Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions –Pooled mutual funds managed by fund managers owned by CI Financial Corp. prohibited from making and holding investments in listed securities of CI Financial Corp. – Relief granted from mutual fund conflict of interest investment restrictions in the Act to permit pooled mutual funds managed by the fund managers to make and hold investments in securities of related issuers, subject to IRC approval
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., sections 111(2)(a), 111(2)(c)(ii), 111(3), 113, 118(2)(a) and 121(2)(a)(ii).
September 10, 2009
In the Matter of the Securities Legislation of Ontario and Newfoundland and Labrador (the Jurisdictions)
and
In the Matter of the Process for Exemptive Relief Applications in Multiple Jurisdictions
and
In the Matter of CI Investments Inc. (the Filer)
Decision
Background
The securities regulatory authority or regulator in Ontario (the Passport Review Decision Maker) and in each of Ontario and Newfoundland and Labrador (together, the Coordinated Review Decision Makers) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) exempting each Pooled Fund (as defined below) from:
the investment restrictions in the Legislation which prohibit a mutual fund from knowingly making an investment in any person or company who is a substantial security holder of the mutual fund, its management company, manager or distribution company;
the investment restrictions in the Legislation which prohibit a mutual fund from knowingly making an investment in an issuer in which any person or company who is a substantial security holder of the mutual fund, its management company, manager or distribution company, has a significant interest;
the investment restriction in the Legislation which prohibits a mutual fund from knowingly holding an investment described in paragraph 1 or 2 above; and
the provisions of the Legislation which prohibit a portfolio manager from knowingly causing any investment portfolio managed by it to invest in any issuer in which a responsible person or an associate of a responsible person is an officer or director unless the specific fact is disclosed to the client and the written consent of the client to the investment is obtained before the purchase,
(together, the Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:
(a) the Ontario Securities Commission is the principal regulator for this application;
(b) the Filer has provided notice that section 4.7 (1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon by each Pooled Fund in British Columbia, Alberta, Saskatchewan, Québec, New Brunswick and Nova Scotia in respect of the Relief;
(c) this decision is the decision of the principal regulator; and
(d) this decision evidences the decision of each of the Coordinated Review Decision Makers.
Interpretation
Defined terms in MI 11-102, National Instrument 81-102 Mutual Funds, and National Instrument 14-101 Definitions have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
Facts
The head office of the Filer and each Pooled Fund (defined below) is located in Ontario. Neither the Filer nor any Pooled Fund is in default of the securities legislation of any jurisdiction of Canada.
The Filer and affiliates of the Filer (together, the Managers) are managers of one or more mutual funds and may, in the future, become managers of additional mutual funds (all such present and future mutual funds being hereinafter referred to as the Funds). Some Funds are or will be reporting issuers under the securities legislation of some or all of the jurisdictions of Canada (the Public Funds) while other Funds do not or will not have such status (the Pooled Funds).
Each Manager is directly or indirectly controlled by CI Financial Corp. (CI Financial). CI Financial is an independent, Canadian-owned wealth management company, the common shares of which are listed and posted for trading on the Toronto Stock Exchange (the TSX).
As a result of its holdings, CI Financial currently owns, directly or indirectly, more than 20% of the outstanding voting securities of each Manager and therefore is a “substantial security holder” of each Manager.
As a result of its holdings, The Bank of Nova Scotia currently owns (a) indirectly more than 20% of the outstanding voting securities of each Manager and (b) directly or indirectly more than 10% of the outstanding shares of CI Financial, and therefore is a “substantial security holder” of each Manager and has a “significant interest” in CI Financial.
Each Pooled Fund is prohibited by the Legislation from making and holding an investment in securities of CI Financial.
Each Manager is prohibited by the Legislation from causing a Pooled Fund to invest in securities of CI Financial.
The Pooled Funds are unable to rely on the related issuer investment exemption codified in section 6.2(2) of National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107) to invest in listed securities of CI Financial (CI Listed Securities) since NI 81-107 does not apply to the Pooled Funds.
Each Pooled Fund has established an independent review committee (an IRC) that is composed in accordance with the requirements of section 3.7 of NI 81-107. The IRC of each Pooled Fund complies with the standard of care set out in section 3.9 of NI 81-107 as if each Pooled Fund were subject to that rule. The only conflict of interest matter that will be referred by each Pooled Fund to its IRC will be investments made by the Pooled Fund in CI Listed Securities and matters required by other discretionary relief granted to the Pooled Funds.
The Filer considers that the Pooled Funds should be permitted to invest in CI Listed Securities because they provide the Pooled Funds with opportunities to broaden their diversification within the financial services sector.
Decision
Each of the Passport Review Decision Maker and the Coordinated Review Decision Makers is satisfied that the decision meets the test set out in the Legislation for the relevant regulator or securities regulatory authority to make the decision.
The decision of the Passport Review Decision Maker and the Coordinated Review Decision Makers under the Legislation is that the Relief is granted provided that:
each purchase and holding by a Pooled Fund of CI Listed Securities is consistent with, or is necessary to meet, the investment objective of the Pooled Fund;
the purchase is made on an exchange on which the CI Listed Securities are listed and traded;
each Pooled Fund maintains an IRC that is composed in accordance with the requirements of section 3.7 of NI 81-107 and that complies with the standard of care set out in section 3.9 of NI 81-107;
the IRC of the Pooled Fund has approved the transaction in the manner contemplated by section 5.2(2) of NI 81-107;
the Manager of the Pooled Fund complies with section 5.1 of NI 81-107 and the Manager and the IRC of the Pooled Fund comply with section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with the transactions;
no later than the time the Pooled Fund files its annual financial statements, the Pooled Fund files with the securities regulatory authorities or regulator the particulars of any such investments; and
the reporting obligation in section 4.5 of NI 81-107 applies to the Relief granted in this decision and the IRC of the Pooled Funds relying on the Relief complies with section 4.5 of NI 81-107 as if the Pooled Funds were subject to that rule, in connection with any instance that it becomes aware that the Pooled Funds did not comply with any of the conditions of this decision.
“Kevin J. Kelly”
“Mary J. Condon”
(Name)
Commissioner
Commissioner
(Title)
Ontario Securities Commission
Ontario Securities Commission
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions –Pooled mutual funds managed by fund managers owned by CI Financial Corp. prohibited from making and holding investments in listed securities of CI Financial Corp. – Relief granted from mutual fund conflict of interest investment restrictions in the Act to permit pooled mutual funds managed by the fund managers to make and hold investments in securities of related issuers, subject to IRC approval
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., sections 111(2)(a), 111(2)(c)(ii), 111(3), 113, 118(2)(a) and 121(2)(a)(ii).