July 9, 2019
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
MACKENZIE FINANCIAL CORPORATION
(the Filer)
AND
IN THE MATTER OF
MACKENZIE ANTI-BENCHMARK GLOBAL INVESTMENT GRADE FUND
(the Fund)
DECISION
Background
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 exemption (the Exemption Sought) pursuant to section 19.1 of National Instrument 81-102 Investment Funds (NI 81-102), from subsection 2.1(1) of NI 81-102 (the Concentration Restriction) to permit the Fund to invest up to:
(a) 20% of its net asset value immediately after the transaction in evidences of indebtedness of any one issuer 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, the government of a jurisdiction in Canada or the government of the United States of America, and are rated “AA” by S&P Global Ratings Canada (S&P) or its DRO affiliate (as defined in NI 81-102), or have an equivalent rating by one or more other designated rating organizations or their DRO affiliates; and
(b) 35% of its net asset value immediately after the transaction in evidences of indebtedness of any one issuer 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, the government of a jurisdiction in Canada or the government of the United States of America, and are rated “AAA” by S&P or its DRO affiliate, or have an equivalent rating by one or more other designated rating organizations or their DRO affiliates
(such evidences of indebtedness are collectively referred to as Foreign Government Securities).
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 (the Other Jurisdictions).
Interpretation
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.
Representations
This decision is based on the following facts represented by the Filer:
The Filer is a corporation amalgamated under the laws of Ontario. The head office of the Filer is in Toronto, Ontario.
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.
The Filer is the manager, trustee and portfolio manager of the Fund.
The Fund will be an open-ended mutual fund trust established under the laws of Ontario.
Securities of the Fund will be offered pursuant to a simplified prospectus filed in all the provinces and territories of Canada and, accordingly the Fund will be a reporting issuer in one or more provinces and territories of Canada. A preliminary simplified prospectus was filed for the Fund via SEDAR in all the provinces and territories on June 7, 2019 (the Simplified Prospectus).
The Filer is not in default of securities legislation in any jurisdiction of Canada.
The investment objectives of the Fund are expected to be substantially similar to the following: “The Fund seeks long-term capital growth by investing primarily in a diversified portfolio of investment-grade fixed-income securities issued by companies or governments of any size, anywhere in the world.”
To achieve the investment objective of the Fund, the investment team will follow the Anti-Benchmark® Global Investment Grade strategy. The Fund will use a long-only portfolio that is generally fully invested, well-diversified and composed of securities that are attractive from a fundamental and technical standpoint.
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 in excess of the Concentration Restriction.
The portfolio managers of the Fund will allocate assets across credit quality, duration, structures, sectors, currencies and countries in a risk-efficient manner. 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.
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, have access to assets with minimal credit risk and enable the portfolio manager to assess its views on interest rates and duration.
The increased flexibility to hold Foreign Government Securities may also yield higher returns than Canadian or United States of America shorter-term government fixed-income alternatives.
Subsection 2.1(1) of NI 81-102 prohibits the Fund from purchasing a security of an issuer if, immediately after the transaction, more than 10% of the net asset value of the Fund, taken at market value at the time of the transaction, would be invested in securities of that issuer. Subsection 2.1(2) of NI 81-102 sets out certain exceptions, including in respect of a “government security”, as defined in NI 81-102.
The Filer believes that the ability to purchase Foreign Government Securities in excess of the limit in subsection 2.1(1) of NI 81-102 will better enable the Fund to achieve its fundamental investment objectives, thereby benefitting the Fund’s investors.
The Foreign Government Securities are not within the meaning of “government securities” as such term is defined in NI 81-102.
The Fund will only purchase Foreign Government Securities if the purchase is consistent with the Fund’s fundamental investment objectives.
The Simplified Prospectus for the Fund will disclose the risks associated with the concentration of assets of the Fund in securities of a limited number of issuers.
The Fund seeks the Requested Relief to enhance its ability to pursue and achieve its investment objectives.
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 Exemption Sought is granted provided that:
paragraphs (a) and (b) of the Exemption Sought cannot be combined for any one issuer;
any security purchased pursuant to this decision is traded on a mature and liquid market;
the acquisition of the securities purchased pursuant to this decision is consistent with the fundamental investment objectives of the Fund;
the Simplified Prospectus of the Fund discloses the additional risks associated with the concentration 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 risk, of investing in the country in which the issuer is located; and
the Simplified Prospectus of the Fund discloses, in the investment strategies section, a summary of the nature and terms of the Exemption Sought, along with the conditions imposed and the type of securities covered by this decision.
“Darren McKall”
Darren McKall
Manager, Investment Funds and Structured Products Branch Ontario Securities Commission
Application No. 2019/0295
SEDAR Project No. 2929108