Relationship Disclosure - Canoe Financial

By Samuel Grant,2014-11-07 08:03
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Relationship Disclosure - Canoe Financial


    Canoe Financial L.P. (“Canoe”) is an investment firm focused on building financial wealth for Canadians through investing in Canada. Its ‘GO CANADA!’ investment thesis reflects Canoe’s strategic confidence in Canada as a place

    to invest. With continued global urbanization, increasing worldwide demand for resources, and Canada’s sound fiscal structure, Canoe believes this country provides long-term growth potential for investors. Canoe offers a suite of mutual funds, closed end funds and private pooled funds to qualified investors.

Relationship Disclosure

    Important information about your relationship with us is contained in this statement and the periodic account statements that will be provided to you from time to time. If there is a significant change to the information contained in this document we will provide you with updated information as soon as possible by sending an updated document by email (if you have consented to electronic delivery of documents from us) or by mail (if you have not provided consent to delivery by email).

Products and Services

    Canoe is registered as a Portfolio Manager, Investment Fund Manager and Exempt Market Dealer with each of the securities regulatory authorities in Canada. As fund manager, Canoe is responsible for the day to day business and affairs of the various Funds it manages. As portfolio manager, it provides portfolio management services to its Funds and also utilizes the services of third party sub-advisers for certain Funds; finally, while Canoe is not in the business of trading securities generally, it acts as a dealer to allow clients to invest in Canoe’s pooled funds (the “Private Funds”) using exemptions from the prospectus requirement. These products may be purchased through accounts held with an investment dealer or a mutual fund dealer, or directly with Canoe with respect to units in its pooled funds. Canoe Financial GP is the general partner of Canoe and is majority owned by an entity which is majority owned by Mr. M. Bruce Chernoff.


    Canoe is not in the business of trading securities generally, however, it acts as an exempt market dealer to allow clients to invest in Canoe’s pooled funds (the “Private Funds”) using exemptions from the prospectus requirements.

    In these circumstances, client accounts held directly with Canoe must be non-registered, cash accounts, as Canoe does not currently have the facilities to offer any form of registered accounts or those with margin facilities.

Suitability and KYC

    As your dealer, we have an obligation to assess whether a purchase or sale of units of the Private Funds is suitable for you prior to making a recommendation to or accepting trade instructions from you. To meet this suitability obligation, Canoe is obligated to obtain and remain current with certain client information to ensure compliance with the “Know Your Client” (“KYC”) obligations as well as legislation governing identity verification and anti-money laundering. In this regard, Canoe must: establish, verify and document the identity of all clients, determine whether the client is an insider of a publicly traded issuer and obtain sufficient personal and financial information to make a determination of the suitability of a particular security prior to executing the transaction.

    Should Canoe become aware or suspect that an investor is engaged in money laundering, it is our duty to report to the Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”). This reporting will not be deemed a

    breach of our privacy policy or any other prohibition that is imposed by law or otherwise.

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    There are no costs associated with maintaining an account at Canoe in which your units of the Private Funds are held. All costs are part of your investment in the Private Funds, as discussed below.

    Canoe does not receive compensation or commission for the sale of units of a Private Fund to investors. However, the General Partner, an affiliate of Canoe, receives an administration fee from the Private Fund for acting as administrator to the Private Fund. As disclosed in the Limited Partnership Agreement, this fee is a percentage of the net asset value (“NAV”) of the Private Fund calculated (i) monthly, in arrears, and (ii) on each date determined by the administrator in its sole discretion, that the NAV of a Private Fund has changed by an amount equal to or greater than 5.0%.


    Canoe will provide each investor in the Private Funds, within 60 days after the end of each of the first three quarters of the Private Fund’s fiscal year, unaudited interim financial statements of the Private Fund as at the end

    of the quarter.

    Within 120 days after the end of each fiscal year, Canoe will provide audited financial statements of the Private Fund, a report on allocations and distributions to Canadian investors in the Private Fund in order for such investors to prepare any personal tax filings, and the estimated net asset value of the Private Fund.

    We will provide statements to you about your accounts on a monthly basis if a transaction was effected in your account during the month, otherwise we will provide account statements every 3 months. For each transaction made for you during the period covered by the statement, we provide the following information: ; Date of the transaction;

    ; Type of transaction;

    ; Name of the security;

    ; Number of securities;

    ; Price per security;

    ; Total value of the transaction.

    In addition, the account statement will include the following information as at the end of the period for which the statement is made:

    ; Name and quantity of each security in the account;

    ; Market value of each security in the account;

    ; Total market value of each security position in the account;

    ; Any cash balance in the account;

    ; Total market value of all cash and securities in the account.

    Canoe will promptly deliver to you, or if you direct in writing, to a registered adviser acting for you, a written confirmation of each transaction in your account.


    There are certain risks investors should consider when making an investment in the Private Funds. Before making any investment decision, it is important to review your investment objectives, your tolerance for risk, your time horizon, and the risk associated with the investment you are considering. Investments are subject to different types of risk depending on the type of investment and the features associated with the product. Investment risks associated with the Funds can include:

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    ; Start-up Risk the risk associated with a new offering that has no history of earnings and that may not be able to mitigate the risks associated with planned activities.

    ; Market risk the risk that the market value of a Private Fund’s investments will rise or fall based on overall

    stock market conditions rather than each company’s performance.

    ; Liquidity risk the risk that an asset purchased by a Private Fund may have a limited resale market and may not be liquidated readily. Additionally, units of a Private Fund may not be readily transferred or sold until the expiry of the holding period.

    ; Commodity risk the risk that exposures to certain commodities, or to companies whose business is dependent on commodities, may be directly affected by movements in the price of the commodities. ; Concentration risk the Private Funds invest in relatively few securities, which can result in a lack of diversification across all sectors, regions or countries and may result in higher volatility of the Private Fund’s


    ; Specialization risk the Private Funds may invest primarily in one industry or market capitalization range, which may cause the Private Fund’s performance to be more volatile and strongly affected by the overall

    economic performance of the area of specialization.

    ; Risk of loss - investing, in general, has risk associated with it, including the risk that the investor may lose a portion or all of an investment made.

    ; Limited liability loss risk - unitholders may lose their limited liability under certain circumstances and become liable beyond their contribution/share of undistributed net income in the event of judgement on a claim. ; Risk of loss of key personnel the management of the Private Funds is dependent on a small number of key officers and employees, the loss of any of whom could have an adverse effect on the Funds. ; Foreign currency risk the risk associated with currency fluctuations if the Private Funds invest in non-Canadian dollar denominated securities or in companies whose businesses are carried out in foreign jurisdictions which create exposure to foreign currency fluctuations.

    ; Leverage risk the risk of loss associated with borrowing, as the Private Funds may use leverage as part of their investment strategy.


    If you are considering borrowing money to make investments, or considering providing Canoe with borrowed money to make investments on your behalf, you should be aware that using borrowed money to purchase securities involves greater risk than a purchase made using cash resources only. If you borrow money to purchase securities, your responsibility to repay the loan and pay interest as required by its terms remains the same, even if the value of the securities purchased declines. As a result, your losses would be larger than had you invested using your own money.

Related and Connected Issuers

    For the purposes of this section, (i) the word “connected” is intended to involve a state of indebtedness to, or other relationship with, Canoe or those “related” to Canoe that, in connection with a distribution of securities, would be material to a purchaser of the securities; and (ii) the word “related” is intended to involve positions

    permitting, through ownership or otherwise, a controlling influence, and would include all companies under a common controlling influence.

    As dealer, we may sell securities issued by the Private Funds to our clients. Because we act as manager and portfolio manager of the Private Funds and of other investment funds, each of the funds set forth below is considered a related or connected issuer to Canoe.

Mutual Funds

    ; Canoe Canadian Monthly Income Class

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    ; Canoe North American Monthly Income Class ; Canoe Canadian Asset Allocation Class ; Canoe Canadian Equity Class

    ; Canoe Canadian Equity Income Class ; Canoe Bond Advantage Class

    ; Canoe Enhanced Income Class

    ; Canoe Canadian Energy Class

    ; Canoe Canadian Energy Income Class ; Canoe Strategic High Yield Class

    ; Canoe Global Value Class

    ; Canoe Bond Advantage Fund

    ; Canoe Enhanced Income Fund

    ; Canoe Strategic High Yield Fund

    ; Canoe Global Income Fund

    ; EnerVest Natural Resource Fund Ltd.

Closed-End Funds

    ; EnerVest Diversified Income Trust ; EnerVest Energy and Oil Sands Total Return Trust ; Canoe 2012 Flow Through L.P.

Private Funds

    ; Canoe Unique Energy Limited Partnership ; Canoe Unique Energy Limited Partnership II ; Canoe 2013 Flow Through L.P.

In addition, as at August 2013, certain officers/directors of Canoe are also directors of the following issuers:

    ; Artek Exploration

    ; Calmena Energy Services

    ; Lightstream Resources

    ; Forent Energy Ltd.

    ; Maxim Power Corp.

    ; DualEx Energy International

    ; Westbrick Energy Ltd.

    ; Broadview Energy

    ; Mahalo Energy Ltd.

    ; RuralCom Wireless

    ; Sulvaris Inc.

As a result, each of these issuers is related or connected issuers of Canoe. We may advise the Private Funds with

    respect to the purchase or sale of securities of these issuers, or any other issuers which may, from time to time,

    become related and/or connected issuers, but only if we are confident that such activities are in the best interests

    of our clients.

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    At the time of account opening and on an ongoing basis there may be instances where clients disclose personal and confidential information to Canoe, including personal identification and financial information. Canoe’s

    personnel will comply with all legislation and Canoe’s privacy policy in connection with the use and protection of such information. A copy of Canoe’s Privacy Policy is available upon request. Please be aware that in certain

    circumstances, Canoe may be required to disclose personal information, including as the result of judicial or other government requests or orders.

Non-Resident Status

    Canoe is a resident of Alberta and Ontario. In those jurisdictions in which we carry on business but are not resident in, we have appointed an agent for service of process as follows:

British Columbia: Blake. Cassels & Graydon

    Manitoba Aikins, MacAulay & Thorvaldson

    New Brunswick Stewart McKelvey

    Newfoundland & Labrador Stewart McKelvey

    Nova Scotia Stewart McKelvey

    Prince Edward Island Stewart McKelvey

    Northwest Territories Field Law

    Nunavut (Iqualuit) Terry Gray

    Quebec Davies Ward Phillips & Vineberg

    Saskatchewan Kanuka Thuringer

    Yukon Austring Fendrick Fairman & Parkkari

    It is important to know that certain rights may not be enforceable by you against us in a jurisdiction where we are not resident.


    Should a situation arise where you have questions with respect to your account at Canoe, please contact us by telephone at 403-513-0102 or via email at If you have a complaint with respect to your account, please contact Canoe’s Chief Compliance Officer, by telephone at 416-216-6390 or via email at

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Conflicts of Interest

    Under securities regulations, Canoe, in each of its registrant roles, is required to identify material conflicts of interest which would be expected to arise between Canoe (including each individual, acting on its behalf) and its clients. Further, if a reasonable investor would expect to be informed of the nature and extent of an identified conflict of interest, Canoe must do so.

    Canoe must take reasonable steps to identify existing material conflicts of interest and material conflicts that the firm reasonably expects to arise between the firm and a client. As part of identifying these conflicts, Canoe collects information from the individuals acting on its behalf regarding the conflicts they expect to arise with their clients. Some of these conflicts are inherent in the business model that is used by Canoe. It will seek to avoid or minimize conflicts where reasonably possible. However, some conflicts cannot be avoided and, although others could be avoided, Canoe has chosen to manage them.

    The purpose of this disclosure is to provide clients of Canoe with a description of the conflicts of interest Canoe may encounter as a registrant firm with roles as advisor, investment fund manager and exempt market dealer. The following are some of the more significant conflicts of interest that may affect the service we provide to you.

1. Investments in Certain Issuers Under securities legislation, if any of the partners, directors, officers,

    employees or agents of Canoe appointed by Canoe are also partners, directors or officers of an issuer, Canoe

    may not cause an investment portfolio managed by it, such as a Fund, to invest in securities of such issuers

    without obtaining the prior written consent of investors in the portfolio after disclosure of that fact has been

    made to such investors. In general, officer or director positions with other issuers are permitted only under

    those circumstances where it would not place Canoe or its personnel in a position which may conflict with

    their ability to act in the best interest of the Funds. In this situation, Canoe will adhere to its policies and

    procedures which are designed to ensure that any investment made by a Fund in a private issuer is made

    without taking into account any consideration relevant to Canoe and represents the business judgment of

    Canoe, uninfluenced by considerations other than the best interests of the Fund. Additionally, on occasion,

    Canoe may cause the Funds to invest in certain private issuers to which Canoe provides advisory services. A

    potential conflict may arise where the interests of Canoe are different from the interests of the Funds. In this

    situation, Canoe will adhere to its respective policies and procedures and place the interests of a Fund ahead

    of its own.

2. Fair Allocation Amongst Accounts - When Canoe acts as portfolio manager, it may aggregate orders for a

    number of Funds for the purchase of a particular security. A conflict of interest can arise when the quantity of

    a security available for purchase on a market at the same price is insufficient to satisfy the requirements of

    each Fund that wants to purchase the security, or the quantity of a security available to be sold for a number

    of Funds is too great to be completed at the same price on a market. Similarly, the availability of a new issue

    of a security may be insufficient to satisfy the requirements of all Funds. To handle any potential conflicts of

    interest, Canoe has adopted policies which are designed to ensure fair allocation of securities amongst all

    applicable Funds. In order to fairly allocate investment opportunities among the Funds, Canoe will undertake

    to allocate such purchases or sales on a pro-rata basis in proportion to the proposed transactions.

3. Best Execution & Use of Client Brokerage Commissions When placing orders for or on behalf of its Funds,

    Canoe and its sub-advisers will select those brokers/dealers from whom they reasonably expect to obtain best

    execution (including considering transaction costs and research). Canoe does not use brokerage commissions

    to pay for any service other than order execution for the Funds. However, certain sub-advisers to Canoe may

    cause a Fund to pay brokerage commissions to a dealer in return for receiving certain goods or services. The

    use of Fund brokerage commissions in this manner creates a perceived conflict of interest to the extent that a

    sub-adviser may use soft dollars for services that benefit the sub-adviser and its other clients but not Canoe Financial L.P. last updated September 2013 Page 6

    necessarily the Fund that pays the commission. Canoe and its sub-advisers comply with applicable regulatory requirements regarding the use of client brokerage commissions, which are designed to ensure that the Funds receive reasonable benefit from such transactions, taking into consideration the goods and services received and the amount of brokerage commission paid.

    4. Fees and Portfolio Valuation Canoe charges its Funds a management fee for its services of acting as

    investment fund manager and portfolio manager, which is calculated as a percentage of the net asset value of each Fund’s portfolio. Canoe also charges its Private Funds a performance fee that is calculated on the basis of net asset value of the Private Funds’ portfolios. Where Canoe charges a performance or incentive fee to a

    Fund, such fee can pose a potential conflict because Canoe may have an incentive to take greater risks in making investment decisions for the Fund and typically would not be required to return performance fees paid in prior periods if performance subsequently lags.

    5. Canoe may, on an occasional basis, receive a fee from private issuers which have been purchased in the Private Funds, for providing advisory services to such issuers relating to the share offering of these issuers. This relationship can pose a potential conflict of interest concerns because Canoe may have an incentive to cause the Private Funds to purchase the securities of the private issuer on behalf of a Fund as a result of wanting to continue to provide advisory services to the issuer. In these situations, Canoe will comply with applicable regulatory requirements to act in the best interests of the Private Funds.

    6. Canoe is responsible for the valuation of the Funds’ assets and for determining the net asset value of their

    portfolios, which in turn will determine the amount of management and performance fee (if applicable) payable by a Fund. Canoe and its service providers use pricing feeds typically used by others in the industry to obtain the values for particular securities and other investments held in the Funds’ portfolios; it will price

    thinly traded securities or those securities that do no have a readily available market value based on its “Illiquid Securities Valuation Policy”. If Canoe determines that the price of a particular security does not fairly represent its value, Canoe will use its discretion to determine the value of such security, taking into account its fiduciary obligation to the Funds.

    7. Allocating Expenses Amongst Funds and in a Fund Each Fund pays its own operating expenses and fees of

    third party service providers to the Fund. Information on the types of expenses that may be charged to a Private Fund is set out in the Limited Partnership Agreement or similar constating document, or in the subscription agreement, of the Fund and information on the types of expenses that may be charged to the other Funds are set out in the prospectus and other disclosure documents of those Funds. Non Fund-specific expenses that cannot be directly linked to a particular Fund are allocated amongst all the Funds based on the Funds’ respective net asset values. Canoe has established policies and procedures to ensure that expenses

    charged to the Funds are reasonable and appropriate and that the method of allocating such expenses amongst the Funds is fair and equitable to all Funds.

    8. Pricing and Account Errors - Canoe may have a potential conflict of interest when determining when, and how, to deal with a pricing error or other type of investor account error, due to the time, processing cost and size of reimbursement involved. Canoe has adopted an error correction policy that establishes standards for the correction of errors in the calculation of the net asset value (NAV) of a Fund in a manner which is consistent with industry guidelines. In general, Canoe will determine it has made an error when there is an incorrect calculation in the NAV of a Fund that is the result of a breach of Canoe’s standard of care owed to the Fund.

    Canoe will make a Fund whole if the error is 0.5% or more of the Fund’s NAV and will also adjust investor

    accounts, unless the total impact on an individual account is less than $50.

    9. Proxy Voting and Other Corporate Actions - Canoe and its sub-advisers have discretion in voting the portfolio securities purchased on behalf of their clients, including the Funds. Canoe and its sub-advisers could be placed

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    in a conflict of interest because they may have an incentive to vote these portfolio securities or agree to certain corporate actions, in a manner which advances their own interest (such as for the purpose of getting or maintaining certain issuers as clients), rather than acting in the best interest of their Canoe Fund clients. To minimize such conflicts, Canoe has established policies and procedures relating to proxy voting for issuers held in the Funds it manages and Canoe’s sub-advisers subscribe for proxy voting recommendation services from

    third parties and maintain records of how they vote securities.

    10. Personal Trading When individual portfolio managers and other personnel of Canoe invest in the same securities as the Funds, there is potential for a conflict of interest in that the individual may have an incentive to benefit from investment opportunities at the expense of the Funds. Canoe has a Code of Ethics for Personal Investing that sets forth policies and procedures for monitoring personal trades of employees, officers and directors who have access to information regarding the portfolios of the Funds. This personal trading policy requires that each of Canoe’s employees, officers and directors put the interests of the Funds first, ahead of their own personal self-interests. Canoe personnel are only allowed to make a personal trade if it falls within a general exception in its personal trading policy or if Canoe’s Compliance Department has determined that

    such trade will not conflict with the best interest of its clients.

    11. Gifts and Business Entertainment - When Canoe personnel accept gifts or business entertainment of more

    than minimal value in connection with services provided to the Funds, there is a potential that the individual may be incentivized to act in a manner which is not in the best interest of the Funds. Canoe has established standards for accepting gifts and business entertainment from persons or entities with which the firm has an existing or potential business relationship to attempt to minimize the potential for such conflict by imposing a threshold on the value of any gift or business entertainment that can be accepted by any employee, officer or director of Canoe.

    12. Outside Business Activities - When Canoe personnel engage in certain activities, interests or associations outside the firm, a conflict of interest may arise between the individual’s personal interests and those of

    Canoe and the Funds. Canoe has policies and procedures in place to ensure that its personnel who wish to engage in outside business activities may do so only under strict conditions to ensure that the position will not create a conflict with acting in the best interests of Funds.

    13. Sale of Related Party Securities Canoe is registered as an investment fund manager, portfolio manager and

    exempt market dealer. As dealer, Canoe sells securities of certain Funds for which it acts as manager and portfolio manager. A conflict may arise in these circumstances, as the fees Canoe receives from these Funds are dependent on the net asset value of the Funds. Canoe has policies and procedures to ensure that it only sells securities of the Funds to clients for which it is a suitable investment.

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