In the Matter of Arrow Capital Management Inc., 2024 CanLII 124939

December 10, 2024

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

ARROW CAPITAL MANAGEMENT INC.

(the Filer)

and

WAVEFRONT ALL-WEATHER ALTERNATIVE FUND

(the Fund)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Fund, of which the Filer is the investment fund manager, for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) to grant the Fund relief from:

Seed Capital Relief

(1) section 3.1 of National Instrument 81-102 Investment Funds (NI 81-102) to permit the filing of a simplified prospectus for the Fund (the Simplified Prospectus), notwithstanding that the initial investment required in respect of the Fund (the Seed Capital Requirements) will not be provided (the Seed Capital Relief);

Aggregate Exposure Limit Relief

(2) the following provisions

(a) section 2.9.1 of NI 81-102, which limits an alternative mutual fund’s aggregate exposure to cash borrowing, short selling and specified derivatives transactions to 300% of the Fund’s net asset value as calculated under that section; and

(b) Section 2.1 of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) with respect to relief from Item 4 and Instruction (4) of Form 81-101F1 - Contents of Simplified Prospectus (Form 81-101F1) and Item 3 of Form 81-101F3 - Contents of Fund Facts Documents (Form 81-101F3, which require an alternative mutual fund to disclose its maximum aggregate exposure to leverage as calculated pursuant to Section 2.9.1 of NI 81-102

(collectively, the Aggregate Exposure Limit Relief);

Performance Data Relief

(3) the following provisions:

(a) subsections 15.3(2), 15.6(1)(a)(i), 15.6(1)(b), 15.6(1)(d)(i), 15.8(2)(a), 15.8(3)(a) and 15.9(2) of NI 81-102 to permit the Fund to use the performance data of WaveFront LP in the Fund’s sales communications and reports to securityholders (Sales Communications);

(b) section 15.1.1 of NI 81-102 and Items 2 and 4 of Appendix F Investment Risk Classification Methodology to NI 81-102 (the Risk Classification Methodology) to permit the Fund to use Wavefront LP’s performance data to calculate the Fund’s risk rating;

(c) section 2.1 of NI 81-101 for the purposes of relief from the following items in Form 81-101F1 and Form 81-101F3:

(i) Item 10 of Part B of Form 81-101F1 and Item 4 of Part I of Form 81-101F3 to permit the Fund to use WaveFront LP’s performance data to calculate and disclose the fund’s investment risk rating in the Simplified Prospectus and the Funds’ fund facts documents respectively;

(ii) Item 2 of Part I of Form 81-101F3 to permit the Fund to use Wavefront LP’s start date and management expense ratio (MER) information in the “Management expense ratio (MER)” and “Date series started” box of the Quick Facts table in the fund facts documents of each series of the Fund (the Fund Facts);

(iii) Item 3 of Part I of Form 81-101F3 to permit the Fund to show the Wavefront LP’s investment portfolio information in the “Top 10 investments” and “Investment mix” tables in the Funds’ initial Fund Facts;

(iv) Item 5 of Part I of Form 81-101F3 to permit the Fund to use the performance data of WaveFront LP in the “Average return”, “Year-by-year returns” and “Best and worst 3-month returns” sections in its Fund Facts; and

(v) Item 1.3 of Part II of Form 81-101F3 to permit the Fund to use the MER, trading expense ratio (the TER) and fund expenses of WaveFront LP in the “fund expenses” section of its initial Fund Facts;

(d) section 4.4 of National Instrument 81-106 - Investment Fund Continuous Disclosures (NI- 81-106) with respect to relief the following items in Form 81-106F1 - Contents of Annual and Interim Management Report of Fund Performance (Form 81-106F1), to permit the Fund to include in the Fund’s annual and interim management reports on fund performance (MRFPs) the performance data and information derived from the financial statements and other financial information (collectively, the Financial Data) of WaveFront LP as follows:

(i) items 3.1(1), 3.1(7), 3.1(7.1) and 3.1(8) of Part B of Form 81-106F1 to permit the Fund to use the financial highlights of WaveFront LP in its MRFPs

(ii) items 4.1(1), 4.1(2), 4.2(1), 4.2(2), 4.3(1) and 4.3(2) of Part B of Form 81-106F1 to permit the Fund to use the past performance data of WaveFront LP in its MRFPs; and

(iii) items 3(1) and 4 of Part C of Form 81-106F1 to permit the Fund to use the financial highlights and past performance data of WaveFront LP in its MRFPs

(collectively, the Performance Data 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, the Other Jurisdictions) (together with the Jurisdiction, the Canadian 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. As used in this decision, the following terms have the following meanings

“Alternative Fund” means an investment fund that is an “alternative mutual fund” under NI 81-102;

“Sub-Advisor” means WaveFront Global Asset Management Corp.

“WaveFront GP” means WaveFront Fund Management Inc.

“WaveFront LP” means WaveFront All-Weather Fund, LP.

Representations

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

The Filer And the Sub-Advisor

1. The Filer is a corporation existing under the laws of Ontario having its registered head office in Toronto, Ontario.

2. The Filer is registered in the following categories in the Canadian Jurisdictions as indicated below:

(a) Ontario: Portfolio Manager (PM), Investment Fund Manager (IFM); Exempt Market Dealer (EMD) and Commodity Trading Manager (CTM) under the Commodity Futures Act (Ontario);

(b) Alberta: EMD;

(c) British Columbia: EMD;

(d) Quebec: EMD and IFM; and

(e) Newfoundland and Labrador: IFM.

3. The Filer will be the Fund’s IFM and PM.

4. The Filer intends to engage the services of the Sub-Advisor as sub-advisor to the Fund.

5. The Sub-Advisor is a corporation existing under the laws of Ontario having its registered head office in Toronto, Ontario.

6. The Sub-Advisor is registered in the following categories in the Canadian Jurisdictions as indicated below:

(a) Ontario: PM, IFM, EMD and CTM;

(b) Alberta: EMD;

(c) British Columbia: EMD; and

(d) Quebec: EMD.

7. The Filer and the Sub-Advisor are not in default of securities legislation in any of the Canadian Jurisdictions.

WaveFront LP and the Fund

8. WaveFront LP is an Ontario limited partnership formed on November 1, 2019. WaveFront GP is the general partner of WaveFront LP. The Sub-Advisor is the IFM and PM of WaveFront LP.

9. WaveFront LP is not a reporting issuer. Since its inception, units of WaveFront LP have only been distributed to investors on a prospectus-exempt basis in accordance with National Instrument 45-106 - Prospectus Exemptions (NI 45-106) in the Canadian Jurisdictions.

10. The investment objective of WaveFront LP is to provide consistent and superior absolute and risk-adjusted returns in most environments, including equity bear markets, by being invested in a global, tactically balanced portfolio across multiple asset classes.

11. The Fund will be organized as a mutual fund trust established under the laws of the Province of Ontario.

12. The Fund intends distribute its securities in each of the Canadian Jurisdictions pursuant to the Simplified Prospectus and Fund Facts (the Disclosure Documents) that will be prepared and filed in accordance with NI 81-101.

13. Accordingly, the Fund, will be a reporting issuer in the Canadian Jurisdictions such that the Fund will be an Alternative Fund.

14. The Filer intends to engage the Sub-Advisor to be the sub-advisor to the Fund.

The Reorganization

15. WaveFront GP has received approval from the limited partners of WaveFront LP to sell all assets of WaveFront LP to the Fund in return for the Fund issuing its Series FD units to WaveFront LP (the Reorganization).

16. WaveFront LP offers Class F units. All of the net assets of WaveFront LP are held by limited partners who are Class F unitholders. On the Reorganization, WaveFront LP will be wound up and the Series FD units of the Fund held by Wavefront LP will be distributed to the Class F unitholders of WaveFront LP. The Reorganization is expected to occur on or about January 2, 2025.

17. The Fund is being established for the purpose of succeeding to the operations of WaveFront LP. The Fund will be managed substantially similarly as WaveFront LP, the investment objective will be substantially similar to that of WaveFront LP and the day-to-day administration of the Fund will be substantially similar, other than to comply with the additional regulatory requirements associated with being a reporting issuer (none of which will impact the portfolio management of the Fund).

18. The Reorganization is so that the Fund can be a qualified investment for certain deferred income plans such as RRSPs. Investment funds structured as limited partnerships are considered ineligible investments for those types of plans so Wavefront LP would not simply be able to file the Simplified Prospectus and become a qualified investment for those plans.

19. WaveFront LP and the Fund are not in default of applicable securities legislation in any of the Canadian Jurisdictions.

Seed Capital Relief

20. Since the Fund is being newly established, the Seed Capital Requirements would require the Filer to subscribe for $150,000 of the Fund’s units and would prohibit any redemption of the Fund’s units until it has received at least $500,000 from investors unaffiliated or unconnected to the Filer.

21. The Fund will be receiving all of Wavefront LPs assets in connection with the Reorganization. Those assets when received, which are approximately $15 million, will be invested in accordance with the Fand’s investment objectives and strategies are far in excess of the $150,000 Seed Capital Requirements.

22. On the date of the Reorganization, the former limited partners of Wavefront LP and WaveFront GP will become unitholders of the Fund and will hold units of the Fund in excess of $500,000.

23. The Filer therefore is not proposing to subscribe for $150,000 of the Funds’ units as it will be unnecessary.

Aggregate Exposure Limit Relief

24. To meet the investment objective of the Fund, the Sub-Advisor intends to manage its assets in the same manner as WaveFront LP has since inception. WaveFront LP has invested approximately 35% of its net assets into WaveFront Global Diversified Investment Fund (WGDIF). WGDIF is an alternative mutual fund governed by NI 81-102 and was formerly a “commodity pool” as such term was defined by National Instrument 81-104 Commodity Pools (Former 81-04). The Filer is IFM for WGDIF and the Sub-Advisor is also sub-advisor to WGDIF. In a decision dated June 21, 2019, WGDIF was granted relief to have aggregate exposure to specified derivatives transactions subject to the investment restrictions contained in NI 81-102, except as otherwise permitted by Former 81-104. The Fund wishes to invest in WGDIF in the same manner as WaveFront LP, but in order to do so requires relief from Section 2.9.1 of NI-81-102.

25. The Sub-Advisor’s diversified program for WGDIF (the Program) is a rules-based, unconstrained (e.g., the Program is not constrained from participating in opportunities, long and short, in a variety of asset classes), systematic multi-strategy investment program that is designed to deliver superior, uncorrelated returns over time. WaveFront LP has, and the Fund will have, exposure to the Program either directly or indirectly through its investment in WGDIF.

26. The Sub-Advisor uses a combination of long and short positions in specified derivatives in the Program that at times results in WaveFront LP’s, and will result in the Fund’s, aggregate exposure to cash borrowing, short selling and specified derivatives transactions regularly exceeding 300% of its net asset value (NAV) and therefore will not be in accordance with the requirements of section 2.9.1 of NI 81-102.

27. The Filer is instead proposing to use a value-at-risk (VaR) approach to reflect the Fund’s leverage risk exposure.

28. The correlations of most alternative investment strategies to equity benchmarks such as the S&P 500 are high. In contrast, most managed futures strategies that are used by commodity trading advisors (each a CTA), like the Sub-Advisor, are historically uncorrelated and risk reducing.

29. Furthermore, notional exposures of futures contracts move with price and do not represent risk. Risk, as measured by futures exchanges, is a function of price and volatility, both of which are captured in VaR (as defined in Appendix A), but not notional exposure. As noted below, VaR is a better measure of risk for WaveFront LP and the Fund.

30. For example, the total aggregate exposure of WaveFront LP as calculated pursuant to section 2.9.1 of NI 81-102 has typically been between 200% and 450% and has averaged 270% since inception. Notwithstanding this range, risk is still managed by the Sub-Advisor at a consistent level, and there is no relationship between aggregate notional exposure and the volatility of returns that the Sub-Advisor has delivered since the inception of WaveFront LP. The Sub-Advisor targets and manages to a 10% to 12% annualized standard deviation of monthly returns in WaveFront LP.

31. The Sub-Advisor systematically manages risk across multiple constraints at the sector and the market level in the Program. The Program is characterized by a high level of diversification by virtue of the large number of futures markets it trades representing different currencies, commodities, fixed income and equity markets. This diversification is key to achieving the low correlations with traditional asset classes.

32. The current regulatory framework in Section 2.9.1 of NI 81-102 does not appropriately or adequately address the uniqueness of the investment strategies that CTAs like the Sub-Advisor employ.

33. The key differences between what the Sub-Advisor does versus other typical portfolio managers is that it:

(a) trade futures on margin, which is different than stocks and bonds (e.g. stock and bonds exchange margin requirements are determined by the value of the securities, whereas for futures, exchange margin requirements are determined by notional exposure and volatility (the primary inputs to VaR models);

(b) are quantitative and systematic versus being fundamental and discretionary; and

(c) utilize systematic risk management, capital allocation and drawdown management techniques.

34. The European Union (the EU) approved a new regulation of mutual funds in 2010 in the fourth European Directive covering Undertakings for Collective Investment in Transferable Securities (UCITS IV), which introduced a VaR based approach to regulatory risk management for investment funds that extensively use derivatives.

35. This approach allows for two methods of VaR limits, "relative" and "absolute", as defined in Appendix A, and which in general terms can be summarized as follows:

(a) Relative:

This approach uses a ratio of up to 200% between the VaR of the portfolio and the VaR of a reference portfolio.

(b) Absolute:

This approach is generally used when there is no reference portfolio or benchmark and allows the one-month VaR to be up to 20% of the net asset value of the portfolio.

36. UCITS IV also includes rules for the computation of VaR and requires regular stress- and back-testing to complement the VaR estimation.

37. On October 28, 2020, the U.S. Securities and Exchange Commission adopted new Rule 18f-4 under the Investment Company Act of 1940 (17 CFR § 270.18f-4), (the SEC Rule), which modernized the regulatory framework for derivatives use by registered funds. The SEC Rule is generally the same as the UCITS IV rule as it adopted a 200% limit for funds using a relative VaR approach, and a 20% VaR limit for funds using an absolute VaR approach and uses substantially the same calculation methodology.

38. When dealing with a fund that is managed using a multi-asset approach like the Filer and the Sub-Advisor do, a VaR-based approach is a better means of managing risk because, unlike notional amounts which do not measure risk or volatility, VaR enables risk to be measured in a reasonably comparable and consistent manner.

39. The risk-based approach in the SEC Rule, which relies on VaR, stress testing, and overall risk management, addresses concerns about fund leverage for investment portfolios managed by CTAs like Sub-Advisor, while allowing such portfolios to continue to use derivatives for a variety of purposes.

40. Of the two VaR approaches ("absolute" and "relative") used in the UCITS IV rules and the SEC Rule, the Sub-Advisor has determined that the absolute VaR approach is the approach that is most suitable for the WaveFront LP and the Fund as there typically is no appropriate reference portfolio that can be used in respect of the WaveFront LP and the Fund for the purpose of complying with the relative VaR approach under the UCITS IV rules and the SEC Rule.

41. The Sub-Advisor has employed VaR-based risk management for its funds, including WaveFront LP, for several years that are consistent with both the SEC Rule and the UCITS IV rules. Since the Sub-Advisor’s inception, it has been using volatility-based risk measures as its primary risk metric.

42. The Sub-Advisor has maintained a custom VaR model to monitor VaR on a daily basis since 2011 for the Program and has the necessary policies and procedures in place such that the Fund will be managed in accordance with and adhere to the 20% absolute VaR limit and operate in accordance with the conditions set out in Appendix A, which are based on the SEC Rule.

43. WaveFront LP has consistently operated below a 20% absolute VaR limit.

44. The Sub-Advisor will use a historical simulation VaR model with respect to the Fund, consistent with the model used for Wavefront LP. In addition, the Sub-Advisor will upload the Fund’s investment portfolio each business day to a risk analytics system that is appropriate for the Fund’s applicable VaR methodology, and which is provided by one of the following vendors: Bloomberg, S&P Global or MSCI. The risk analytics system will provide the data to enable daily confirmation that the Fund is in compliance with the applicable VaR limits as set out in Appendix A on each business day.

45. The Sub-Advisor has appointed a "derivatives risk manager" (a DRM) and has developed a "Derivatives Risk Management Program" (the DRMP) that is consistent with and adheres to the conditions set out in Appendix A, which are based on the SEC Rule. A copy of the DRMP has been provided to the Principal Regulator.

46. The Sub-Advisor’s DRMP incorporates the well documented policies and procedures for risk monitoring, risk management, and risk reporting of a fund's VaR methodology to regulators as developed by securities regulators in the U.S. and the EU.

47. Without the Aggregate Exposure Limit Relief, the Fund will not be able to invest in the same manner as WaveFront LP consistent with its investment objectives and strategies.

48. The Aggregate Exposure Limit Relief will provide the Fund with an enhanced ability to pursue and achieve its investment objective through the unique investment strategies employed by the Sub-Advisor, while ensuring the Fund is not exposed to an inappropriate level of risk.

Past Performance Relief

49. The Fund will be a new fund. While the Fund will have the same assets and liabilities as the WaveFront LP following the Reorganization, as a new investment fund, it will not have its own performance data or Financial Data.

50. The Fund is intending to maintain the same investment objectives and strategies as Wavefront LP and the Fund’s portfolio will be managed in substantially the same way as Wavefront LPs.

51. The Fund’s fees and expenses will be substantially similar to Wavefront LP’s. The only differences in the fee structure between the Fund and WaveFront LP will be as follows:

(a) Class F units of WaveFront LP are charged a total management fee of approximately 1.175% per annum. The management fee of the Series FD units of the Fund, which will be issued to Class F unitholders of WaveFront LP, will be 0.95%.

(b) Class F units of WaveFront LP are charged a total performance fee of approximately 13.5% of any gains. The performance fee of the Series FD Units of the Fund, which will be issued to Class F unitholders of WaveFront LP, will be 15% with a hurdle rate of 3%.

(c) The administrative expenses of the Fund will be higher due to the Fund being subject to the additional regulatory requirements applicable to a reporting issuer, but the Manager does not expect the amount to be material.

(d) As per the above, the all-in management fee rate associated with the Class FD units of the Fund will be lower than for WaveFront LP, whereas the all-in performance fee rate for the Class FD units of the Fund will be slightly higher, but with the introduction of a hurdle rate. Based on its calculations, under most market conditions, the Filer believes that the overall change to the fees will be immaterial.

52. Since inception, WaveFront LP has prepared annual and interim financial statements in accordance with NI 81-106.

53. Without the Performance Data Relief, the Fund’s Sales Communications, Fund Facts and MRFPs will not be permitted to include Wavefront LP’s performance data or Financial Data [since it was not a reporting issuer.

54. Without the Performance Data Relief, the Fund’s Sales Communications, Fund Facts and MRFPs will not be permitted to include any performance data until the Fund has distributed securities under a simplified prospectus for 12 consecutive months.

55. Without the Performance Data Relief, the Fund will not be able to use Wavefront LP’s performance data to calculate the Fund’s risk rating under the Risk Classification Methodology.

56. As a reporting issuer, the Fund will be required under NI 81-106 to prepare, file and send MRFPs and under NI 81-101 to prepare and file Fund Facts for each series of units offered.

57. The performance data and Financial Data of WaveFront LP for the time period prior to the Reorganization is significant and meaningful information for existing and prospective investors in making an informed decision on whether to purchase units of the Fund. Without the Performance Data Relief, investors in the Fund will have no information about WaveFront LP’s past performance or Financial Data when making an investment decision.

58. The performance data of WaveFront LP for the time period prior to the Reorganization is significant and meaningful in calculating the risk rating for the Fund. Without the Performance Data Relief, the risk rating would have to be calculated based solely on an index rather than using the actual performance data of WaveFront LP.

59. The Filer proposes to:

(a) disclose the series start date for Class F units of WaveFront LP as the series start date of the Series FD units of the Fund:

(a) under the heading “Name, Formation and History of the Funds” of Part B in the Simplified Prospectus;

(b) under the subheading “Date series started” under the heading “Quick Facts” in the Fund Facts;

(b) use the performance data of WaveFront LP to calculate the risk rating of the Fund in:

(a) the Simplified Prospectus; and

(b) the Fund Facts;

(c) use the performance data of the Class F units of WaveFront LP in:

(a) the Fund Communications of the Fund: and

(b) the “Year-by-year returns”, “Best and worst 3-month returns” and “Average return” subsections of the Fund Facts of the Series FD units of the Fund;

(d) use the MER, TER and fund expenses of the Class F units of WaveFront LP in the “Quick Facts” and “Fund expenses” section in the initial Fund Facts for the Series FD units of the Fund;

(e) show the investments of WaveFront LP in the “Top 10 investments” and “Investment mix” tables in the initial Fund Facts for the Fund;

(f) prepare annual MRFPs for the Fund commencing with the year ending December 31, 2025, and interim MRFPs for the Fund commencing with the period ending June 30, 2025, using WaveFront LP’s past performance; and

(g) prepare comparative annual financial statements for the Fund commencing with the year ending December 31, 2025, and interim financial statements for the Fund commencing with the period ending June 30, 2025, using WaveFront LP’s financial highlights and past performance for that portion of the financial reporting period preceding the Reorganization.

60. The Filer is seeking to make the Reorganization as seamless as possible for investors of WaveFront LP who will become unitholders of the Fund. Accordingly, the Filer submits that treating the Fund as fungible with WaveFront LP for disclosure purposes would be beneficial to investors.

61. The Filer submits that it could be potentially misleading to be required to omit the relevant information pertaining to Wavefront LP in the Fund’s Disclosure Documents and MRFP.

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:

1. The Seed Capital Relief is granted.

2. The Aggregate Exposure Limit Relief is granted, provided that

(a) the Sub-Advisor has appointed a DRM pursuant to the terms of its sub-advisory agreement with the Sub-Advisor (the Sub-Advisory Agreement);

(b) the Filer and the Fund will comply with the absolute VaR test, as defined in Appendix A, and complies with all of the additional leverage conditions for funds set out in Appendix A;

(c) the Filer discloses in the Disclosure Documents the maximum VaR that the Fund is permitted to incur, and the Filer discloses in the annual and interim MRFP of the Fund the maximum amount of VaR incurred by each Fund over the applicable period;

(d) the Filer files a copy of the Sub-Advisor’s DRMP with the Principal Regulator, which the Sub-Advisor has agreed to provide to the Filer pursuant to the terms of the Sub-Advisory Agreement;

(e) the Filer notifies the Principal Regulator promptly of any changes to the Sub-Advisor’s DRM or DRMP, where the Sub-Advisor has agreed to notify the Filer of such changes pursuant to the terms of the Sub-Advisory Agreement;

(f) pursuant to the terms of the Sub-Advisory Agreement, no later than 30 days after the end of each month, the Sub-Advisor prepares for the Filer a monthly portfolio investment report containing the elements set out in its DRMP, and, no later than 60 days after the end of each fiscal quarter, the Filer files with the Principal Regulator the monthly portfolio investment reports for that quarter;

(g) the Filer and Sub-Advisor do not change the VaR model that is being used with respect to the Fund;

(h) pursuant to the terms of the Sub-Advisory Agreement, the Sub-Advisor uploads the investment portfolio of the Fund each business day to a risk analytics system provided by one of the following vendors, Bloomberg, S&P Global or MSCI, in order to have applicable VaR reports confirm that the Fund is in compliance with the applicable VaR test as set out in Appendix A on each business day;

(i) the Filer provides to the Principal Regulator on a quarterly basis a copy of each daily VaR Report for the last quarter for the Fund;

(j) the Filer notifies the Principal Regulator within one business day of being advised by the Sub-Advisor that the Fund is offside the 20% absolute VaR test for more than five consecutive business days, as required by the Sub-Advisory Agreement;

(k) the Filer promptly (e.g. within 24 hours) provides the Principal Regulator with any other information that the OSC may request regarding the inter-month calculations and risk metrics the Sub-Advisor is using, which the Sub-Advisor has agreed to provide to the Filer pursuant to the terms of the Sub-Advisory Agreement; and

(l) the Filer appropriately documents its risk methodology for the Fund in accordance with the requirements of the Risk Classification Methodology.

3. The Performance Data Relief is granted, provided that:

(a) the Sales Communications contain the performance data of Wave Front LP prepared in accordance with Part 15 of NI 81-102

(b) the Simplified Prospectus:

i) states that the start date for Series FD units of the Fund is the start date of the Class F units of WaveFront LP;

ii) discloses the Reorganization where the start date for Series FD units of the Fund is stated; and

iii) discloses that WaveFront LP was not a reporting issuer;

(c) the Fund’s Fund Facts documents for Series FD units:

i) states that the “Date series started” date is the date that the Class F units started of WaveFront LP;

ii) includes the performance data of the WaveFront LP prepared in accordance with Part 15 of NI 81-102;

iii) discloses the Reorganization where the “Date series started” date is stated; and

iv) discloses that WaveFront LP was not a reporting issuer;

(d) the Fund’s MRFPs:

i) for Series FD units of the Fund include the Financial Data of WaveFront LP pertaining to the Class F units of WaveFront LP;

ii) discloses the Reorganization for the relevant time periods; and

iii) discloses that WaveFront LP was not a reporting issuer; and

(e) the Filer posts the financial statement of WaveFront LP for the periods ended December 31, 2023, June 30, 2024, and December 31, 2024, on the Fund’s website and makes those financial statement available to investors upon request.

4. This decision regarding the Aggregate Exposure Limit Relief expires on December 10, 2028.

“Darren McKall”

Darren McKall

Manager, Investment Management Division

ONTARIO SECURITIES COMMISSION

SEDAR Project#: 6073661

Application# 2024/0029

APPENDIX A

ADDITIONAL LEVERAGE CONDITIONS

In these conditions,

“absolute VaR test” means that the VaR of a fund’s portfolio does not exceed 20% of the value of the fund’s net assets;

“board”, with respect to a fund, means the fund manager’s board of directors;

“derivatives risk manager” means an officer or officers of the fund’s investment adviser responsible for administering the program and policies and procedures required by condition 1 below, provided that the derivatives risk manager:

(1) may not be a portfolio manager of the fund, or if multiple officers serve as derivatives risk manager, a majority of the derivatives risk managers must not be portfolio managers of the fund; and

(2) must have relevant experience regarding the management of derivatives risk;

“derivatives risks” means the risks associated with a fund’s derivatives transactions or its use of derivatives transactions, including leverage, market, counterparty, liquidity, operational, and legal risks and any other risks the derivatives risk manager deems material;

“derivatives transaction” means

(1) any swap, security-based swap, futures contract, forward contract, option, any combination of the foregoing, or any similar instrument, under which a fund is or may be required to make any payment or delivery of cash or other assets during the life of the instrument or at maturity or early termination, whether as margin or settlement payment or otherwise; and

(2) any short sale borrowing.

“independent director” means a director who would be independent within the meaning of section 1.4 of National Instrument 52-110 Audit Committees;

“value-at-risk” or “VaR” means an estimate of potential losses on an instrument or portfolio, expressed as a percentage of the value of the portfolio’s assets (or net assets when computing a fund’s VaR), over a specified time horizon and at a given confidence level, provided that any VaR model used by a fund for purposes of determining the fund’s compliance with the absolute VaR test must:

(1) take into account and incorporate all significant, identifiable market risk factors associated with a fund’s investments, including, as applicable:

(i) equity price risk, interest rate risk, credit spread risk, foreign currency risk and commodity price risk;

(ii) material risks arising from the nonlinear price characteristics of a fund’s investments, including options and positions with embedded optionality; and

(iii) the sensitivity of the market value of the fund’s investments to changes in volatility;

(2) use a 99% confidence level and a time horizon of 20 trading days; and

(3) be based on at least three years of historical market data.

Conditions

1. Derivatives risk management program. The fund must adopt and implement a written derivatives risk management program (program), which must include policies and procedures that are reasonably designed to manage the fund’s derivatives risks and to reasonably segregate the functions associated with the program from the portfolio management of the fund. The program must include the following elements:

(i) Risk identification and assessment. The program must provide for the identification and assessment of the fund’s derivatives risks. This assessment must take into account the fund’s derivatives transactions and other investments.

(ii) Risk guidelines. The program must provide for the establishment, maintenance, and enforcement of investment, risk management, or related guidelines that provide for quantitative or otherwise measurable criteria, metrics, or thresholds of the fund’s derivatives risks. These guidelines must specify levels of the given criterion, metric, or threshold that the fund does not normally expect to exceed, and measures to be taken if they are exceeded.

(iii) Stress testing. The program must provide for stress testing to evaluate potential losses to the fund’s portfolio in response to extreme but plausible market changes or changes in market risk factors that would have a significant adverse effect on the fund’s portfolio, taking into account correlations of market risk factors and resulting payments to derivatives counterparties. The frequency with which the stress testing under this paragraph is conducted must take into account the fund’s strategy and investments and current market conditions, provided that these stress tests must be conducted no less frequently than weekly.

(iv) Backtesting. The program must provide for backtesting to be conducted no less frequently than weekly, of the results of the VaR calculation model used by the fund in connection with the relative VaR test or the absolute VaR test by comparing the fund’s gain or loss that occurred on each business day during the backtesting period with the corresponding VaR calculation for that day, estimated over a one-trading day time horizon, and identifying as an exception any instance in which the fund experiences a loss exceeding the corresponding VaR calculation’s estimated loss.

(v) Internal reporting and escalation –

A. Internal reporting. The program must identify the circumstances under which persons responsible for portfolio management will be informed regarding the operation of the program, including exceedances of the guidelines specified in paragraph 1(ii) of these conditions and the results of the stress tests specified in paragraph 1(iii) of these conditions.

B. Escalation of material risks. The derivatives risk manager must inform in a timely manner persons responsible for portfolio management of the fund, and also directly inform the board as appropriate, of material risks arising from the fund’s derivatives transactions, including risks identified by the fund’s exceedance of a criterion, metric, or threshold provided for in the fund’s risk guidelines established under paragraph 1(ii) of these conditions or by the stress testing described in paragraph 1(iii) of these conditions.

(vi) Periodic review of the program. The derivatives risk manager must review the program at least annually to evaluate the program’s effectiveness and to reflect changes in risk over time. The periodic review must include a review of the VaR calculation model used by the fund under condition 2 below (including the backtesting required by paragraph 1(iv) of these conditions) and any designated reference portfolio to evaluate whether it remains appropriate.

2. Limit on fund leverage risk.

(i) The fund must comply with the absolute VaR test.

(ii) The fund must determine its compliance with the absolute VaR test at least once each business day. If the fund determines that it is not in compliance with the absolute VaR test, the fund must come back into compliance promptly after such determination, in a manner that is in the best interests of the fund and its securityholders.

(iii) If the fund is not in compliance with the absolute VaR test within five business days,

A The derivatives risk manager must provide a written report to the board and explain how and by when (i.e., number of business days) the derivatives risk manager reasonably expects that the fund will come back into compliance;

B. The derivatives risk manager must analyze the circumstances that caused the fund to be out of compliance for more than five business days and update any program elements as appropriate to address those circumstances; and

C. The derivatives risk manager must provide a written report within thirty calendar days of the exceedance to the board explaining how the fund came back into compliance and the results of the analysis and updates required under paragraph 2(iii)(B) of these conditions. If the fund remains out of compliance with the absolute VaR test at that time, the derivatives risk manager’s written report must update the report previously provided under paragraph 2(iii)(A). of these conditions and the derivatives risk manager must update the board on the fund’s progress in coming back into compliance at regularly scheduled intervals at a frequency determined by the board.

3. Board oversight and reporting

(i) Approval of the derivatives risk manager. The board, including a majority of independent directors of the fund manager, if any, must approve the designation of the derivatives risk manager.

(ii) Reporting on program implementation and effectiveness. On or before the implementation of the program, and at least annually thereafter, the derivatives risk manager must provide to the board a written report providing a representation that the program is reasonably designed to manage the fund’s derivatives risks and to incorporate the elements provided in paragraphs 1(i) through (vi) of these conditions. The representation may be based on the derivatives risk manager’s reasonable belief after due inquiry. The written report must include the basis for the representation along with such information as may be reasonably necessary to evaluate the adequacy of the fund’s program and, for reports following the program’s initial implementation, the effectiveness of its implementation.

(iii) Regular board reporting. The derivatives risk manager must provide to the board, annually or at such other frequency determined by the board, a written report regarding the derivatives risk manager’s analysis of exceedances described in paragraph 1(ii) of these conditions, the results of the stress testing conducted under paragraph 1(iii) of these conditions, and the results of the backtesting conducted under paragraph 1(iv) of these conditions since the last report to the board. Each report under this paragraph must include such information as may be reasonably necessary for the board to evaluate the fund’s response to exceedances and the results of the fund’s stress testing.

4. [Not applicable]

5. [Not applicable]

6. Recordkeeping –

(i) Records to be maintained. A fund must maintain a written record documenting the following, as applicable:

A. The fund’s written policies and procedures required by paragraph 1 of these conditions, along with

i. The results of the fund’s stress tests under paragraph 1(iii) of these conditions;

ii. The results of the backtesting conducted under paragraph 1(iv) of these conditions;

iii. Records documenting any internal reporting or escalation of material risks under paragraph 1(v)(B). of these conditions; and

iv. Records documenting the reviews conducted under paragraph 1(vi) of these conditions.

B. Copies of any materials provided to the board in connection with its approval of the designation of the derivatives risk manager, any written reports provided to the board relating to the program, and any written reports provided to the board under paragraphs 2(iii)(A) and C. of these conditions.

C. Any determination and/or action the fund made under paragraphs 2(i) and (ii) of these conditions, including a fund’s determination of: The VaR of its portfolio and any updates to any VaR calculation models used by the fund and the basis for any material changes thereto.

(ii) Retention periods.

A. A fund must maintain a copy of the written policies and procedures that the fund adopted under condition 1. that are in effect, or at any time within the past seven years were in effect, in an easily accessible place.

B. A fund must maintain all records and materials that paragraphs 6(i)(A)(1) through 4 and 6(i)(B) through (D). of these conditions describe for a period of not less than seven years (the first two years in an easily accessible place) following each determination, action, or review that these paragraphs describe.