CI Investments Inc. (Re), 2016 CanLII 42071

July 7, 2016

IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction)

AND

(the Filer)

AND

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption, pursuant to Section 19.1 of National Instrument 81-102 Investment Funds (NI 81-102), from:

(a) the prohibition contained in paragraph 2.5(2)(a) against a mutual fund investing in another mutual fund that is not subject to NI 81-102 and National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101); and

(b) the prohibition contained in 2.5(2)(c) against a mutual fund investing in another mutual fund’s securities where those securities are not qualified for distribution in the local jurisdiction (together with paragraph (a) above, the (Requested Relief))

to permit:

(a) each of the Portfolio Series Funds (the Existing Portfolio Series Top Funds) and any future top funds managed by the Filer (or an affiliate of the Filer) with similar investment objectives to the Existing Portfolio Series Top Funds (the Future Portfolio Series Top Funds) to invest up to 10% of its net assets, taken at market value at the time of the investment, in aggregate, in CI Cambridge All Canadian Equity Fund (Canadian Equity Pool) and CI Cambridge International Equity (International Equity Pool); and

(b) CI Global Managers Corporate Class and any future top funds managed by the Filer (or an affiliate of the Filer) with similar objectives to the CI Global Managers Corporate Class (the Future Global Managers Top Funds) to invest up to 10% of its net assets, taken at market value at the time of the investment, in aggregate, in CI Cambridge Global Equity (Global Equity Pool).

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

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

(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 in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Yukon and Nunavut (together with Ontario, the Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined. The following additional terms shall have the following meanings:

Top Funds means the Existing Portfolio Series Top Funds, the Future Portfolio Series Top Funds, CI Global Managers Corporate Class and Future Global Managers Top Funds. They are referred to collectively as the Top Funds and, individually, as a Top Fund.

Underlying Pools means the Canadian Equity Pool, the International Equity Pool and the Global Equity Pool.

The Existing Top Funds means the Existing Portfolio Series Top Funds and CI Global Managers Corporate Class.

Representations

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

The Filer

The Filer is a corporation subsisting under the laws of the Province of Ontario with its head office located in Toronto, Ontario. The Filer is registered as follows:

(a) under the securities legislation of all provinces as a portfolio manager;

(b) under the securities legislation of Ontario, Québec, and Newfoundland and Labrador as an investment fund manager;

(d) under the Commodity Futures Act (Ontario) as a commodity trading counsel and a commodity trading manager.

The Filer is not in default of securities legislation in any Jurisdiction.
The Filer is, or will be, the manager of each Top Fund and Underlying Pool.

The Top Funds

Each Top Fund is, or will be, a “mutual fund”, as such term is defined under the Securities Act (Ontario) (the Act), and to which NI 81-102 applies.
Each Top Fund has, or will have, a simplified prospectus and annual information form prepared in accordance with NI 81-101, is, or will be, qualified for distribution in the Jurisdictions and is, or will be, a reporting issuer under the securities legislation of each Jurisdiction.
None of the Existing Top Funds are in default of securities legislation in any Jurisdiction.
The Portfolio Series Funds are fund-of-funds whose investment objectives limit them to investing in securities of other mutual funds. They invest mainly in securities of other mutual funds managed by the Filer.
The investment objective of CI Global Managers Corporate Class is to obtain maximum long-term capital growth. It invests primarily in equity and equity-related securities of companies around the world. Its investment strategy allows it to obtain exposure, on some or all of its assets, to securities of other mutual funds.
Subject to compliance with NI 81-102, the investment objectives and strategies of each Top Fund would permit the Top Fund to invest in the Underlying Pools.

The Underlying Pools

Each Underlying Pool is an open-ended pooled fund, governed under the laws of Ontario and under a Second Amended and Restated Declaration of Trust, dated June 26, 2014, as amended from time-to-time.
Each Underlying Pool is available for purchase only by institutional investors who meet the definition of an “accredited investor” as set forth in National Instrument 45-106 Prospectus Exemptions and/or the Act, including other mutual funds managed by the Filer.
None of the Underlying Pools have issued a simplified prospectus or annual information form prepared in accordance with NI 81-101.
None of the Underlying Pools are subject to NI 81-102.
None of the Underlying Pools are reporting issuers in any of the Jurisdictions.
While not subject to NI 81-102, the investment strategies and restrictions of each Underlying Pool are consistent with NI 81-102, and the Filer has managed each Underlying Pool in accordance with NI 81-102, as if it were applicable.

Existing Portfolio Series Top Funds’ investments in the Canadian Equity Pool

The Filer believes that the ability for the Existing Portfolio Series Top Funds to invest in the Canadian Equity Pool is consistent with the Existing Portfolio Series Top Funds’ investment objectives and strategies. While it may be possible for the Existing Portfolio Series Top Funds to gain exposure to Canadian equities by investing in other mandates, it is in the funds’ best interests to have the ability to invest in units of the Canadian Equity Pool. This is because the alternatives available to the Filer are not optimal relative to investing in the Canadian Equity Pool.
The Existing Portfolio Series Top Funds have a Canadian equity component as part of their optimal asset mix. The Filer believes that the most economically-efficient and strategic way to obtain the desired exposure to a Canadian equity mandate is to invest in a fund that is focused exclusively on Canadian equities. Currently, Canadian equity prospectus-qualified mutual funds managed by the Filer have approximately between 25-45% foreign content which, although permitted by its investment objectives, makes it difficult for the Existing Portfolio Series Top Funds to gain the necessary Canadian equity exposure in order to achieve the optimal asset mix. The Canadian Equity Pool has a pure Canadian equity mandate, an investment in which would permit the Existing Portfolio Series Top Funds to more easily manage their Canadian equity exposure to achieve optimal asset mix and their investment objectives.
The Filer has determined that passive exchange-traded funds (ETFs) generally have greater exposure to the financial and resource sectors than the Filer considers being in the best interests of the Existing Portfolio Series Top Funds. Moreover, actively-managed ETFs are too costly of an option for such funds and the Filer would need to dedicate additional resources to select from many different ETFs in order to ensure that the Canadian equity component of the funds is invested on a diversified basis with broad exposure in the Canadian market.

Existing Portfolio Series Top Funds’ investments in the International Equity Pool

The Filer believes that the ability for the Existing Portfolio Series Top Funds to invest in the International Equity Pool is consistent with the Existing Portfolio Series Top Funds’ investment objectives and strategies and in the best interests of the Existing Portfolio Series Top Funds’ unitholders. The Existing Portfolio Series Top Funds have an international equity component as part of their optimal asset mix and the Filer believes that an investment in the International Equity Pool will allow the Existing Portfolio Series Top Funds to gain exposure to a growth manager on a cost-effective basis.
The Filer’s view is that passive International ETFs generally have greater exposure to the financial sector than the Filer considers being in the best interests of the Existing Portfolio Series Top Funds for the same reasons as set out in Paragraph 18.
The Filer believes that the most economically-efficient and strategic way to obtain the desired exposure to an international equity mandate managed by a growth manager is to invest in a fund that is already diversified and focused on stock selection. The ability to invest the Existing Portfolio Series Top Funds in the International Equity Pool would provide the Filer with such diversity and stock selection benefits and will also allow them to leverage the expertise, research and investment style of the portfolio manager of the International Equity Pool.

CI Global Managers Corporate Class’s investment in the Global Equity Pool

The Filer believes that the ability for CI Global Managers Corporate Class to invest in the Global Equity Pool is consistent with CI Global Managers Corporate Class’s investment objectives and strategies and in the best interests of the CI Global Managers Corporate Class securityholders. The Filer believes that the most economically-efficient and strategic way to obtain the desired exposure to a global equity mandate managed by a growth manager is to invest in a fund that is already diversified and focused on stock selection. The ability to invest CI Global Managers Corporate Class in the Global Equity Pool would provide the Filer with such diversity and stock selection benefits and will also allow it to leverage the expertise, research and investment style of the portfolio manager of the Global Equity Pool.
The Underlying Pools are managed by in-house portfolio managers of the Filer, and accordingly, the Filer will benefit from understanding the investment style and approach of its portfolio managers, thereby benefiting the Top Funds.
The Underlying Pools are managed in compliance with NI 81-102, and an investment in the Underlying Pools by the Top Funds will not expose the investors of the Top Funds to any investment strategies or risks that they are not currently exposed to by virtue of holding the Top Funds.
The Underlying Pools do not utilize leverage, do not short sell and comply generally with the investment and derivative requirements set out in NI 81-102. The Underlying Pools will also comply with the restrictions relating to illiquid securities (section 2.4 of NI 81-102) and investments in other investment funds (section 2.5 of NI 81-102) for so long as they are held by one of the Top Funds.
Securities of the Underlying Pools are valued and redeemable on the same dates as securities of the Top Funds. The portfolio of each Underlying Pool will consist primarily of publicly traded securities. Each Underlying Pool will not hold more than 10% of its net asset value in illiquid assets (as defined in NI 81-102). An investment by a Top Fund in an Underlying Pool will be effected based on an objective NAV, which is calculated in accordance with Part 14 of NI 81-106, of the Underlying Fund.
Each Top Fund will invest no more than 10% of its net assets in the Underlying Pools.
The Independent Review Committee of the Top Funds will oversee the purchase of the Underlying Pools pursuant to National Instrument 81-107 – Independent Review Committee for Investment Funds.
The Top Funds will otherwise comply fully with section 2.5 of NI 81-102 in its investments in the Underlying Pools and will provide all applicable disclosure mandated for mutual funds investing in other mutual funds.
Where applicable, a Top Fund’s investment in an Underlying Pool will be disclosed to investors in that Top Fund’s quarterly portfolio holding reports, financial statements and/or fund facts document.

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 Request Relief is granted provided that:

(a) The Underlying Pools each comply with Parts 2, 4 and 6 of NI 81-102 and Part 14 of NI 81-106 for so long as it is held by one of the Top Funds;

(b) The prospectus of the Top Funds will disclose that they may invest in each respective Underlying Pool, which is a pooled fund managed by the Filer; and

(c) A Top Fund will not invest in an Underlying Pool if, immediately after the investment, more than 10% of its net assets, in aggregate, taken at market value at the time of the investment, would consist of investments in the Underlying Pools.

" Vera Nunes "

Vera Nunes – Manager

Investment Funds and Structured Products

Ontario Securities Commission