Securities Law & Instruments



National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – exemption from issuer concentration restrictions in subsection 2.1(1.1) of National Instrument 81-102 Investment Funds to permit a global fixed income fund that is an alternative mutual fund to invest more than 20% of its net asset in securities issued or guaranteed by a foreign government of supranational agency – relief subject the usual conditions


Applicable Legislative Provisions


National Instrument 81-102 Investment Funds, ss. 2.1(1.1), 19.1.


January 8, 2019





(the Jurisdiction)












(the Filer)






(the Fund)






The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Fund for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation), for an exemp-tion pursuant to section 19.1 of National Instrument 81-102 Investment Funds (NI 81-102), from section 2.1 of NI 81-102 (the Concentration Restriction), to permit the Fund to invest up to 35% of its net assets, taken at market value at the time of purchase, in evidences of indebtedness of any one issuer (such evidences of indebtedness are collectively referred to as Foreign Government Securities) if those evidences of indebtedness are issued, or guaranteed fully as to principal and interest, by supranational agencies or governments other than the government of Canada, or the government of a jurisdiction in Canada and are rated “AAA” by Standard & Poor’s or its DRO affiliate, or have an equivalent rating by one or more other designated rating organizations or their DRO affiliates (the Requested Relief).


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


(i)            the Ontario Securities Commission is the principal regulator for this application; and


(ii)           the Filer has provided notice that sub-section 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.




Terms defined in NI 81-102, National Instrument 14-101 Definitions, and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.




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


Background Facts


1.             The Filer is a corporation amalgamated under the laws of Ontario with its head office on Toronto, Ontario.


2.             The Filer is registered as an investment fund manager, portfolio manager, exempt market dealer and commodity trading manager in Ontario. The Filer is also registered as a portfolio manager and exempt market dealer in all other Canadian provinces and territories and as an investment fund manager in Newfoundland and Labrador and Québec.


3.             The Filer is the manager, trustee and portfolio manager of the Fund.


4.             The Fund will be an open-ended mutual fund trust established under the laws of Ontario. The Fund will be an alternative mutual fund under NI 81-102.


5.             Securities of the Fund will be offered by simplified prospectus (a Simplified Prospectus) filed in all the provinces and territories in Canada and, accordingly the Fund will be a reporting issuer in each province and territory of Canada. A preliminary Simplified Prospectus was filed for the Fund via SEDAR in all the provinces and territories on November 30, 2018.


6.             The Filer is not in default of securities legislation in any jurisdiction of Canada.


7.             The Fund’s investment objective will be to seek to provide a positive total return over a market cycle, regardless of market conditions or general direction. The Fund will seek to add value through investments across multiple geographic sectors, and parts of the corporate capital structure.


8.             To achieve the investment objective of the Fund, it is expected that the investment team will employ a variety of fundamentally-driven and systematically-driven investment strategies. The Fund will invest in long and short positions in corporate and government fixed-income securities and instru-ments of issuers anywhere in the world.


9.             Although the Fund aims to invest primarily in a diversified portfolio of fixed-income securities, the Fund’s portfolio managers seek the discretion to gain exposure to any one issuer of Foreign Government Securities more than the Con-centration Restriction.


10.          The portfolio managers of the Fund will employ fundamental credit analysis in selecting fund’s holdings with the flexibility to take advantage of relative value opportunities that exist in the global fixed income space. This flexibility extends across structures, sectors, currencies and countries. In following this style, in conjunction with fundamental investment analysis, there may be periods where the portfolio managers believe that Foreign Government Securities are better suited to the Fund’s investment objectives.


11.          Allowing the Fund to hold highly rated fixed-income securities issued by governments will enable the Fund to preserve capital in foreign markets during adverse market conditions, to have access to assets with minimal credit risk and will enable the portfolio manager to assess its views on interest rates and duration.


12.          The increased flexibility to hold Foreign Government Securities may also yield higher returns than Canadian shorter-term government fixed-income alternatives.


13.          Subsection 2.1(1.1) of NI 81-102 prohibits the Fund from purchasing a security of an issuer, other than a “government security” as defined in NI 81-102, if immediately after the purchase more than 20% of the net asset value of the fund, taken at market value at the time of the purchase, would be invested in securities of the issuer.


14.          The Foreign Government Securities are not “government securities” as such term is defined in NI 81-102.


15.          The Filer believes that the ability to purchase Foreign Government Securities more than the limit in subsection 2.1(1.1) of NI 81-102 will better enable the Fund to achieve its fundamental investment objectives, thereby benefitting the Fund’s investors.


16.          The Fund will only purchase Foreign Government Securities if the purchase is consistent with the Fund’s fundamental investment objectives.


17.          The Simplified Prospectus for the Fund will disclose the risks associated with concentration of net assets of the Fund in securities of a limited number of issuers.


18.          The Fund seeks the Requested Relief to enhance its ability to pursue and achieve its investment objectives.




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:


1.             any security that may be purchased under the Requested Relief is traded on a mature and liquid market;


2.             the acquisition of the securities purchased pursuant to this decision is consistent with the fundamental investment objectives of the Fund;


3.             the Simplified Prospectus of the Fund discloses the additional risk associated with the concen-tration of the net asset value of the Fund in securities of fewer issuers, such as the potential additional exposure to the risk of default of the issuer in which the Fund has so invested and the risks, including foreign exchange risks, of investing in the country in which the issuer is located; and


4.             the Simplified Prospectus of the Fund discloses, in the investment strategies section, a summary of the nature and terms of the Requested Relief, along with the conditions imposed and the type of securities covered by this decision.


“Darren McKall”


Investment Funds and Structured Products Branch

Ontario Securities Commission