Man Investments Canada Corp. and GLG EM Income Fund

Headnote

NP 11-203 -- Process for Exemptive Relief Application in Multiple Jurisdictions -- Relief granted to a commodity pool from subsection 2.1(1), 2.2(1) and paragraphs 2.5(2)(a) and (b) of National Instrument 81-102 Mutual Funds to permit the commodity pool to gain exposure to, and purchase and hold, another investment fund in a two-tier structure, subject to certain conditions. The bottom fund will observe NI 81-102, except as permitted by NI 81-104 and in accordance with exemptive relief obtained by the Top Fund including that the bottom fund may engage in short selling.

Relief granted to permit purchases at the next weekly net asset value after order received two business days before, even though net asset value is calculated daily -- daily net asset value calculated to provide more frequent and up-to-date information -- National Instrument 81-102 Mutual Funds.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 2.1(1), 2.2(1), 2.5(2)(a), 2.5(2)(c), 9.3, 19.1.

July 18, 2013

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
MAN INVESTMENTS CANADA CORP.
(the Filer) and
GLG EM INCOME FUND
(the Top Fund)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer, on behalf of the Top Fund, for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation):

(i) to revoke and replace the Previous Decision (as defined below); and

(ii) to grant exemptive relief pursuant to Part 19 of National Instrument 81-102 Mutual Funds (NI 81-102), from the following provisions of NI 81-102, as further described below:

a. subsections 2.1(1), 2.2(1) and 2.5(2)(a) and (c) to permit the Top Fund to gain exposure to, and purchase and hold, securities of GLG Emerging Markets Income Portfolio II Ltd. (the Bottom Fund), which has adopted the investment restrictions contained in NI 81-102 and is managed in accordance with these restrictions, except as otherwise permitted by National Instrument 81-104 Commodity Pools (NI 81-104), and in accordance with any exemptions therefrom obtained by the Top Fund including that the Bottom Fund may engage in short selling in accordance with the terms of this decision; and

b. section 9.3 to permit the issue price of the Units (as defined below) of the Top Fund to which a purchase order pertains to be the net asset value (NAV) per Unit determined on the next Weekly Valuation Date (as defined below) after receipt by the Top Fund of a purchase order two business days before.

(collectively, the Requested Relief)

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, and

(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other provinces and territories of Canada (collectively, with Ontario, the Jurisdictions).

Interpretation

Unless expressly defined herein, terms in this application have the respective meanings given to them in NI 81-102, National Instrument 14-101 Definitions and MI 11-102.

Representations

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

The Filer

1. The Filer is a corporation incorporated under theCanada Business Corporations Act and is the trustee and manager of the Top Fund.

2. The Filer is registered as an Investment Fund Manager in Ontario, Québec and Newfoundland and Labrador, as an adviser in the category of Portfolio Manager in Ontario and Alberta and as a dealer in the category of Exempt Market Dealer in Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick and Nova Scotia.

3. The Filer's head office is located in Toronto, Ontario.

4. None of the Filer, the Top Fund or Bottom Fund is in default of any securities legislation in any of the Jurisdictions.

The Top Fund and the Previous Decision

5. The Top Fund is a mutual fund to which NI 81-102 applies. The Top Fund is also a commodity pool as such term is defined in NI 81-104, in that the Top Fund has adopted fundamental investment objectives that permit the Top Fund to gain exposure to or use or invest in specified derivatives in a manner that is not permitted under NI 81-102.

6. The Top Fund is a reporting issuer in each of the Jurisdictions and units of the Top Fund (the Units) are currently qualified for distribution in each of the Jurisdictions under the current prospectus of the Top Fund dated May 18, 2012, as amended by Amendment No. 1 dated November 20, 2012 (collectively, the Current Prospectus).

7. Pursuant to the section 62(1) of the Legislation, the lapse date for the Current Prospectus was May 18, 2013 (the Current Lapse Date). In order to comply with the requirements of the Legislation, the final renewal prospectus for the Fund was required to be filed on or before May 28, 2013 and a receipt obtained by June 7, 2013. The Filer obtained a previous decision dated May 28, 2013 providing for an extension of the time limits pertaining to filing the renewal prospectus of the Top Fund as if the Current Lapse Date of the Current Prospectus was June 28, 2013.

8. The Top Fund's investment objectives are: (i) to provide holders of Class L Units and Class M Units with monthly tax-advantaged distributions; (ii) to provide holders of Class P Units, Class Q Units, Class R Units and Class S Units with monthly distributions; and (iii) to preserve capital while providing the opportunity for long-term capital appreciation for holders of Units. The Top Fund has been created to provide exposure to an actively managed, liquid and diversified set of securities and other instruments across various asset classes primarily within global currency markets and global emerging markets such as countries in Latin America, Central and Eastern Europe, the Middle East, Africa and Asia (the Underlying Assets). In managing the Underlying Assets, GLG Partners LP (the GLG Investment Manager) will pursue its strategy through both active trading and investment principally in interest rate securities and instruments, sovereign and corporate credit instruments and other fixed income securities, foreign exchange instruments and derivatives (including futures and forward contracts) that provide exposure to these asset classes.

9. The Bottom Fund will acquire the Underlying Assets. The return to the Top Fund will be based on the performance of the Bottom Fund, which, in turn, will be based on the performance of the Underlying Assets.

10. The Top Fund does not intend to list the Units on any stock exchange.

11. The Filer obtained a previous decision dated May 18, 2012 (the Previous Decision) exempting the Top Fund from subsections 2.5(2)(a) and (c) of NI 81-102 to permit the Top Fund to obtain exposure to the Bottom Fund through one or more specified derivatives.

12. The Previous Decision represented that the Top Fund will obtain exposure to the economic returns of the Bottom Fund through one or more forward sale agreements (each a Forward Agreement) entered into with one or more Canadian chartered banks and/or their affiliates (each a Counterparty). The character conversion measure announced in Federal Government's Economic Action Plan 2013 prevents investment funds, including the Top Fund, from increasing the notional amount of existing derivative forward agreements, including the Forward Agreement, after March 20, 2013, which would be required if additional units of the Top Fund were issued.

13. The Requested Relief is required to permit the Top Fund to purchase and hold securities of the Bottom Fund in order to obtain exposure to the Underlying Assets in respect of additional units of the Top Fund issued after the character conversion measure was announced. The Top Fund will purchase and hold securities of the Bottom Fund and obtain exposure to the securities of the Bottom Fund through a Forward Agreement or other specified derivative.

The Bottom Fund and the Underlying Assets

14. The Bottom Fund is an exempted company with limited liability incorporated in the Cayman Islands on February 13, 2012 that will acquire the Underlying Assets.

15. GLG Partners (Cayman) Limited (the GLG Manager) will act as manager of the Bottom Fund. The Underlying Assets will be actively managed by the GLG Investment Manager, a limited partnership registered under the Limited Partnership Act 1907 of England and Wales. The GLG Investment Manager is authorized and regulated in the United Kingdom by the Financial Conduct Authority.

16. The Bottom Fund is a reporting issuer under the Securities Act (Ontario) and the Securities Act (Québec) and subject to the continuous disclosure requirements of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106). Accordingly, the financial statements and other reports required to be filed by the Bottom Fund will be available through SEDAR.

17. The Bottom Fund is a mutual fund because holders of its securities will be entitled to receive, on demand, an amount computed by reference to the NAV of the Bottom Fund. However, the Bottom Fund will not distribute any securities under its non-offering prospectus. Accordingly, the Bottom Fund will be a mutual fund to which NI 81-106 applies, but will not be subject to the requirements of either NI 81-102 or NI 81-104.

18. Though not subject to NI 81-104, the Bottom Fund will be a commodity pool as such term is defined in NI 81-104 in that the Bottom Fund has adopted fundamental investment objectives that permit it to use specified derivatives in a manner that is not permitted under NI 81-102.

19. The Bottom Fund has adopted the investment restrictions contained in NI 81-102 and the Underlying Assets are managed in accordance with these restrictions, except as otherwise permitted by NI 81-104, and in accordance with any exemptions therefrom obtained by the Top Fund including that the Bottom Fund may engage in short selling as more fully described below.

20. The GLG Investment Manager will monitor the Bottom Fund's compliance with its investment restrictions for the Underlying Assets.

21. The direct and indirect investment by the Top Fund in securities of the Bottom Fund will constitute more than 10% of the NAV of the Top Fund.

22. The Top Fund complies, and will comply, with the requirements under NI 81-106 relating to the top 25 positions portfolio holdings disclosure in its management reports of fund performance as if the Top Fund were investing directly in the Underlying Assets.

23. The prospectus of the Top Fund discloses that fees and expenses payable by the Top Fund or holders of Units in respect for the same service will not be duplicated as a result of the direct or indirect investment by the Top Fund in securities of the Bottom Fund.

24. The direct and indirect investment by the Top Fund in securities of the Bottom Fund will comply with the requirements of section 2.5 of NI 81-102, except that, contrary to subsections 2.5(a) and (c) of NI 81-102, the Bottom Fund is a mutual fund that:

(a) is not subject to NI 81-102 and will never have offered securities under a simplified prospectus in accordance with National Instrument 81-101 Mutual Fund Distributions; and

(b) will not be a reporting issuer in any jurisdiction that the Top Fund is a reporting issuer in except Ontario and Quebec.

25. The direct and indirect investment by the Top Fund in securities of the Bottom Fund represents the business judgement of responsible persons uninfluenced by considerations other than the best interest of the Top Fund and the holders of Units, respectively.

Short Selling

26. The Bottom Fund wishes to be able to engage in a limited, prudent and disciplined amount of short selling. Each short sale made by the Bottom Fund will comply with its investment objectives. In order to effect short sales of securities, the Bottom Fund will borrow securities from either its custodian or a dealer (in either case, a Borrowing Agent), which Borrowing Agent may be acting either as principal for its own account or as agent for other lenders of securities.

27. The GLG Investment Manager will monitor the short positions of the Bottom Fund at least as frequently as daily.

Purchase Price

28. Units of the Top Fund may be purchased or redeemed on a weekly basis on each Monday, or if Monday is not a business day, the following business day (the Weekly Valuation Date) at a price equal to the NAV per Unit. Purchase and redemption orders must be received before 4:00 p.m. (Toronto time) on the second business day immediately preceding a Weekly Valuation Date to be processed at the Unit price calculated as at the next Weekly Valuation Date.

29. Subsection 14.2(3) of NI 81-106 requires that the NAV of an investment fund be calculated at least once every business day if the fund will use specified derivatives. Since the Top Fund will use Forward Agreements, it will calculate NAV once every business day.

30. Sections 9.3 and 10.3 of NI 81-102 require that the purchase or redemption price of units of a mutual fund be the NAV per unit next determined after receipt, by the mutual fund, of the purchase or redemption order.

31. Notwithstanding section 10.3 of NI 81-102, section 6.2 of NI 81-104 permits the redemption price of units of a commodity pool to be the NAV per unit determined on the first or second business day after the date of receipt by the commodity pool of the redemption order. However, there is no similar exception with respect to the purchase price of units of a commodity pool.

32. The Filer has structured the Top Fund's operations so that it can consolidate all purchase and redemption orders into one efficient weekly transaction. It has determined that effecting such purchases and redemptions on a weekly basis strikes the best balance between the needs of purchasers to invest or access their assets in a timely manner and the need to provide timely exposure to the Underlying Assets held by the Bottom Fund.

33. The Filer has determined that it would be in the best interests of the Top Fund and the holders of Units to receive the Requested Relief and replace the Previous Decision with this decision.

34. As of the date of this decision, the Filer will no longer rely on the Previous Decision.

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 Relief is granted, provided that:

(a) the Top Fund is a commodity pool subject to NI 81-102 and NI 81-104;

(b) the Bottom Fund is an investment fund that complies with the investment restrictions contained in NI 81-102 and the Underlying Assets are managed in accordance with these restrictions, except as otherwise permitted by NI 81-104 and in accordance with any exemptions therefrom obtained by the Top Fund including that the Bottom Fund may engage in short selling in accordance with the terms of this decision;

(c) the direct and indirect investment by the Top Fund in securities of the Bottom Fund is in accordance with the fundamental investment objectives of the Top Fund;

(d) the prospectus of the Top Fund discloses, and any annual information form filed will disclose, that the Top Fund will directly and indirectly invest in securities of the Bottom Fund and the risks associated with such an investment;

(e) no securities of the Bottom Fund are distributed in Canada other than to the Top Fund or the Counterparty under the Forward Agreement or otherwise to a counterparty under a forward agreement;

(f) each short sale made by the Bottom Fund will comply with its investment objectives;

(g) the Top Fund disclosed in its prospectus and the Bottom Fund disclosed in its prospectus the following information:

1. a description of short selling, how the Bottom Fund engages in short selling, the risks associated with short selling and, in the investment strategies section, the Bottom Fund's strategy with respect to short selling;

2. that there are written policies and procedures in place that set out the objectives and goals for short selling and the risk management procedures applicable to short selling;

3. who is responsible for setting and reviewing the policies and procedures referred to in the preceding paragraph, how often the policies and procedures are reviewed, and the extent and nature of the involvement of the GLG Investment Manager or other applicable parties in the risk management process;

4. the trading limits and other controls on short selling and who is responsible for authorizing the trading and for placing limits or other controls on the trading;

5. whether there are individuals or groups that monitor the risks independent of those who trade; and

6. whether risk measurement procedures or simulations are used to test the Underlying Assets under stress conditions;

(h) the Bottom Fund and the GLG Manager will implement the following controls when conducting short sales of securities:

1. securities will be sold short for cash, with the Bottom Fund assuming the obligation to return to the Borrowing Agent the securities borrowed to effect the short sale;

2. the short sales will be effected through market facilities through which the securities sold short would normally be bought and sold;

3. the Bottom Fund will receive cash for securities sold short within normal trading settlement periods for the market in which the short sale is effected;

4. the securities sold short will be liquid securities that satisfy either (i) or (ii) below:

(i) the securities are listed and posted for trading on a stock exchange; and

(A) the issuer of the security has a market capitalization of not less than CDN$300 million, or the equivalent thereof, at the time the short sale is effected; or

(B) the Bottom Fund's portfolio advisor has pre-arranged to borrow the securities for the purpose of such sale; or

(ii) the securities are fixed-income securities, bonds, debentures or other evidences of indebtedness of, or guaranteed by, any issuer;

(i) the securities sold short will not include any of the following:

(i) a security that a mutual fund subject to NI 81-102 is otherwise not permitted by securities legislation to purchase at the time of the short sale transaction;

(ii) an illiquid asset;

(iii) a security of an investment fund other than an index participation unit.

(j) the aggregate market value of all securities sold short by the Bottom Fund does not exceed 40% of the NAV of the Bottom Fund on a daily marked-to-market basis;

(k) the aggregate market value of all securities of a particular issuer sold short by the Bottom Fund, whether direct short positions or indirect short positions through specified derivatives, does not exceed 10% of the NAV of the Bottom Fund on a daily marked-to-market basis;

(l) the Bottom Fund will deposit its assets with the Borrowing Agent as security in connection with the short sale transaction;

(m) except where the Borrowing Agent is the Bottom Fund's custodian or sub-custodian, when the Bottom Fund deposits portfolio assets with a Borrowing Agent as security in connection with a short sale of securities, the market value of portfolio assets deposited with the Borrowing Agent does not, when aggregated with the market value of portfolio assets already held by the Borrowing Agent as security for outstanding short sales of securities by the Bottom Fund, exceed 10% of the NAV of the Bottom Fund at the time of deposit;

(n) the Bottom Fund holds "cash cover" (as defined in NI 81-102) in an amount, including the Bottom Fund's assets deposited with Borrowing Agents as security in connection with short sale transactions, that is at least 150% of the aggregate market value of all securities sold short by the Bottom Fund on a daily marked-to-market basis;

(o) the Bottom Fund will not use the cash from a short sale to enter into a long position in a security, other than a security that qualifies as cash cover;

(p) the Bottom Fund will not deposit portfolio assets as security in connection with a short sale of securities with a dealer in Canada unless the dealer is a registered dealer in Canada and is a member of Investment Industry Regulatory Organization of Canada (or IIROC);

(q) the Bottom Fund will not deposit portfolio assets as security in connection with a short sale of securities with a dealer outside of Canada unless that dealer:

(i) is a member of a stock exchange and is subject to a regulatory audit; and

(ii) has a net worth, determined from its most recent audited financial statements that have been made public, in excess of the equivalent of $50 million;

(r) the security interest provided by the Bottom Fund over any of its assets that is required to enable the Bottom Fund to effect short sale transactions will be made in accordance with industry practice for that type of transaction and relate only to obligations arising under such short sale transactions;

(s) the Bottom Fund and the GLG Manager will maintain appropriate internal controls regarding its short sales prior to conducting any short sales, including written policies and procedures, risk management controls and proper books and records;

(t) the Bottom Fund and the GLG Manager will keep proper books and records of all short sales and all of its assets deposited with Borrowing Agents as security; and

(u) the Top Fund uses the NAV per Unit determined on the next Weekly Valuation Date after receipt by the Top Fund of a purchase order two business days before to calculate the issue and redemption price of Units.

"Vera Nunes"

Manager, Investment Funds Branch

Ontario Securities Commission