Hazelview Securities Inc. (Re), 2024 CanLII 57292

June 20, 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 HAZELVIEW SECURITIES INC. (the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application (the Application) from the Filer on behalf of Hazelview Alternative Real Estate Fund (the Fund), which will be an alternative mutual fund governed by National Instrument 81-102 Investment Funds (NI 81-102), for a decision under the securities legislation of the Jurisdiction (the Legislation):

(a) exempting the Fund from the following restrictions of NI 81-102 to permit the Fund to sell securities short and/or borrow cash up to a combined aggregate total of 100% of the Fund’s NAV:

(i) subparagraph 2.6.1(1)(c)(v) of NI 81-102, which restricts the Fund from selling a security short if, at the time, the aggregate market value of all securities sold short by the Fund exceeds 50% of the Fund’s NAV (together with (a)(iii) below, the Short Selling Limit);

(ii) subparagraph 2.6(2)(c) of NI 81-102, which restricts the Fund from borrowing cash if the value of cash borrowed, when aggregated with the value of all outstanding borrowing by the Fund, exceeds 50% of the Fund’s NAV (together with (a)(iii) below, the Cash Borrowing Limit); and

(iii) section 2.6.2 of NI 81-102, which restricts the Fund from borrowing cash or selling securities short if, immediately after entering into a cash borrowing or short selling transaction, the aggregate value of cash borrowed combined with the aggregate market value of all securities sold short by the Fund (the Combined Aggregate Value) would exceed 50% of the Fund’s NAV and which requires the Fund, if the Combined Aggregate Value exceeds 50% of the Fund’s NAV, as quickly as commercially reasonable, to take all necessary steps to reduce the Combined Aggregate Value to 50% or less of the Fund’s NAV;

((a)(i) and (iii) together, the Short Selling Relief, (a)(ii) and (iii) together, the Cash Borrowing Relief).

(b) exempting the Fund from the requirement in subsection 6.1(1) of NI 81-102 that, except as provided, all portfolio assets of the Fund be held under the custodianship of one qualified custodian,

(i) to permit the Fund to deposit portfolio assets with a borrowing agent that is not the Fund’s custodian or sub-custodian in connection with a short sale of securities, if the aggregate market value of the portfolio assets held by the borrowing agent after such deposit, excluding the aggregate market value of the proceeds from outstanding short sales of securities held by the borrowing agent, does not exceed 25% of the Fund’s NAV at the time of deposit (the Short Sale Collateral Relief); and

(ii) to permit the Fund to appoint more than one custodian, each of which satisfies the requirements of Section 6.2 of NI 81-102, subject to certain conditions (the Custodian Relief);

(c) exempting the Series F-1 units of the Fund from sections 15.3(2), 15.3(4)(c), 15.6(1)(a)(i), 15.6(1)(d), 15.8(2)(a.1) and 15.8(3)(a.1) of NI 81-102 which would permit the Fund to include its past performance data in sales communications notwithstanding that the past performance data will relate to a period prior to the Fund offering its units under a simplified prospectus;

(d) exempting the units of the Fund from section 15.1.1(a) of NI 81-102 and Items 2 and 4 of Appendix F Investment Risk Classification Methodology to NI 81-102 (Appendix F) to permit the Fund to include its past performance data in determining its investment risk level in accordance with Appendix F;

(e) exempting the units of the Fund from section 15.1.1(b) of NI 81-102 and Item 4(2)(a) and Instruction (1) of Item 4 of Form 81-101F3 Contents of Fund Facts Document (Form 81-101F3) to permit the Fund to disclose its investment risk level as determined by including its past performance data in accordance with Appendix F;

(f) exempting the units of the Fund from Item 10(b) of Part B of Form 81-101F1 Contents of Simplified Prospectus (Form 81-101F1) to permit the Fund to use its past performance data to calculate its investment risk rating in its simplified prospectus;

(g) exempting the units of the Fund from section 2.1 of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) for the purposes of the relief requested herein from Form 81-101F1 and Form 81-101F3;

(h) exempting the Series F-1 units of the Fund from Items 5(2), 5(3) and 5(4) and Instruction (1) of Part I of Form 81-101F3 in respect of the requirement to comply with sections 15.3(2), 15.3(4)(c), 15.6(1)(a)(i), 15.6(1)(d), 15.8(2)(a.1) and 15.8(3)(a.1) of NI 81-102 to permit the Fund to include in its fund facts the past performance data of the Fund notwithstanding that such performance data relates to a period prior to the Fund offering its units under a simplified prospectus and the Fund has not distributed its units under a simplified prospectus for 12 consecutive months;

(i) exempting the Series F-1 units of the Fund from section 4.4 of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) for the purposes of relief requested herein from Form 81-106F1 Contents of Annual and Interim Management Report of Fund Performance (Form 81-106F1); and

(j) exempting the Series F-1 units of the Fund from Items 3.1(7) and 4.1(1) in respect of the requirement to comply with subsections 15.3(2) and 15.3(4)(c) of NI 81-102, 4.1(2), 4.2(1), 4.3(1) and 4.3(2) of Part B of Form 81-106F1 and Items 3(1) and 4 of Part C of Form 81-106F1 to permit the Fund to include in its annual and interim management reports of fund performance (MRFP) the past performance data and financial highlights of the Fund notwithstanding that such performance data and financial highlights relate to a period prior to the Fund offering its units under a simplified prospectus;

((c) through (j), the Past Performance Relief and, together with the Short Selling Relief, the Cash Borrowing Relief, the Short Sale Collateral Relief and the Custodian Relief, the Exemption Sought).

Under National Policy 11‑203 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 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 (the Other Jurisdictions and, together with Ontario, the Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 Definitions, MI 11-102, NI 81-101, and NI 81-102 have the same meaning, unless otherwise defined.

NAV means net asset value;

Prime Broker means any entity that acts as a lender or borrowing agent, as the case may be, to one or more investment funds;

Prospectus means a prospectus of the Fund prepared in accordance with Form 81‑101F1 Contents of Simplified Prospectus, as the same may be amended from time to time; and

Securities Lending Agreements means agreements which effect securities lending, repurchase or reverse repurchase transactions between the Fund, as lender of the securities, third party borrowers and the Fund’s securities lending agent.

Representations

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

The Filer

1. The Filer is a corporation incorporated under the laws of the Province of Ontario. The head office of the Filer is located in Toronto, Ontario.

2. The Filer is registered as (a) an investment fund manager in Newfoundland and Labrador, Ontario and Québec, (b) a portfolio manager in Ontario, and (c) an exempt market dealer in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island, Québec, Saskatchewan and Yukon.

3. The Filer is the trustee, investment fund manager and portfolio manager of the Fund.

4. The Filer is not in default of applicable securities legislation in any of the Jurisdictions.

The Fund

5. The Fund is organized as a trust established under the laws of the Province of Ontario.

6. Since the Fund’s commencement of operations on January 17, 2023 (the Effective Date), one series of units of the Fund was distributed to investors on a prospectus-exempt basis in accordance with the Securities Act (Ontario) in Ontario.

7. The Fund’s investment objective is to provide superior risk-adjusted return by investing primarily in securities of real estate investment issuers in developed markets globally. The Fund combines a market neutral long-short overlay with a concentrated long-only portfolio. The Fund uses leverage to enhance return primarily by short selling, cash borrowing and investing in derivatives. The Fund’s aggregate exposure to short selling, cash borrowing and derivatives transactions must not exceed a certain percentage of the Fund’s NAV (currently 300%) or as otherwise permitted under applicable securities legislation and/or regulatory approval.

8. Concurrent with the filing of this Application, the Filer pre-filed on a confidential basis a preliminary simplified prospectus and fund facts to qualify the existing series of the Fund, as well as newly created series of the Fund, to be named Series A, F and I, for distribution under a simplified prospectus in the Jurisdictions. The existing series of the Fund is currently named Series F, but upon the filing of the simplified prospectus, will be renamed Series F-1. Series F-1 Units of the Fund will be available to investors who (i) participate in fee-based programs through brokers or dealers who have been approved to distribute Series F-1 Units, or (ii) are clients of dealers that do not make a suitability determination. This Series will be available for purchase by such investors until such time as the Fund reaches a net asset value of $75,000,000 (the “Founders Investment Period”). Once the Founders Investment Period has concluded, Series F-1 Units will no longer be available for purchase; although existing holders of Series F-1 Units will be entitled to receive new Series F-1 Units through reinvestment of distributions on the Series F-1 Units that they hold. The newly created Series F Units will be available to the same investors as Series F-1 Units, but will only be available for purchase after the Founders Investment Period has concluded. The Series F-1 Units of the Fund have lower fees than the Series F Units of the Fund and are being offered in order to encourage investors to invest in the Fund while it still remains in its start-up phase as a public offering.

9. Investors in the existing series will be notified (1) that the name of the series they hold will be changed from Series F to Series F-1, (2) that the fees will be reduced as described in para 11 b. below, (3) of the details of the offering period of the Series F-1 Units as described in para 8 above, and (4) that, following the conclusion of the Founders Investment Period, the Series F Units will be offered which are a new series distinct from the Series F-1 Units with a different fee structure.

10. Upon the issuance of the final receipt for such disclosure documents of the Fund, the Fund will be a reporting issuer in each Jurisdiction and will be subject to the requirements of NI 81-102 that relate to alternative mutual funds and the requirements of NI 81-106 that apply to investment funds that are reporting issuers.

11. The Fund will be managed substantially similarly after it becomes a reporting issuer as it was prior to becoming a reporting issuer. Specifically:

a. the Fund’s investment objective and strategies will not change, other than to reflect (i) that the Fund will use synthetic derivatives (e.g., synthetic cash positions) that materially replicate the function of cash borrowing beyond the Cash Borrowing Limit but within the Leverage Limit, and (ii) minor grammatical changes;

b. the only changes to the fee structure associated with the Series F-1 units were that the management fee and performance fee rates associated with such units were reduced. Additionally, prior to becoming public, an immaterial amount of performance fees were waived by the Filer. Based on its calculations, the Filer believes that these changes will be immaterial.

c. the day-to-day administration of the Fund will not change, other than to comply with the additional regulatory requirements associated with being a reporting issuer (as modified by the Exemption Sought) and to provide additional features that are available to investors of mutual funds managed by the Filer, as will be described in the Fund’s Prospectus and fund facts.

12. Since the Effective Date, the Fund has used investment restrictions and practices that resulted in similar performance results to that which would have been obtained if it had complied with the investment restrictions and practices contained in NI 81-102 that relate to alternative mutual funds except as modified by the Exemption Sought.

13. The Fund is not in default of applicable securities legislation in any of the Jurisdictions.

The Short Selling Relief and the Cash Borrowing Relief

14. The investment objective of the Fund includes the use of a concentrated long-only portfolio coupled with a market neutral pair trading strategy that requires the use of short selling in excess of the Short Selling Limit as well as the use of short selling and cash borrowing in excess of the Combined Aggregate Value.

15. Market neutral strategies are well-recognized for limiting market risk, balancing long and short positions within an investment portfolio with the objective of providing positive returns regardless of whether the broader market rises, falls or is flat. Market neutral strategies are designed to have less volatility than the broader market when measured over medium to long-term periods. Market neutral strategies also provide diversification to investors as returns are intended to be uncorrelated to the performance of the broader market – such strategies are designed to effectively remove any “beta” component from their returns and investment exposures.

16. As part of an investment strategy, short positions can serve as both a hedge against exposure to a long position or a group of long positions and also as a source of returns with an offsetting long position or positions. In addition to a long-only portfolio, the Fund utilizes a market neutral pair trading strategy in the portfolio to seek to generate an attractive risk/return profile independent of the direction of the broad equity market for this portion of the portfolio. As such, for this portion of the portfolio, the market neutral pair trading strategy will seek to generate positive performance from the difference, specifically, the spread between the performance of the portfolio’s long and short positions.

17. The ability to engage in additional short selling and cash borrowing in connection with the investment strategies of the Fund may provide material cost savings to the Fund compared to obtaining the same level of investment exposure through the use of specified derivatives while, at the same time, not increasing the overall level of risk to the Fund.

18. The costs to the Fund of engaging in physical short sales and cash borrowing are typically less when compared to the equivalent derivative transactions due to a number of factors which may include:

(a) Prime Brokers typically have greater flexibility to offer more favourable financing terms to the Fund in relation to the aggregate amount of the Fund’s assets held in the prime brokerage margin account. Derivative instruments, such as futures contracts and over the counter (OTC) derivatives, are not held in a prime brokerage account and, therefore, reduce the ability of the Fund to obtain the most beneficial pricing terms available.

(b) Margin requirements for derivative instruments are primarily based on the underlying investment exposure and, as a result, can be high.

(c) Certain derivative instruments (such as futures contracts) require cash or near cash securities (such as government treasuries) to be deposited with the counterparty as collateral. This would require the Fund to use these portfolio assets to satisfy collateral requirements rather than utilizing them in connection with the Fund’s investment strategy.

19. The investment strategies of the Fund permit it to:

(a) sell securities short, provided that at the time the Fund sells a security short, (i) the aggregate market value of securities of any one issuer (other than “government securities” as defined in NI 81-102) sold short by the Fund does not exceed 10% of the Fund’s NAV, and (ii) the aggregate market value of all securities sold short by the Fund does not exceed 100% of its NAV;

(b) borrow cash, provided that, at the time, the value of cash borrowed when aggregated with the value of all outstanding borrowing by the Fund, does not exceed 100% of the Fund’s NAV;

(c) borrow cash or sell securities short, provided that the aggregate value of cash borrowed combined with the aggregate market value of the securities sold short by the Fund does not exceed 100% of the Fund’s NAV (the Total Borrowing and Short Selling Limit). If the Total Borrowing and Short Selling Limit is exceeded, the Fund shall, as quickly as is commercially reasonable, take all necessary steps to reduce the aggregate value of cash borrowed combined with the aggregate market value of securities sold short to be within the Total Borrowing and Short Selling Limit; and

(d) borrow cash, sell securities short or enter into specified derivatives transactions, provided that the aggregate value of cash borrowed combined with the aggregate market value of securities sold short and aggregate notional amount of the Fund’s specified derivatives positions (other than positions held for hedging purposes, as defined in NI 81-102) would not exceed 300% of the Fund’s NAV as set out in section 2.9.1 of NI 81‑102 (the Leverage Limit). If the Leverage Limit is exceeded, the Fund shall, as quickly as is commercially reasonable, take all necessary steps to reduce the aggregate value of cash borrowed combined with the aggregate market value of securities sold short and the aggregate notional amount of the Fund’s specified derivatives positions (other than positions held for hedging purposes) to be within the Leverage Limit.

20. An alternative mutual fund that is subject to NI 81-102 is permitted to take leveraged long and short positions using specified derivatives up to the Leverage Limit. As such, the Short Selling Relief and Cash Borrowing Relief would not be required if the Fund utilized solely specified derivatives (such as over-the-counter total return swaps) to obtain short exposure to the underlying securities or to provide additional investment exposure in connection with the Fund’s investment strategies. NI 81-102 contemplates that alternative mutual funds may utilize shorting strategies using a combination of short sale transactions (subject to the Short Selling Limit) and specified derivative positions and obtain additional investment exposure using a combination of cash borrowing (subject to the Cash Borrowing Limit) and specified derivative positions subject, in all cases, to the Leverage Limit. Accordingly, the Short Selling Relief and Cash Borrowing Relief would simply allow the Fund to do directly what they could otherwise do indirectly through the use of specified derivatives.

21. The Fund requires the flexibility to enter into physical short positions and borrow cash when doing so is, in the opinion of the Filer, in the best interests of the Fund and to not be obligated to utilize an equivalent short position or amount of leverage synthetically through the use of specified derivatives as a result of regulatory restrictions in NI 81-102 that the Filer believes do not provide any material additional benefit or protection to investors.

22. The Filer believes that the Short Selling Relief and the Cash Borrowing Relief would allow the Filer to more effectively manage the Fund’s investment exposure by providing it with the ability to respond to market developments in a timely manner and enabling the Filer to reduce the related expenses incurred by the Fund. In addition, specified derivative options may not be readily available for certain securities, may be relatively illiquid or may require large capital commitments on the part of the Fund.

23. While there may be certain situations where using a synthetic short position may be preferable, physical short positions are typically less costly, because of the ability to execute trades with a larger number of counterparties, compared to a single counterparty for synthetic shorts. This can result in lower borrowing costs for the Fund and reduce its exposure to counterparty risk (e.g. counterparty default, counterparty insolvency and premature termination of derivatives) compared to a synthetic short position.

24. The Filer, as a registrant and a fiduciary, is in the best position to determine, depending on the surrounding circumstances, whether the Fund should enter into a physical short position and/or obtain additional investment exposure via cash borrowing versus achieving the same result through the use of specified derivatives. The Short Selling Relief and Cash Borrowing Relief would provide the Filer with the required flexibility to make timely trading decisions between physical and synthetic short sale positions and/or achieving additional investment exposure through cash borrowing or synthetic transactions. Accordingly, the Short Selling Relief and the Cash Borrowing Relief would permit the Filer to implement more effective portfolio management activities on behalf of the Fund and its investors. Investors would benefit by obtaining access to a more diversified set of investment opportunities than are currently available, while remaining within the overall investment limits set out in NI 81-102.

25. Any physical short position or cash borrowing transaction entered into by the Fund will be consistent with the investment objectives and strategies of the Fund.

26. The Prospectus and fund facts of the Fund will comply with the applicable requirements of NI 81-101 for alternative mutual funds, including cover page text box disclosure in the fund facts to highlight how the Fund differs from other mutual funds and alternative mutual funds and emphasize that the short selling and cash borrowing strategies and increased ability to engage in short selling and cash borrowing permitted for the Fund are outside the scope of the restrictions in NI 81-102 applicable to both mutual funds and alternative mutual funds.

27. The investment strategies of the Fund will clearly disclose that the short selling strategies and cash borrowing strategies and abilities of the Fund are outside the scope of NI 81-102, including that the aggregate market value of all securities sold short by the Fund and/or the aggregate amount of cash borrowed may exceed 50% of the Fund’s NAV. The Prospectus will also contain appropriate risk disclosure, alerting investors of any material risks associated with such investment strategies.

28. The Filer does not consider that granting the Short Selling Relief and Cash Borrowing Relief would constitute either a fundamental or material change for the Fund under NI 81-102 or NI 81-106.

29. The Filer will determine the risk rating for the Fund using the Investment Risk Classification Methodology as set out in Appendix F of NI 81-102. The Filer does not anticipate that the current risk rating of the Fund would change if the Short Selling Relief and Cash Borrowing Relief were granted.

30. The Filer has comprehensive risk management policies and/or procedures that address the risks associated with short selling and cash borrowing in connection with the implementation of the investment strategy of the Fund.

31. The Fund will implement the following controls when conducting a short sale:

(a) The Fund will assume the obligation to return to the borrowing agent the securities borrowed to effect the short sale;

(b) The Fund will receive cash for the securities sold short within normal trading settlement periods for the market in which the short sale is effected;

(c) The Filer will monitor the short positions within the constraints of the Exemption Sought at least as frequently as daily;

(d) The security interest provided by the Fund over any of its assets that is required to enable the Fund to effect a short sale transaction is made in accordance with industry practice for that type of transaction and relates only to obligations arising under such short sale transactions;

(e) The Filer will maintain appropriate internal controls regarding short sales, including written policies and procedures for the conduct of short sales, risk management controls and proper books and records; and

(f) The Filer will keep proper books and records of short sales and all assets of the Fund deposited with borrowing agents as security.

32. The Filer believes that it is in the best interests of the Fund to be permitted to engage in physical short selling and/or to obtain additional investment exposure via cash borrowing in excess of the current limits set out in NI 81-102.

The Short Sale Collateral Relief

33. As part of its investment strategies, the Fund is permitted to grant a security interest in favour of and to deposit pledged portfolio assets with its Prime Broker. If the Fund engages as its Prime Broker an entity that is not its custodian or sub-custodian, then the Fund may only deliver to its Prime Broker portfolio assets having a market value, in the aggregate, of not more than 25% of the Fund’s NAV at the time of deposit.

34. A Prime Broker may not wish to act as the borrowing agent for the Fund if the Prime Broker is only permitted to hold, as security for such transactions, portfolio assets, including the proceeds from short sales, having an aggregate market value that is not in excess of 25% of the Fund’s NAV when the Fund has the ability to sell securities short that have an aggregate market value of up to 50% of the Fund’s NAV (or more if the Short Selling Relief is granted).

35. Prime Brokers that are qualified to act as a custodian or sub-custodian under NI 81‑102 are not widely appointed as custodians or sub-custodians under NI 81-102 as it can be both operationally challenging and costly to appoint them to act in such capacity.

36. Given the typical collateral requirements that Prime Brokers impose on their customers who engage in the short sale of securities, if the Short Sale Collateral Limits apply, the Fund would need to retain multiple Prime Brokers in order to sell short securities to the extent permitted under Section 2.6.1 of NI 81-102 and, if granted, the Short Selling Relief described above. Managing and overseeing relationships with multiple Prime Brokers introduces unnecessary operational and administrative complexities and additional costs of operation for the Fund.

The Custodian Relief

37. The Filer would like the flexibility for the Fund to engage additional custodians that are qualified to act as a custodian under subsection 6.2(3) of NI 81-102 (each, an Additional Custodian) in order to provide additional flexibility for the Fund to engage in the short selling of securities under Section 6.8.1 of NI 81-102, as portfolio assets deposited with a borrowing agent that is the custodian or a sub-custodian of the Fund are not subject to the Short Sale Collateral Limits.

38. An Additional Custodian may also be appointed as a securities lending agent of the Fund and, in such circumstances, would provide the Fund with the opportunity to enter into a greater number of Securities Lending Agreements than would be the case with a single custodian and would, therefore, have the potential to increase revenues to the Fund from securities lending activities.

39. If the Custodian Relief is granted, an Additional Custodian’s responsibility for custody of the Fund’s assets will apply only to the assets held by the Additional Custodian on behalf of the Fund (the Relevant Assets). The custodial arrangements between the Fund and each Additional Custodian will comply with the requirements of Part 6 of NI 81-102 other than subsection 6.1(1).

40. Any Additional Custodian will meet the requirements of NI 81-102 to act as a custodian for an investment fund and will have experience acting as custodian of the assets of public investment funds governed by NI 81-102. As custodian of the Relevant Assets, an Additional Custodian will comply with the standard of care applicable to qualified custodians under Section 6.6 of NI 81-102, will hold the Relevant Assets in the name of the Fund in accordance with Section 6.5 of NI 81-102 and will include the provisions prescribed in Section 6.4 of NI 81-102 in its custody agreement with the Filer and the Fund. Each Additional Custodian will complete the review and provide compliance reports to the Filer as contemplated in Section 6.7 of NI 81-102.

41. The ability to terminate an Additional Custodian as custodian of the Relevant Assets of the Fund at any time without cause on written notice will ensure that the Filer maintains ultimate control over all of the portfolio assets of the Fund and can restore all assets to the custody of the custodian of the Fund at any time if the Filer considers it to be in the best interests of the Fund and its unitholders to do so.

42. The appointment of an Additional Custodian should not have an impact on the safety of the portfolio assets of the Fund because any Additional Custodian will meet the requirements of NI 81-102 to act as a custodian for an investment fund and will have experience acting as custodian of the assets of public investment funds governed by NI 81-102.

43. Disclosure regarding the particulars of the appointment of any Additional Custodian of the Fund with respect to the Relevant Assets will be included in the next Prospectus filed with respect to the Fund after such appointment is made.

The Past Performance Relief

44. The Filer proposes to present the performance data of Series F-1 units of the Fund for the time period commencing as of the Effective Date in sales communications pertaining to the Fund. Without the Exemption Sought, the sales communications pertaining to the Fund cannot include performance data of the Fund that relates to a period prior to the Fund becoming a reporting issuer, and the Fund cannot provide performance data in its sales communications until it has distributed securities under a simplified prospectus for at least 12 consecutive months.

45. Once the Fund is a reporting issuer, the Fund will be required under NI 81-101 to prepare and file a simplified prospectus and fund facts documents.

46. The Filer proposes to use the Fund’s past performance data for the time period commencing as of the Effective Date to determine its investment risk level and to disclose that investment risk level in the Prospectus and the fund facts documents for each series of units of the Fund. Without the Exemption Sought, the Filer, in determining and disclosing the Fund’s investment risk level in the Prospectus and the fund facts documents for each series of units of the Fund, cannot use performance data of the Fund that relates to a period prior to the Fund becoming a reporting issuer.

47. The Filer proposes to include in the fund facts documents for Series F-1 units of the Fund past performance data for the time period commencing as of the Effective Date in the charts required by Items 5(2), 5(3) and 5(4) of Part I of Form 81-101F3 under the sub-headings “Year-by-year returns”, “Best and worst 3-month returns” and “Average return”, respectively, related to periods prior to the Fund becoming a reporting issuer, and that is otherwise in accordance with the requirements of Items 5(2), 5(3) and 5(4) of Part I of Form 81-101F3. Without the Exemption Sought, the fund facts documents for Series F-1 units of the Fund cannot include performance data of the Fund that relates to a period prior to the Fund becoming a reporting issuer.

48. Once a reporting issuer, the Fund will be required under NI 81-106 to prepare and send MRFPs to all holders of its securities on an annual and interim basis. Without the Exemption Sought, the MRFPs of the Fund cannot include certain financial highlights and performance data of the Fund that relates to a period prior to the Fund becoming a reporting issuer.

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:

In Respect of the Short Selling Relief and the Cash Borrowing Relief:

1. The Fund may sell a security short or borrow cash only if, immediately after the cash borrowing or short selling transaction:

(a) the aggregate market value of all securities sold short by the Fund does not exceed 100% of the Fund’s NAV;

(b) the aggregate value of all cash borrowing by the Fund does not exceed 100% of the Fund’s NAV;

(c) the aggregate market value of securities sold short by the Fund combined with the aggregate value of cash borrowing by the Fund does not exceed 100% of the Fund’s NAV; and

(d) the Fund’s aggregate exposure to short selling, cash borrowing and specified derivatives does not exceed the Leverage Limit.

2. In the case of a short sale, the short sale:

(a) otherwise complies with all of the short sale requirements applicable to alternative mutual funds under sections 2.6.1 and 2.6.2 of NI 81-102; and

(b) is consistent with the Fund’s investment objectives and strategies.

3. In the case of a cash borrowing transaction, the transaction:

(a) otherwise complies with all of the cash borrowing requirements applicable to alternative mutual funds under sections 2.6 and 2.6.2 of NI 81-102; and

(b) is consistent with the Fund’s investment objectives and strategies.

4. The Prospectus under which securities of the Fund are offered discloses in the investment strategies that the Fund can sell securities short or borrow cash up to, and subject to, the limits described in condition 1 above.

In Respect of the Short Sale Collateral Relief:

5. The Fund otherwise complies with subsections 6.8.1(2) and (3) of NI 81-102.

In Respect of the Custodian Relief:

6. The Fund may appoint one or more Additional Custodians provided that the following conditions are met:

(a) a single entity reconciles all the portfolio assets of the Fund and provides the Fund with valuation and unitholder recordkeeping services and will complete daily reconciliations amongst the custodians before calculating a daily net asset value;

(b) the Filer maintains such operational systems and processes, as between two or more custodians and the single entity referred to in part (a) above, in order to keep a proper reconciliation of all the portfolio assets that will move amongst the custodians, as appropriate; and

(c) each Additional Custodian will act as custodian and securities lending agent only for the portion of portfolio assets of the Fund transferred to it.

In Respect of the Past Performance Relief:

7. Any sales communication, fund facts documents and MRFP that contains performance data of the Series F-1 units of the Fund relating to a period of time prior to when the Fund was a reporting issuer discloses:

(a) that the Fund was not a reporting issuer during such period;

(b) the expenses of the Fund would have been higher during such period had the Fund been subject to the additional regulatory requirements applicable to a reporting issuer;

(c) the Filer obtained exemptive relief on behalf of the Fund to permit the disclosure of performance data of the Series F-1 units relating to a period prior to when the Fund was a reporting issuer; and

(d) with respect to any MRFP, the financial statements of the Fund for such period are posted on the Fund’s website and are available to investors upon request.

8. The Filer posts the financial statements of the Fund since the Effective Date on the Fund’s website and makes those financial statements available to investors upon request.

“Darren McKall”

Darren McKall, Manager Investment Management Ontario Securities Commission

Application # 2023/0281