Man Investments Canada Corp. (Re), 2013 CanLII 77558

November 22, 2013

(the Jurisdiction)

AND

IN THE MATTER OF Man INVESTMENTS CANADA CORP. (the Filer)

and MAN CANADA AHL DP INVESTMENT Fund (the Top Fund)

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 subsections 2.1(1), 2.2(1) and 2.5(2)(a) and (c) of NI 81-102 to permit the Top Fund to purchase and hold securities of Man AHL DP Limited (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,

(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

The Filer is a corporation incorporated under the Canada Business Corporations Act and is the trustee and manager of the Top Fund.
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.
The Filer’s head office is located in Toronto, Ontario.
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

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.
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 November 9, 2012 (the Current Prospectus).
The Top Fund’s investment objectives are: (i) to provide holders of Units (the Unitholders) with the opportunity to realize capital appreciation through investment returns that have a low correlation to traditional forms of stock and bond securities; and (ii) to pay to holders of Class O Units, Class P Units, Class Q Units, Class R Units, Class S Units, Class T Units and Class U Units (not offered under the Preliminary Prospectus) quarterly cash distributions in a calendar year equal to 6% of the net asset value (NAV) of such Units calculated as at the last valuation date of the preceding year. The Top Fund is intended to provide added diversification and enhance the risk/reward profile of conventional investment portfolios.
The Top Fund has been created to obtain exposure to the returns of a diversified portfolio of financial instruments across a range of global markets including, without limitation, stocks, bonds, currencies, short-term interest rates, energy, metals and agricultural commodities (the Underlying Assets) managed by AHL Partners LLP (the Investment Manager) using a predominantly trend-following trading program (the AHL Diversified Programme). The AHL Diversified Programme is implemented and managed by AHL, a division of the Investment Manager.
The Bottom Fund will acquire and maintain 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.
The Top Fund does not intend to list the Units on any stock exchange.
The Filer obtained a previous decision dated November 9, 2009 (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 Class D Man AHL Diversified 2 CAD Notes (AHL SPC - Class D) through one or more specified derivatives.
The Previous Decision provided that the Top Fund will obtain exposure to the economic returns of the AHL SPC - Class D through one or more forward sale agreements (each, a Forward Agreement) entered into with one or more Canadian chartered banks and/or their affiliates (the Counterparty). The character conversion measure announced in the 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.
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. The Top Fund will purchase and hold securities of the Bottom Fund and will not obtain exposure to the securities of the Bottom Fund or the AHL SPC – Class D through a Forward Agreement or other specified derivative.

The Bottom Fund and the Underlying Assets

The Bottom Fund is an exempted company with limited liability incorporated in the Cayman Islands on September 5, 2013 that will acquire and maintain the Underlying Assets.
Man Fund Management (Guernsey) Limited (the AHL DP Manager) is the manager and services manager of the Bottom Fund. The Underlying Assets will be actively managed by the Investment Manager. The Investment Manager is authorized and regulated in the United Kingdom by the Financial Conduct Authority and is a member of Man Group plc (Man Group).
In managing the Underlying Assets, the Investment Manager will employ the AHL Diversified Programme. The Bottom Fund has adopted and is subject to the investment restrictions contained in NI 81-102. The Underlying Assets are managed in accordance with these restrictions, except as otherwise permitted by NI 81-104 and subject to receipt of any exemptions therefrom obtained by the Bottom Fund or the Top Fund.
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.
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.
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.
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.
The Investment Manager will monitor the Bottom Fund’s compliance with its investment restrictions for the Underlying Assets.
The investment by the Top Fund in securities of the Bottom Fund will constitute more than 10% of the NAV of the Top Fund.
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.
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 investment by the Top Fund in securities of the Bottom Fund.
The 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(2)(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.

The 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 Unitholders, respectively.
As of the date that the Requested Relief is granted, 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;

(c) the 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 invest in securities of the Bottom Fund and the risks associated with such an investment;

(e) the Bottom Fund is a reporting issuer subject to National Instrument 81-106 - Investment Fund Continuous Disclosure;

(f) no securities of the Bottom Fund are distributed in Canada other than to the Top Fund; and

(g) the investment by the Top Fund in securities of the Bottom Fund is made in compliance with each provision of paragraph 2.5 of NI 81-102, except paragraph 2.5(a) and (c) of NI 81-102.

“Vera Nunes”

______________________________ Vera Nunes

Manager, Investment Funds Branch

Ontario Securities Commission

SEDAR Project # 2114249

Headnote

NP 11-203 – Process for Exemptive Relief Application in Multiple Jurisdictions – Relief granted to a commodity pool from subsections 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 comply with NI 81-102, except as permitted by NI 81-104 and in accordance with exemptive relief obtained by the top fund.

Applicable Legislative Provisions

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