Allard, Allard & Associés Inc.

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Exemption granted from conflict of interest trading prohibition in paragraph 13.5(2)(b)(iii) of NI 31-103 to permit In-Specie Transactions by Managed Accounts and Funds in Funds – Portfolio manager of Managed Accounts is also portfolio manager of Funds and is therefore a « responsible person » – Relief subject to certain conditions.

Applicable Legislative Provisions

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, s. 13.5(2)(b)(iii).

TRANSLATION

June 27, 2019

IN THE MATTER OF
THE SECURITIES LEGISLATION OF
QUÉBEC AND
ONTARIO
(the Jurisdictions)

AND

IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF
ALLARD, ALLARD & ASSOCIÉS INC.
(the Filer)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Makers) has received an application from the Filer pursuant to section 15.1 of National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations, which, in Québec, is a regulation (NI 31-103) for a decision under the securities legislation of the Jurisdictions (the Legislation) providing an exemption from the requirement in subparagraph 13.5(2)(b)(iii) of NI 31-103 that prohibits a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as an adviser, to purchase or sell a security from or to the investment portfolio of an investment fund for which a responsible person acts as an adviser, to permit (each purchase and redemption, an In Specie Transaction):

a)            the purchase by a Fund (as defined below) of securities of another Fund, and the redemption of securities held by a Fund in another Fund, and as payment for such purchase or redemption, in whole or in part, by making good delivery of portfolio securities that meet the investment objectives of that Fund; and

b)            the purchase by a Managed Account (as defined below) of securities of a Fund, and the redemption of securities held by a Managed Account in a Fund, and as payment:

i)              for such purchase, in whole or in part, by the Managed Account making good delivery of portfolio securities to the Fund; and

ii)             for such redemption, in whole or in part, by the Fund making good delivery of portfolio securities to the Managed Account.

(the Exemption Sought).

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

a)            the Autorité des marchés financiers is the principal regulator for this application;

b)            the decision is the decision of the principal regulator and evidences the decision of the regulator in Ontario.

Interpretation

Terms defined in the Legislation, National Instrument 14-101 – Definitions and National Instrument 11-102 – Passport System, which, in Québec, are regulations, have the same meanings if used in this decision, unless otherwise defined.

Funds means all existing investment funds and all investment funds subsequently established for which the Filer acts or will act as investment fund manager and portfolio manager, that are not reporting issuers, and whose securities are distributed pursuant to prospectus exemptions under applicable securities legislation, each such investment fund being individually referred to as a Fund. For greater certainty, Funds include the Initial Funds (as defined below).

Managed Account means the account of a Client (as defined below) over which the Filer has discretionary authority.

Certain other defined terms have the meanings given to them above or below.

Representations

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

The Filer

1.             The Filer is a corporation incorporated under the Canada Business Corporations Act.

2.             The Filer’s head office is located at 9001, boul. de l’Acadie, office 401 in Montréal, Québec, Canada.

3.             The Filer is registered in the category of portfolio manager in the provinces of Québec and Ontario and offers discretionary portfolio management services to individual and institutional investors (the Clients) in accordance with an investment management agreement entered into between each Client and the Filer. The Filer is also registered as an investment fund manager in the provinces of Ontario and Québec.

4.             The Filer is not a reporting issuer and is not in default of securities legislation in any of the Jurisdictions.

The Managed Accounts

5.             The Filer is the portfolio manager of each of the Managed Accounts.

6.             Each Managed Account is, or will be, managed pursuant to an investment management agreement or other document which is, or will be, executed by each client who wishes to receive the portfolio management services of the Filer and which provides the Filer full discretionary authority to trade securities for the Managed Account without obtaining the specific consent of the client to execute the trade (the “Discretionary Management Agreements”).

7.             Each Discretionary Management Agreement contains, or will contain, authorization from the client for the Filer to make In-Specie Transactions.

8.             The portfolio management services provided by the Filer, as the portfolio manager of the Managed Accounts, to each client, consist of the following:

a)            supervising, managing and directing purchases and sales in the client's Managed Accounts, at the Filer's full discretion on a continuing basis;

b)            qualified employees of the Filer perform investment research, securities selection and portfolio management functions with respect to all securities, derivatives, investments, cash and cash equivalents and other assets in the Managed Accounts;

c)             each Managed Account holds securities and other investments as selected by the Filer in its sole discretion;

d)            the Filer retains overall responsibility for the advice provided to its clients and has a designated senior officer to oversee and supervise the Managed Accounts.

The Funds

9.             The Filer is currently in the process of creating four initial Funds (the Initial Funds), for which the Filer intends to act as investment fund manager, portfolio manager and principal distributor.

10.          The Initial Funds will be open-ended pooled funds structured as trusts and established under the laws of the province of Québec pursuant to a declaration of trust to be entered on or about July 31st, 2019, or on such other date as the Filer may determine for operational reasons.

11.          Natcan Trust Company will act as trustee of each Initial Fund.

12.          Natcan Trust Company will act as custodian of each Initial Fund.

13.          The Filer may, in the future, become the investment fund manager of other Funds, structured as trusts, corporations or partnerships under the laws of Canada or of one of the provinces or territories of Canada.

14.          The securities of each Fund will be distributed on an exempt basis pursuant to available prospectus exemptions from the prospectus requirements in one or both of the Jurisdictions. None of the Funds will be a reporting issuer in any Jurisdiction.

The In Specie Transactions

15.          When acting for a Managed Account, the Filer may wish, in accordance with the investment objectives and investment restrictions of the Client, to cause the Managed Account to either invest in securities, or redeem securities, of a Fund, provided that such In Specie Transaction is in the best interests of the Client.

16.          Similarly, when acting for a Fund, the Filer may decide, in accordance with the investment objectives and investment restrictions of the Fund, that the Fund should either invest in securities, or redeem securities, of another Fund pursuant to an In Specie Transaction, provided that such In Specie Transaction is in the best interests of the Fund.

17.          The Filer has determined that effecting the In Specie Transactions of securities between a Fund and a Managed Account or between a Fund and another Fund will allow the Filer to manage each asset class more effectively and reduce transaction costs for the Client, as applicable, and the Funds. For example, In Specie Transactions may:

a)            reduce market impact costs, which can be detrimental to clients and/or the Funds;

b)            allow the Filer to retain within its control institutional-size blocks of securities that otherwise would need to be broken and re-assembled; and

c)             facilitate the portfolio management of the Funds and the Managed Accounts.

18.          At the time of an In Specie Transaction, the Filer will have in place policies and procedures governing In Specie Transactions, as applicable :

a)            prior to engaging in an In Specie Transaction on behalf of a Managed Account, the Discretionary Management Agreement or other documentation in respect of the Managed Account will contain an authorization from the Client allowing the Filer to enter into In Specie Transactions on behalf of the Client, and such authorization will not have been revoked;

b)            the portfolio securities transferred in In Specie Transactions will be consistent with the investment objectives and investment strategies of the Fund or Managed Account, as applicable, that is acquiring such portfolio securities;

c)             the Filer's chief compliance officer (CCO), will pre-approve each In Specie Transaction in connection with the purchase or redemption of securities of a Fund by another Fund or by a Managed Account;

d)            the portfolio securities transferred in an In Specie Transaction will be valued using the same valuation principles as are used to calculate the net asset value of the Funds;

e)            none of the portfolio securities which will be the subject of an In Specie Transaction shall be the securities of a related issuer of the Filer;

f)             the Funds will keep written records of each In Specie Transaction, including records of each purchase and redemption of portfolio securities and the terms thereof for a period of five years commencing after the end of the financial year in which the trade occurred, the most recent two years in a reasonably accessible place; and

g)            In Specie Transactions will be subject to

i)              compliance with the written policies and procedures of the Filer respecting In Specie Transactions that are consistent with applicable securities legislation;

ii)             the oversight of the CCO or compliance department of the Filer, as the case may be, to ensure that the In Specie Transactions represent the business judgment of the Filer acting in its discretionary capacity with respect to the Funds and the Managed Accounts, uninfluenced by considerations other than the best interests of the Funds and the Managed Accounts; and

iii)            the board of directors of the Filer receiving, on a regular basis, a report on the oversight of the CCO or compliance department of the Filer, as the case may be, of the Filer referred to in sub-paragraph ii) above.

19.          the Filer will not receive any compensation in respect of any In Specie Transaction and, in respect of any delivery of portfolio securities further to an In Specie Transaction, the only charges paid by the Managed Account or the applicable Fund is the commission charged by the dealer executing the trade (if any) and/or any administrative charges levied by the custodian of the Fund or the separate institutional custodian of the Managed Account.

20.          As the Filer will be the portfolio manager of the Funds and the portfolio manager of the Managed Accounts, the Filer would be considered a “responsible person” within the meaning of Section 13.5 of NI 31-103.

21.          Accordingly, absent receipt of the Exemption Sought neither the Funds and Managed Accounts, nor the Filer on their behalf, will be permitted to engage in In Specie Transactions on the basis described herein.

Decision

Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted provided that:

1.             in connection with an In Specie Transaction where a Managed Account acquires securities of a Fund:

a)            the Discretionary Management Agreement or other documentation in respect of the Managed Account contains the authorization of the Client for the Filer to engage in the In Specie Transactions and such authorization has not been revoked;

b)            the Fund would, at the time of payment, be permitted to purchase the portfolio securities held by the Managed Account;

c)             the portfolio securities are acceptable to the Filer, acting as portfolio manager of the Fund and meet the investment objectives of the Fund;

d)            the value of the portfolio securities is at least equal to the issue price of the securities of the Fund for which they are used as payment, valued as if the portfolio securities were portfolio assets of that Fund;

e)            none of the portfolio securities which will be the subject of an In Specie Transaction shall be the securities of a related issuer of the Filer;

f)             none of the securities which will be the subject of an In Specie Transaction shall be “illiquid assets” as such expression is defined in National Instrument 81-102 – Investment Funds (NI 81-102);

g)            the client of the Managed Account has not provided notice to terminate its Discretionary Management Agreement with the Filer;

h)            the account statement next prepared for the Managed Account will describe the portfolio securities delivered to the Fund and the value assigned to such portfolio securities; and

i)              the Filer will keep written records of each In Specie Transaction in a financial year of the Fund, reflecting details of the portfolio securities delivered to the Fund and the value assigned to such portfolio securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place;

2.             in connection with an In Specie Transaction where a Managed Account redeems securities of a Fund:

a)            the Discretionary Management Agreement or other documentation in respect of the Managed Account contains the authorization of the Client for the Filer to engage in the In Specie Transactions and such authorization has not been revoked;

b)            the portfolio securities are acceptable to the Filer as portfolio manager of the Managed Account and meet the investment objectives of the Managed Account acquiring the portfolio securities;

c)             the value of the portfolio securities is at least equal to the amount at which those portfolio securities were valued by the Fund in calculating the net asset value per security of the Fund used to establish the redemption price;

d)            the client of the Managed Account has not provided notice to terminate its Discretionary Management Agreement with the Filer;

e)            none of the portfolio securities which will be the subject of an In Specie Transaction shall be the securities of a related issuer of the Filer;

f)             none of the securities which will be the subject of an In Specie Transaction shall be “illiquid assets” as such expression is defined in NI 81-102;

g)            the account statement next prepared for the Managed Account will describe the portfolio securities received from the Fund and the value assigned to such portfolio securities; and

h)            the Filer will keep written records of each In Specie Transaction in a financial year of the Fund, reflecting details of the portfolio securities delivered by the Fund and the value assigned to such portfolio securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place;

3.             in connection with an In Specie Transaction where a Fund acquires portfolio securities of another Fund:

a)            the Fund acquiring the portfolio securities would, at the time of payment, be permitted to purchase the portfolio securities;

b)            the portfolio securities are acceptable to the Filer, acting as portfolio manager of the Fund acquiring the portfolio securities and meet the investment objective of such Fund;

c)             the value of the portfolio securities is at least equal to the issue price of the securities of the Fund issuing the securities for which they are used as payment, valued as if the portfolio securities were portfolio assets of that Fund;

d)            none of the portfolio securities which will be the subject of an In Specie Transaction shall be the securities of a related issuer of the Filer;

e)            none of the securities which will be the subject of an In Specie Transaction shall be “illiquid assets” as such expression is defined in NI 81-102; and

f)             each of the Funds will keep written records of each In Specie Transaction in a financial year of the Fund, reflecting details of the portfolio securities delivered to the Fund and the value assigned to such portfolio securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place;

4.             in connection with an In Specie Transaction where a Fund redeems securities of a Fund:

a)            the portfolio securities are acceptable to the portfolio manager of the Fund and are consistent with the investment objective of the Fund acquiring the portfolio securities;

b)            the value of the portfolio securities is at least equal to the amount at which those securities were valued by the Fund in calculating the net asset value per security of the Fund used to establish the redemption price;

c)             none of the securities which will be the subject of an In Specie Transaction shall be the securities of a related issuer of the Filer;

d)            none of the securities which will be the subject of an In Specie Transaction shall be “illiquid assets” as such expression is defined in NI 81-102; and

e)            the Fund will keep written records of each In Specie Transaction in a financial year of the Fund, reflecting details of the portfolio securities delivered by the Fund and the value assigned to such portfolio securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place;

5.             the Filer does not receive any compensation in respect of any In Specie Transaction and, in respect of any delivery of portfolio securities further to an In Specie Transaction, the only charges paid by the Managed Account or the applicable Fund is the commission charged by the dealer executing the trade (if any) and/or any administrative charges levied by the custodian.

“Frédéric Pérodeau”