Conflicts of Interest Disclosure Statement
Next Edge Capital Corp. (“Next Edge” or the “Firm”) is an independent investment management company. The firm is registered under the category of Portfolio Manager (PM) within the province of Ontario (principal regulator). Furthermore, the Firm is registered under the category of Exempt Market Dealer (EMD) in the provinces of Ontario, Quebec, British Columbia, Alberta, Manitoba, New Brunswick, Nova Scotia, Saskatchewan and Newfoundland and Labrador, and finally registered under the category of Investment Fund Manager (IFM) in the provinces of Ontario, Quebec and Newfoundland and Labrador. Next Edge is in the business of providing investment advisory services to its clients (“Clients”). Next Edge manages the Next Edge Funds (the “Funds”). Under securities regulations, Next Edge, in each of its registrant roles, is required to identify material conflicts of interest which would be expected to arise between Next Edge (including each individual, acting on its behalf) and its Clients. The purpose of this Conflicts of Interest Disclosure Statement (“Conflicts Statement”) is to provide Clients with a description of such conflicts as a registrant firm with roles as advisor, investment fund manager and dealer might encounter and the measures Next Edge has taken to prevent, avoid, and mitigate such conflicts.
There will be situations where a conflict will arise between the interests of Next Edge and/or its advisors and your interest. These conflicts may be actual conflicts of interest or you may perceive that Next Edge or its advisors have a conflict of interest. Conflicts can give rise to a concern that Next Edge or its advisors may act or will act with a view to their own business or personal interest. Conflicts can also arise in circumstances where there are differing interests amongst clients, which may lead to a perception that Next Edge will be favouring a client or set of clients over other clients.
Canadian securities laws require Next Edge to take reasonable steps to identify and respond to material conflicts of interest in your best interest and tell you about them, including how the conflicts might impact you and how Next Edge addresses them in your best interest.
We seek to avoid or minimize conflicts where reasonably possible. We seek to avoid actual or perceived favouritism or discrimination amongst clients and to ensure that no client receives preferential treatment over another in the operation and management of their account and execution of trades. Some conflicts cannot be avoided. It is important that you are fully informed regarding our conflicts, including how we address them in your best interests.
Next Edge must deal with a conflict of interest in a fair, equitable and transparent manner, while exercising responsible business judgment influenced only by the best interests of Next Edge’s Clients.
Next Edge will provide prior written disclosure of a conflict of interest, real or potential, to a Client when opening an account initially and when there is a reasonable likelihood that the Client would consider the conflict important when entering into a proposed transaction.
The four mechanisms that Next Edge will generally use to deal with conflicts of interest are:
- Avoid: Next Edge will first determine if it should avoid the conflict of interest because it is sufficiently contrary to the interests of a Client or the integrity of the capital markets, it is prohibited by law, or if there can be no other reasonable response to the conflict.
- Control: If Next Edge does not avoid the conflict of interest, it will consider what internal structures or policies and procedures it should have to reasonably address the conflict. For example, Next Edge may assign a different representative to provide a service to a particular Client, create a group or committee to review, develop or approve a response to the conflict, monitor activity or use information barriers for certain internal communication.
- Disclose: If Next Edge does not avoid the conflict of interest, Next Edge will consider if it is required to disclose the conflict. Next Edge will consider the appropriate timing and method of disclosing the conflict. The disclosure will be prominent, specific, clear and meaningful to the Client and will explain the conflict of interest and how it could affect the service the Client is being offered.
- Independent Review Committee (IRC): Next Edge has an IRC which is mandated by the OSC for all NI 81-102 funds. All conflicts of interest which pertain to Next Edge’s NI 81-102 funds will be brought for discussion to the IRC. Next Edge, at its sole discretion, from time to time may bring conflicts of interest to the IRC for their Offering Memorandum and/or Private Funds.
This Conflicts Statement sets out important information regarding our material conflicts of interest. These are described in this Conflicts Statement, along with the potential impact on and risk that the conflict could pose to you and how we address the conflict to minimize its impact and risks to you and our other clients. In situations that we do not or cannot avoid a conflict of interest, where our interests may compete with yours, we will always give your interests priority over ours, which allows you to be confident that we address conflicts in your best interest. Generally speaking, we deal with and manage conflicts as follows:
- Referral Arrangements with Affiliated Managers and Third Parties
Next Edge has no referral arrangements with other parties to receive referral fees, from time-to-time. Next Edge may enter into a referral arrangement and pay a referral fee.
- Investments in Related or Connected Issuers
A related issuer is a person or company that influences or can be influenced, through ownership or direction and control over voting securities, by another person or company. Next Edge is an independent firm, owned entirely by senior members of the company and is not influenced by any other related issuer. A person or company is connected to another person or company if, due to its relationships with such person or company, a prospective purchaser of securities may question the other person or company’s independence from the first person or company. Clients may invest in the Funds for which Next Edge serves as manager; as such, the Funds may be ‘connected issuers’ of Next Edge. If Next Edge is recommending a Fund to a Client, Next Edge will disclose its relationship or connection to such Fund or other connected issuer.
- Investments in Certain Other Issuers
If any of the partners, directors, officers, employees or agents of Next Edge (“Employees”) are also partners, directors or officers of an issuer, Next Edge will not cause an investment portfolio managed by it, including the Funds, to invest in securities of such issuers without the prior written consent and disclosure of that fact has been made. The Funds are strictly prohibited from investing in any issuer in which any officer, director or substantial shareholder of Next Edge owns a significant interest in that issuer (i.e. 10% or more of the outstanding shares).
- Principal Transactions and Cross-Trading Securities
Under Canadian securities regulations, Next Edge is subject to certain restrictions from engaging in principal transactions with or on behalf of its Clients and from cross trading securities between Funds. In particular, without exemptive relief from regulatory authorities, Next Edge will not knowingly cause any investment portfolio managed by it (including the Funds), to purchase or sell securities from or to: (i) Next Edge, (ii) any directors, officers or associates of Next Edge, or (iii) any investment funds managed by them (including the Funds).
- Best Execution and Soft Dollars
When placing orders for and on behalf of Clients’ accounts, Next Edge will select those brokers and dealers from whom they reasonably expect to obtain the best execution (after considering all transaction costs and research or other benefits). Next Edge utilizes a limited soft dollar policy, which allows for the procurement of 3rd party investment research and trade execution using a portion of brokerage commissions for payment, which is valuable to the investment decision-making and execution process, and adheres to the regulations stipulated by securities regulators. A copy of the best execution and soft dollar policies of Next Edge may be obtained upon request.
- Marketing, Promotion and Sale of Next Edge Funds
Next Edge’s services as advisor and dealer are integrated and generally not separable from each other when it acts as dealer on purchases in the Funds. Next Edge does not receive any separate compensation for acting as a dealer on trades. Next Edge’s interest is in the fees paid to it by the Client or the Fund for its management and advisory services. Next Edge may from time to time solicit orders from Canadian Clients for and trade in the Funds. Next Edge does not receive any commission or similar selling compensation, nor does it receive any servicing fees for acting as a dealer on such trades for the Funds. Next Edge does not recommend investment funds which are not sponsored or managed by Next Edge.
- Fair Allocation Amongst Clients
Next Edge has adopted trading policies which are designed to ensure fair allocation of securities amongst Clients and Funds. In general, a participating Client will receive a percentage of the executed portion of the order based upon its percentage of the entire order. This rule applies to all Clients that are participating in the execution on the same trading terms. All allocations will be made at the average execution price. The basic purpose of this process is to ensure fair treatment of all Clients and to avoid the appearance of favoritism or discrimination among Clients. There may be times, however, where strict application of this process does not lead to a fair and reasonable allocation. In such circumstances, allocation by a method other than this rule will be permitted where such allocation produces a fairer and more reasonable result. The Chief Compliance Officer (CCO) and Chief Operating Officer (COO) will be advised of any such circumstances for approval. As an overlying control, all order executions must satisfy the Client’s investment objectives and suitability requirements.
- Fees of Next Edge
Next Edge typically charges fees to its Clients through management and performance fees. Management fees are calculated as a percentage of the market value of the Client’s Net Asset Value of the Fund based on the pricing frequency of the applicable Fund. Performance fees are charged based on a minimum hurdle return amount and/or a highwater mark basis. Should Next Edge Funds’ performance generate performance fees, they are charged either quarterly or annually; depending on the Fund. Where Next Edge appoints a sub-adviser to assist with managing portfolio accounts, Next Edge is responsible for payment of the sub-advisory fees so that there is no duplication of fees charged to the underlying Client.
- Allocating Expenses Among Funds and Within a Fund
Each Fund is responsible for paying for all routine and customary expenses relating to the Fund’s operation, including registrar and transfer agency fees and expenses, custodian fees, audit, legal and accounting fees, communication expenses, printing and mailing expenses, all costs and expenses associated with the sale of units including private placement fees, if any, expenses related to providing financial and other reports to Clients and convening and conducting meetings of Clients, all taxes, assessments or other governmental charges levied against the Fund, interest expenses and all brokerage and other fees relating to the purchase and sale of the assets of the Fund. In addition, each Fund is responsible for paying for expenses associated with ongoing investor relations and education relating to the Fund. The amount of these expenses will vary from time to time but will be disclosed in the financial statements of the Funds. Next Edge may in its sole discretion, elect to absorb certain on-going expenses of the Fund. Currently, Next Edge pays for certain operating expenses of the Funds. These expenses include audit and legal fees, custodian and transfer agency fees, costs attributable to the issue, redemption and change of units, including the cost of the Client record-keeping system, expenses incurred in respect of preparing and distributing prospectuses, financial reports and other types of reports, statements and communications to Client fund accounting and valuation costs, and filing fees, including those incurred by Next Edge. Most fees are subject to applicable taxes including HST.
- Pricing and Account Errors
Next Edge may have a potential conflict of interest when determining when, and how, to deal with a pricing error or other type of unitholder account error, due to the time, processing cost and reimbursement of investors involved. Next Edge uses third party service providers to calculate net asset values of the Funds and to record unitholder transactions. Next Edge establishes standards for the correction of discrepancies in the calculation of net asset value in a consistent manner across the Funds and in accordance with industry guidelines.
- Proxy Voting and Other Corporate Actions
Next Edge usually has discretion in voting the portfolio securities purchased on behalf of Clients, including the Funds. A perceived conflict arises given the opportunity to vote securities in its own interest or agree to certain corporate actions, including for the purpose of getting or maintaining certain issuers as Clients. To minimize such conflicts, Next Edge subscribes to proxy voting recommendation services from a third party and maintain records of how they vote securities and maintains a proxy voting policy. Next Edge does not invest in securities of issuers for the purposes of exercising control over, or participating in the management of issuers.
- Personal Trading, Gifts and Business Entertainment
Next Edge has a Code of Ethics and a Code of Conduct that sets forth standards of business conduct intended to prevent possible conflicts of interest, diversions of corporate opportunity or appearances of impropriety and has established policies and procedures for monitoring personal trades of Employees who have access to information regarding the portfolios of Clients and the Funds. When individual portfolio managers and other personnel of Next Edge invest in the same securities as Clients of Next Edge, including the Funds, there is a perceived or potential conflict of interest that the portfolio manager or other personnel may benefit from opportunities at the expense of Clients and the Funds. Next Edge’s personal trading requirements are covered in its Personal Trading Policy. When Employees give or accept gifts or business entertainment of more than minimal value in connection with services provided to Clients or the Funds, there is also a perceived or potential conflict of interest. Next Edge has established written standards, in its Gifts & Entertainment Policies & Procedures, for the provision and acceptance of gifts and business entertainment to or from persons or entities with which the Firm has an existing or potential business relationship and regularly monitors Employees’ adherence to such standards.
- Outside Business Activities
Next Edge has developed policies and procedures that govern Employees’ outside business activities and to which all Employees must adhere. Further, Next Edge has implemented a notification and pre-approval process to restrict any outside business activity that would interfere or give the appearance of interfering with an Employee’s ability to act in the best interests of or perform work for, Next Edge and its Clients.