CI Investments Inc. (Re), 2022 CanLII 49712

June 9, 2022

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 CI Investments Inc. (CI) or an affiliate (the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) granting an exemption from the prohibitions contained in sections 13.5(2)(b)(ii) and (iii) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) to permit in specie subscriptions and redemptions (each subscription or redemption, an In Specie Transfer) by:

(a) a Managed Account (as defined below) in relation to an NI 81-102 Fund (as defined below) or a Pooled Fund (as defined below); and

(b) a Pooled Fund in relation to another Pooled Fund or an NI 81-102 Fund.

(the Exemption Sought)

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 section 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.

Interpretation

Terms defined in MI 11-102, National Instrument 14-101 Definitions, National Instrument 81-102 Investment Funds (NI 81-102) and NI 31-103 have the same meanings in this decision, unless otherwise defined. Additionally, the following terms have the following meanings:

Clients means pension plans, endowments, trusts, insurance companies, corporations, mutual funds, individuals, and other entities to whom the Filer offers, or may offer, discretionary portfolio management services through a Managed Account;

Discretionary Management Agreement means a written agreement between the Filer and a Client seeking wealth management or related services;

Funds means collectively, the NI 81-102 Funds and the Pooled Funds;

Managed Account means an account managed by the Filer for a Client that is not a “responsible person” as defined in section 13.5 of NI 31-103 and over which the Filer has discretionary authority;

NI 81-102 Funds means each existing and future investment fund that is a reporting issuer and subject to NI 81-102, for which the Filer acts as manager and portfolio adviser;

NI 81-107 means National Instrument 81-107 Independent Review Committee for Investment Funds; and

Pooled Funds means each existing and future investment fund that is not a reporting issuer, securities of which are sold solely to investors in Canada pursuant to exemptions from the prospectus requirement, for which the Filer acts as manager and portfolio adviser.

Representations

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

The Filer and the Funds

1. CI is a corporation amalgamated under the laws of the Province of Ontario with its head office and registered office located in Toronto, Ontario.

2. CI is registered as follows:

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

(b) as a portfolio manager and exempt market dealer under the securities legislation of each of the provinces and territories of Canada; and

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

3. CI is not a reporting issuer in any province or territory of Canada.

4. Each of the NI 81-102 Funds is, or will be: (a) organized as a corporation or a trust established under the laws of Ontario or another province or territory of Canada; and (b) a reporting issuer under the laws of one or more provinces and territories of Canada.

5. Each of the Pooled Funds is, or will be, organized as a limited partnership, a corporation or a trust established under the laws of Ontario or another province or territory of Canada.

6. The securities of each Pooled Fund are, or will be, distributed on a private placement basis pursuant to available prospectus exemptions. Each Pooled Fund is not, or will not be, a reporting issuer under the laws of any province or territory of Canada.

7. The Filer acts, or will act, as the registered investment fund manager and registered portfolio adviser of each of the Funds.

8. The Filer, as manager of each NI 81-102 Fund, has established, or will establish, an independent review committee (IRC) for each NI 81-102 Fund in accordance with the requirements of NI 81-107.

9. The Filer and the existing Funds are not in default of securities legislation in any province or territory of Canada.

The Managed Accounts

10. The Filer offers discretionary portfolio management services to Clients seeking wealth management or related services under Discretionary Management Agreements between the Clients and the Filer.

11. Pursuant to the Discretionary Management Agreement entered into with each Client, the Client appoints the Filer to act as portfolio adviser in connection with an investment portfolio of the Client with full discretionary authority to trade in securities for the Managed Account without obtaining the specific consent or instructions of the Client to execute the trade.

12. Investments in individual securities may not be appropriate in certain circumstances for a Client. Consequently, the Filer may, where authorized under the applicable Discretionary Management Agreement, from time to time, invest the assets in a Client’s Managed Account in securities of any one or more of the Funds in order to give such Client the benefit of asset diversification and economies of scale regarding minimum commission charges on portfolio trades and generally to facilitate portfolio management.

In Specie Transfers

13. The Filer may wish to, or otherwise be required to, deliver portfolio securities held in a Managed Account or Pooled Fund to a Fund in respect of a purchase of units or shares of the Fund (Fund Securities), and may wish to, or otherwise be required to, receive portfolio securities from a Fund in respect of a redemption of Fund Securities by a Managed Account or Pooled Fund. As the Filer is or will be, the registered portfolio adviser of the Pooled Funds and the Managed Accounts that purchase or redeem Fund Securities pursuant to an In Specie Transfer, the Filer would be considered a ‘responsible person’ within the meaning of NI 31-103 in respect of such Pooled Funds and Managed Accounts, and any affiliate of the Filer that has access to, or participates in formulating, an investment decision on behalf of such Pooled Funds or Managed Accounts would be a ‘responsible person’ within the meaning of NI 31-103 in respect of such Pooled Funds and Managed Accounts.

14. As the Filer is, or may be, the trustee of a Fund which is organized as a trust, each such Fund may be an ‘associate’ of the Filer and accordingly, absent the grant of the Exemption Sought, the Filer may be precluded by the provisions of section 13.5(2)(b)(ii) of NI 31-103 from effecting In Specie Transfers in such circumstances. As the Filer is, or will be, the manager and portfolio adviser of the Funds, absent the grant of the Exemption Sought, the Filer may be precluded by section 13.5(2)(b)(iii) of NI 31-103 from effecting In Specie Transfers.

15. The Filer submits that effecting the In Specie Transfers will allow the Filer to manage each asset class more effectively and reduce transaction costs for the Clients and the Funds. For example, In Specie Transfers reduce market impact costs, which can be detrimental to the Clients and/or the Funds, and may provide access to a broader range of securities. In Specie Transfers also allow a portfolio adviser to retain within its control institutional-size blocks of portfolio securities that otherwise would need to be broken and re-assembled.

16. Prior to engaging in In Specie Transfers on behalf of a Managed Account, each Discretionary Management Agreement or other documentation will contain the authorization of the Client for the Filer, as portfolio adviser of the Managed Account, to engage in In Specie Transfers.

17. The only cost which will be incurred by a Managed Account or a Fund for an In Specie Transfer is a nominal administrative charge levied by the custodian of the relevant Fund in recording the trades, and any commission charged by the dealer (if any) executing the trade.

18. The Filer, as manager of the Funds, will value the securities transferred under an In Specie Transfer on the same valuation day on which the purchase price or redemption price of the Fund Securities of a Fund is determined. With respect to the purchase of Fund Securities of a Fund, the securities transferred to a Fund under an In Specie Transfer in satisfaction of the purchase price of those Fund Securities will be valued as if the securities were portfolio assets of the Fund, as contemplated by section 9.4(2)(b)(iii) of NI 81-102. With respect to the redemption of Fund Securities of a Fund, the securities transferred to a Managed Account or Pooled Fund in satisfaction of the redemption price of those Fund Securities will have a value equal to the amount at which those securities were valued in calculating the net asset value per security used to establish the redemption price of the Fund Securities of the Fund, as contemplated by section 10.4(3)(b) of NI 81-102.

19. Should any In Specie Transfer contemplated by the Exemption Sought involve the transfer of any “illiquid asset” (as defined in NI 81-102), such illiquid asset will be transferred on a pro rata basis and the Filer will obtain at least one quote for the asset from an independent arm’s length purchaser or seller, immediately before effecting the In Specie Transfer. The Filer will not cause any Fund or Managed Account to engage in an In Specie Transfer if the applicable Fund is not in compliance with the portfolio restrictions on the holding of illiquid assets described in section 2.4 of NI 81-102.

20. In Specie Transfers will be subject to (i) compliance with the written policies and procedures of the Filer respecting In Specie Transfers that are consistent with applicable securities legislation, and (ii) the oversight of the Chief Compliance Officer of the Filer to ensure that the transaction represents the business judgment of the Filer acting in its discretionary capacity with respect to the Fund and the Managed Account, uninfluenced by considerations other than the best interests of the Fund and Managed Account.

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:

1. In respect of purchases or redemptions of Fund Securities of an NI 81-102 Fund by a Pooled Fund or Managed Account:

(a) the Filer, as manager of the NI 81-102 Fund, obtains the approval of the IRC of the NI 81-102 Fund in respect of an In Specie Transfer in accordance with the terms of subsection 5.2(2) of NI 81-107; and

(b) the Filer, as manager of the NI 81-102 Fund, and the IRC, comply with the requirements of section 5.4 of NI 81-107 for any standing instructions the IRC provides in respect of an In Specie Transfer;

2. If the transaction is the purchase of Fund Securities of a Fund by a Managed Account:

(a) the Filer obtains the prior written consent of the Client of the Managed Account before it engages in any In Specie Transfer in connection with the purchase of Fund Securities of the Fund and such consent has not been revoked;

(b) the Fund would, at the time of payment, be permitted to purchase the portfolio securities held by the Managed Account;

(c) the portfolio securities are acceptable to the Filer, as portfolio adviser of the Fund and consistent with the Fund’s investment objectives;

(d) the value of the portfolio securities sold to the Fund by the Managed Account is equal to the issue price of the Fund Securities of the Fund for which they are used as payment, valued as if the securities were portfolio assets of that Fund; and

(e) the account statement next prepared for the Managed Account will include a note describing the portfolio securities delivered to the Fund and the value assigned to such securities;

3. If the transaction is the redemption of Fund Securities of a Fund by a Managed Account:

(a) the Filer obtains the prior written consent of the Client of the Managed Account to the payment of redemption proceeds in the form of an In Specie Transfer;

(b) the portfolio securities are acceptable to the Filer as portfolio adviser of the Managed Account and consistent with the Managed Account's investment objectives;

(c) the value of the portfolio securities is equal to the amount at which those securities were valued in calculating the net asset value per Fund Security used to establish the redemption price;

(d) the holder of the Managed Account has not provided notice to terminate its Discretionary Management Agreement with the Filer; and

(e) the account statement next prepared for the Managed Account will include a note describing the portfolio securities delivered to the Managed Account and the value assigned to such securities;

4. If the transaction is the purchase of Fund Securities of a Fund by a Pooled Fund:

(a) the Fund would, at the time of payment, be permitted to purchase the portfolio securities;

(b) the portfolio securities are acceptable to the Filer, as portfolio adviser of the Fund and consistent with the Fund's investment objectives; and

(c) the value of the portfolio securities is equal to the issue price of the Fund Securities of the Fund for which they are used as payment, valued as if the securities were portfolio assets of that Fund;

5. If the transaction is the redemption of Fund Securities of a Fund by a Pooled Fund:

(a) the portfolio securities are acceptable to the Filer, as portfolio adviser of the Pooled Fund and consistent with the Pooled Fund's investment objectives; and

(b) the value of the portfolio securities is equal to the amount at which those securities were valued in calculating the net asset value per Fund Security used to establish the redemption price of the NI 81-102 Fund;

6. Each Fund keeps written records of all In Specie Transfers in a financial year of the Fund, reflecting details of the portfolio securities delivered to and by the Fund and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place;

7. The Filer does not receive any compensation in respect of any sale or redemption of Fund Securities of a Fund and, in respect of any delivery of portfolio securities further to an In Specie Transfer, the only charge paid by a Fund or Managed Account, if any, is a nominal administrative charge levied by the custodian in recording the trade and any commission charged by the dealer (if any) executing the trade; and

8. If the In Specie Transfer involves the transfer of an “illiquid asset” (as defined in NI 81-102), the Filer will obtain at least one quote for the asset from an independent arm’s length purchaser or seller immediately before effecting the In Specie Transfer.

“Darren McKall”

Darren McKall

Manager, Investment Funds and Structured Products Branch

Ontario Securities Commission

Application No. 2022/0203