September 16, 2021
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)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of Mackenzie Anti-Benchmark Global High Yield Fund, Mackenzie Canadian Sustainable Bond Fund, Mackenzie Global Green Bond Fund (the Current Funds), and investment funds subject to National Instrument 81-102 Investment Funds (NI 81-102), that may be established in the future from time to time and are or will be managed by the Filer or by an affiliate or successor of the Filer (the Future Funds and together with the Current Funds, the Funds), for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation), for an exemption from subsection 2.1(1) of NI 81-102 (the Concentration Restriction), to permit each Fund to invest up to:
(a) 20% of its net assets, taken at market value at the time of purchase 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 (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” (as defined in NI 81-102) or their DRO affiliates; and
(b) 35% of its net assets, taken at market value at the time of purchase, 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).
(together, 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 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 and together with the Jurisdiction, the 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:
Background Facts
The Filer
The Filer is a corporation amalgamated under the laws of Ontario with its head office 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 the Other Jurisdictions and as an investment fund manager in Newfoundland and Labrador and Québec.
The Filer is the manager, trustee and portfolio manager of each Current Fund. The Filer or an affiliate will be the manager of the Future Funds.
The Filer is not in default of securities legislation in any of the Jursdictions.
The Funds Generally
Each Fund is or will be an open-ended mutual fund trust established under the laws of Ontario.
A preliminary simplified prospectus, annual information form and fund facts (a Simplified Prospectus) dated August 13, 2021 for the Current Funds was prepared in accordance with National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) and filed in each province and territory in Canada. Upon being granted a receipt for the final Simplified Prospectus, the Current Funds will become reporting issuers subject to NI 81-102, and securities of the Current Funds will be available for distribution in each of the Jursdictions.
None of the Current Funds is in default of securities legislation in any of the Jurisdictions.
Each Future Fund will prepare and file either a Simplified Prospectus under NI 81-101 or a longform prospectus and ETF Facts (if applicable) (each a Prospectus) under National Instrument 41-101 General Prospectus Requirements to distribute their securities in one or more of the Jurisdictions and will be a reporting issuer subject to NI 81-102.
Mackenzie Anti-Benchmark Global High Yield Fund
Mackenzie Anti-Benchmark Global High Yield Fund’s investment objective is to generate income with the potential for long-term capital appreciation by investing primarily in global high yield fixed-income securities of issuers located anywhere in the world.
To achieve the investment objectives of the Fund, the investment team will follow the TOBAM S.A.S. Anti-Benchmark® Global High Yield strategy. The Fund will have a portfolio that is generally fully invested, well-diversified and composed of securities that are attractive from a fundamental and technical standpoint. 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 foreign 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.
Mackenzie Canadian Sustainable Bond Fund
Mackenzie Canadian Sustainable Bond Fund’s investment objective is to provide income with the potential for some long-term capital growth by investing primarily in Canadian government and corporate fixed-income instruments and asset-backed securities with maturities of more than one year. The Fund follows an approach to investing that focuses on sustainable and responsible issuers and can invest up to 30% of its assets in foreign securities.
To achieve the investment objectives, the Fund will invest in countries selected by integrating Environmental, Social and Governance (“ESG”) factors into their sovereign and fundamental credit risk analysis process such that the investment strategy maintains a focus on sustainable and responsible issuers. Applying these ESG factors in conjunction with fundamental investment analysis will serve to narrow the Fund’s pool of potential investments, which may require a more concentrated portfolio to most effectively meet the Fund’s objectives. For example, currently the universe of Canadian ESG-labeled debt (green bonds, social bonds, sustainable bonds and sustainability-linked bonds) is relatively limited so the portfolio manager may need to increase the Fund’s exposure to a single foreign issuer in order to gain access to these types of investments. This may also require higher concentrations in foreign issuers. As the Canadian issuances increase in the future, the portfolio manager may need less foreign exposure to gain access to specific types of ESG-labeled debt.
Mackenzie Global Green Bond Fund
Mackenzie Global Green Bond Fund’s investment objective is to generate income with the potential for long-term capital appreciation by investing primarily in fixed-income securities of issuers anywhere in the world. The Fund follows an approach to investing that focuses on sustainable and responsible issuers.
To achieve the investment objectives, the Fund will invest in countries selected by integrating ESG factors into their sovereign and fundamental credit risk analysis process such that the investment strategy maintains a focus on sustainable and responsible issuers. Applying these ESG factors in conjunction with fundamental investment analysis will serve to narrow the Fund’s pool of potential investments, which may require a more concentrated portfolio to most effectively meet the Fund’s objectives. For example there may be periods where the portfolio managers would not invest in US Treasuries due to their policies that do not support responsible investing guidelines. Instead, the portfolio managers would want the Fund to hold Foreign Government Securities that better adhere to responsible investing rules, such as the German or UK Government bonds.
The Future Funds
- The Future Funds will have investment objectives and strategies that permit them to invest a majority of their net assets in fixed income securities, including Foreign Government Securities.
Necessity for Relief
The Concentration Restriction prohibits a 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 10% 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.
Foreign Government Securities are not within the meaning of “government security” as defined in NI 81-102.
The Filer believes that the ability to purchase Foreign Government Securities beyond the limit in the Concentration Restriction in NI 81-102 will better enable the Funds to achieve its fundamental investment objectives, thereby benefitting the Funds’ investors. Accordingly, the Filer is seeking the Requested Relief for the Funds.
Generally
Each Fund will only purchase Foreign Government Securities if the purchase is consistent with that Fund’s fundamental investment objectives.
The Funds’ Prospectus will disclose the risks associated with concentration of net assets of the Fund in Foreign Government Securities.
The Filer believes the Requested Relief will enhance the Funds’ ability to pursue and achieve their 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 Requested Relief is granted provided that:
the Funds have investment objectives and strategies that permit them to invest a majority of their net assets in fixed income securities, including Foreign Government Securities.
paragraphs (a) and (b) of the Requested Relief cannot be combined for any one issuer;
any security that may be purchased under the Requested Relief is traded on a mature and liquid market;
the acquisition of Foreign Government Securities purchased pursuant to this decision is consistent with the fundamental investment objectives of the Fund;
the Fund’s Prospectus discloses the additional risk 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 risks, of investing in the country in which the issuer is located; and
the Fund’s Prospectus 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”
Darren McKall
Manager, Investment Funds and Structured Products Branch
ONTARIO SECURITIES COMMISSION
Application # 2021/0461
SEDAR Project Number 3262132