Picton Mahoney Asset Management et al. - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Relief from investment restrictions prohibiting a mutual fund from knowingly making or holding an investment in a person or company in which the mutual fund, alone or together with one or more related mutual funds, is a substantial security holder - Mutual funds to be sold pursuant to available exemptions from prospectus and dealer registration requirements investing primarily in units of related fund - Mutual funds may become a "substantial security holder" of related fund - Relief granted subject to certain conditions.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 111(2)(b), 111(3)m 113.

April 4, 2008

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO AND ALBERTA

(the Jurisdictions)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

PICTON MAHONEY ASSET MANAGEMENT

(PMAM)

AND

PICTON MAHONEY GLOBAL MARKET

NEUTRAL EQUITY US DOLLAR FUND AND

PICTON MAHONEY GLOBAL LONG SHORT

EQUITY US DOLLAR FUND

(the Funds)

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from PMAM, on behalf of the Funds for a decision under the securities legislation of the Jurisdictions (the Legislation) exempting the Funds from the restrictions contained in the Legislation which prohibits a mutual fund from knowingly making or holding an investment in a person or company in which the mutual fund, alone or together with one or more related mutual funds, is a substantial security holder (the Requested Relief).

Under the Mutual Reliance Review System for Exemptive Relief Applications:

(a) the Ontario Securities Commission is the principal regulator for this application, and

(b) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

This decision is based on the following facts represented by PMAM on behalf of the Funds:

1. PMAM is a general partnership formed under the laws of Ontario, with its head office in Toronto, Ontario.

2. PMAM is registered with the Ontario Securities Commission as an adviser under the categories of investment counsel and portfolio manager and as a dealer under the category of limited market dealer.

3. PMAM is the trustee, manager and portfolio adviser of the Funds and other investment funds established and to be established under the laws of Ontario pursuant to a master declaration of trust made as of December 30, 2005 as amended from time to time.

4. The Funds will be sold in Canada to investors pursuant to exemptions from the prospectus and, where available, registration requirements in accordance with National Instrument 45-106 Prospectus and Registration Exemptions ("NI 45-106"). A confidential offering memorandum (the "Offering Memorandum") in respect of the Picton Mahoney Global Funds, comprising the Funds together with Picton Mahoney Global Market Neutral Equity Fund (the "Global Market Neutral Fund") and the Picton Mahoney Global Long Short Equity Fund (the "Global Long Short Fund"), is available to investors in the Picton Mahoney Global Funds.

5. The Funds will be managed to provide a return to investors based on the return of the Global Market Neutral Fund and the Global Long Short Fund, respectively (the "Underlying Funds"), but will be hedged to limit exposure to fluctuations in the Canadian/U.S. exchange rate. In order to provide such returns, each Fund may invest primarily in units of an Underlying Fund. Each Fund will also use derivative contracts, on an ongoing basis, to protect the Fund against losses from declines in the value of the U.S. dollar against the Canadian dollar.

6. It is expected that, initially, the Funds will purchase a class of units of the respective Underlying Funds, which units are not charged any management fee or incentive fees.

7. The respective Funds may become a "substantial security holder" of the respective Underlying Funds pursuant to the Legislation at any time a Fund, alone or together with one or more related mutual funds, holds more than 20% of the outstanding units of an Underlying Fund.

8. In connection with the purchase of units of the Underlying Funds by the Funds, PMAM shall ensure that the arrangements between or in respect of the Funds and the Underlying Funds are such as to avoid the duplication of management fees or incentive fees. In addition, no sales or redemption fees are payable by the Funds in relation to its purchases or redemptions of units of the Underlying Funds.

9. Unitholders of the respective Funds will have access to copies of the respective Fund's interim financial statements and audited financial statements which will include disclosure of the respective Underlying Fund's investments.

10. In the absence of the Requested Relief, the Funds would be limited in purchasing or holding units of the Underlying Funds due to the investment restrictions contained in the Legislation.

11. The investments by the Funds in units of the respective Underlying Funds represent the business judgement of responsible persons uninfluenced by considerations other than the best interests of the Funds and such investments are part of the structure of the Funds rather than an individual portfolio investment decision.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.

The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that:

1. units of the Funds are sold pursuant to exemptions from the prospectus requirements in accordance with NI 45-106;

2. the arrangements between or in respect of the Funds and the Underlying Funds are such as to avoid the duplication of management fees and incentive fees;

3. no sales or redemption fees are payable by the Funds in relation to their purchases or redemptions of units of the Underlying Funds;

4. the Funds do not vote any of the securities they hold of the Underlying Funds, unless a Fund is the sole owner of securities of an Underlying Fund at the time of the meeting or the effective date of the resolution, in which case PMAM will arrange for all of the securities of the Underlying Fund held by the Fund to be voted by the beneficial owners of securities of the Fund; and

5. the Offering Memorandum discloses:

(i) that the Fund may purchase securities of a specified Underlying Fund;

(ii) the fact that both the Fund and the Underlying Fund are managed by PMAM; and

(iii) the approximate or maximum percentage of net assets of the Fund that may be dedicated to the investment in securities of the Underlying Fund.