meeting of the unitholders of the Fund was held on December 12, 2018 for the purpose of seeking approval of the Proposed Transaction (the Meeting). The notice of Meeting and the management information circular in respect of the Meeting (the Circular), has been mailed to unitholders of the Fund and copies thereof  filed on SEDAR in accordance with applicable securities legislation. The Circular contains suffi-cient information regarding the business, management and operations of Lorica, including details of its officers and directors, and all information necessary to allow unitholders to make an informed decision about the Proposed Transaction. All other information and documents necessary to comply with applicable proxy solicitation requirements of securities legislation for the Meeting have been mailed to unitholders of the Fund. At the Meeting of the unitholders of the Fund, a quorum of unitholders approved the Proposed Transaction by the requisite majority.

 

12.          In accordance with National Instrument 81-106 – Investment Fund Continuous Disclosure, a press release announcing the Proposed Transaction was issued on October 24, 2018 and subse-quently the press release and material change report were filed on SEDAR. No amendment to the simplified prospectus and the annual infor-mation form of the Fund describing the Proposed Transaction were filed as the distribution of the units of the Fund was suspended pending the Closing.

 

13.          It is intended that the Proposed Transaction will result in (i) the Change of Manager, (ii) a change of trustee of the Fund from Marquest to Lorica, and (iii) a change in the name of the Fund to reflect the Lorica brand.

 

14.          The Current Manager has determined that the Proposed Transaction is not a conflict of interest matter pursuant to section 5.1 of National Instru-ment 81-107 – Independent Review Committee for Investment Funds (NI 81-107) and that, as a result, the Proposed Transaction will not require the approval or recommendation of the Indepen-dent Review Committee (IRC) of the Fund. The Manager has, however, provided information relating to the Proposed Transaction and the Change of Manager to the IRC. The IRC has determined after reasonable enquiry that the action achieves a fair and reasonable result for the Fund.

 

15.          Upon the Closing, the members of the Current Manager’s IRC will cease to be members of the IRC of the Funds by operation of section 3.10 (1)(b) of NI 81-107. Immediately following the Closing, the IRC of the Funds will be reconstituted

 

The Change of Manager

 

16.          Lorica is a private corporation formed under the laws of the Province of Ontario.

 

17.          Lorica is registered in the categories of PM, IFM and exempt market dealer with the securities regulatory authorities of the province of Ontario.

 

18.          Lorica’s head office is located at 130 Spadina Avenue, Suite 801, Toronto, Ontario, M5V 2L4.

 

19.          Upon the completion of the Proposed Transaction, Lorica will be the IFM of the Fund and will replace Marquest as the trustee and manager of the Fund.

 

20.          Lorica is not in default of any requirements under applicable securities legislation.

 

21.          Lorica and Marquest are not related parties. However, Lorica is the sub-advisor of the Fund as per the sub-advisory agreement between Lorica and Marquest dated December 1, 2014.

 

22.          Lorica has no intention to change the investment objectives and strategies or increase the fees and expenses of the Fund.

 

Impact of Change of Manager on the Fund

 

23.          It is submitted that the Requested Approval would not be prejudicial to the public interest or the interests of the unitholders of the Fund for the following reasons:

 

a.             Lorica is currently the sub-advisor of the Fund and is responsible for all invest-ment decisions regarding the investment portfolio of the Fund. Therefore, Lorica is very knowledgeable concerning the port-folio of the Fund and is in the best position to act as the Manager of the Fund;

 

b.             the experience and integrity of each of the members of the Lorica management team is apparent by their education and years of experience in the investment industry. Such experience and integrity has been established and accepted by the Commission through the granting of registration to such individuals;

 

c.             the Closing is not expected to have any material impact on the business, operations or affairs of the Fund or the unitholders of the Fund; and

 

d.             the Circular provides unitholders of the Fund with sufficient information to permit them to make an informed decision whether to approve the Change of Manager, which approval is required before the Change of Manager can be completed.

 

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 Requested Approval is granted.

 

“Stephen Paglia”

Manager

Investment Funds and Structured Products Branch

Ontario Securities Commission