March 28, 2025
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 PURPOSE INVESTMENTS INC. (the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the existing mutual funds and future mutual funds of which the Filer or an affiliate of the Filer is or becomes the investment fund manager which are available for sale to retail investors and to which National Instrument 81- 102 Investment Funds (NI 81-102) applies (each a Fund and collectively, the Funds) for a decision under the securities legislation of the jurisdiction of the principal regulator (the Legislation) for an exemption under section 19.1 of NI 81-102 from the requirements set out in paragraphs 15.3(4)(c) and 15.3(4)(f) of NI 81-102, which provide that a sales communication must not refer to a performance rating or ranking of a mutual fund or asset allocation service unless:
(a) the rating or ranking is provided for each period for which standard performance data is required to be given, except the period since the inception of the mutual fund; and
(b) the rating or ranking is to the same calendar month end that is:
i not more than 45 days before the date of the appearance or use of the advertisement in which it is included, and
ii not more than three months before the date of first publication of any other sales communication in which it is included,
in order to permit the FundGrade A+ Awards, FundGrade Ratings, LSEG Lipper Awards and LSEG Lipper Leader Ratings (each as defined below) to be referenced in sales communications relating to the Funds (together, 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 subparagraph 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 (together with the Jurisdiction, collectively referred to as the Canadian Jurisdictions).
Interpretation
Defined terms contained in NI 81-102, National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
The Filer and the Funds
The Filer is a corporation amalgamated under the laws of the Province of Ontario with its head office located in Toronto, Ontario.
The Filer is registered (a) as an exempt market dealer in each of the provinces of Canada, (b) as a portfolio manager in Alberta, British Columbia, Newfoundland and Labrador, Ontario and Québec, (c) as an investment fund manager in each of the provinces of Canada, and (d) as a commodity trading manager in Ontario.
The Filer, or an affiliate of the Filer is, or will be, the investment fund manager of each of the Funds.
Each Fund is, or will be, an open-ended mutual fund established either as a trust or a class of shares of a mutual fund corporation under the laws of a Jurisdiction. The securities of each of the Funds are, or will be, qualified for distribution pursuant to one or more prospectuses or simplified prospectuses, as the same may be amended from time to time.
Each Fund is, or will be, a reporting issuer under the laws of the Jurisdictions.
Each Fund is, or will be, governed by the applicable provisions of NI 81-102, subject to any exemptions therefrom that have been, or may in the future be, granted by the securities regulatory authorities.
Neither the Filer nor the existing Funds are in default of the securities legislation of the Canadian Jurisdictions.
Fundata FundGrade A+ Awards Program
The Filer wishes to include in sales communications of the Funds references to FundGrade Ratings (as defined below) and references to the FundGrade A+ Awards (as defined below) where such Funds have been awarded a FundGrade A+ Award.
Fundata Canada Inc. (Fundata) is not a member of the Funds' organization. Fundata is a "mutual fund rating entity" as that term is defined in NI 81-102. Fundata is a leader in supplying mutual fund information, analytical tools, and commentary. Fundata's fund data and analysis, fund awards designations and ratings information provide valuable insight to advisors, media and individual investors.
One of Fundata's programs is the FundGrade A+ Awards program (the FundGrade A+ Awards). This program highlights funds that have excelled in delivering consistently strong risk-adjusted performance relative to their peers. The FundGrade A+ Awards designate award-winning funds in most individual fund classifications for the previous calendar year, and the awards are announced in January of each year. The categories for fund classification used by Fundata are those maintained by the Canadian Investment Funds Standards Committee (CIFSC) (or a successor to CIFSC), a Canadian organization that is independent of Fundata.
The FundGrade A+ Awards are based on a proprietary rating methodology developed by Fundata, the FundGrade Rating system. The FundGrade Rating system evaluates funds based on their risk-adjusted performance measured by three well-known and widely used metrics: the Sharpe Ratio, the Information Ratio, and the Sortino Ratio. The ratios are calculated for the two- through ten-year time periods for each fund. When there is more than one eligible series of a fund, an average ratio is taken for each period. The ratios are ranked across all time periods and an overall score is calculated by equally weighting the yearly rankings.
The FundGrade Ratings are letter grades for each fund and are determined each month (the FundGrade Ratings). The FundGrade Ratings for each month are released on the seventh business day of the following month. The top 10% of funds earn an A Grade; the next 20% of funds earn a B Grade; the next 40% of funds earn a C Grade; the next 20% of funds receive a D Grade; and the lowest 10% of funds receive an E Grade. Because the overall score of a fund is calculated by equally weighting the periodic rankings, to receive an A Grade, a fund must show consistently high scores for all ratios across all time periods.
Fundata calculates a grade using only the retail series of each fund. Institutional series or fee-based series of any fund are not included in the calculation. A fund must have at least two years of history to be included in the calculation. Once a letter grade is calculated for a fund, it is then applied to all related series of that fund.
At the end of each calendar year, Fundata calculates a "Fund GPA" for each fund based on the full year's performance. The Fund GPA is calculated by converting each month's FundGrade Rating letter grade into a numerical score. Each A is assigned a grade of 4.0; each B is assigned a grade of 3.0; each C is assigned a grade of 2.0; each D is assigned a grade of 1.0; and each E is assigned a grade of 0. The total of the grades for each fund is divided by 12 to arrive at the fund's GPA for the year. Any fund earning a GPA of 3.5 or greater earns a FundGrade A+ Award.
When a fund is awarded a FundGrade A+ Award, Fundata will permit such fund to make reference to the award in its sales communications.
Lipper Leader Ratings and Lipper Awards
The Filer also wishes to include in sales communications of the Funds references to LSEG Lipper Leader Ratings and LSEG Lipper Awards (as each defined below) where such Funds have been awarded a LSEG Lipper Award.
LSEG Lipper, Inc. (Lipper) is a "mutual fund rating entity" as that term is defined in NI 81-102. Lipper is part of the London Stock Exchange Group, plc group of companies, and is a global leader in supplying mutual fund information, analytical tools, and commentary. Lipper's fund data and analysis, fund awards designations and ratings information provide valuable insight to advisors, media and individual investors.
One of Lipper's programs is the LSEG Lipper Fund Awards (the LSEG Lipper Awards). This program recognizes funds that have excelled in delivering consistently strong risk-adjusted performance relative to peers and also recognizes fund families with high average scores for all funds within a particular asset class or overall. Currently, the LSEG Lipper Awards take place in approximately 17 countries.
In Canada, the LSEG Lipper Awards include the LSEG Lipper Fund Awards and LSEG Lipper ETF Awards (which were awarded for the first time in Canada in 2014). For the LSEG Lipper Fund Awards, Lipper designates award-winning funds in a number of individual fund classifications for three-, five- and ten-year periods. For the LSEG Lipper ETF Awards, Lipper designates award-winning funds in a number of individual fund classifications for the three-, five- and ten-year periods.
The categories for fund classification used by Lipper for the LSEG Lipper Awards in respect of Canadian funds are those maintained by CIFSC (or a successor to the CIFSC), a Canadian organization that is independent of Lipper. Only those CIFSC groups of ten or more unique funds will claim a LSEG Lipper Fund Award, and only those CIFSC groups of five or more unique ETFs (each of whom have a minimum of three or five years of performance history, as applicable) will claim a LSEG Lipper ETF Award.
The LSEG Lipper Awards are based on a proprietary rating methodology prepared by Lipper, the LSEG Lipper Leader Rating System. The LSEG Lipper Leader Rating System is a toolkit that uses investor-centred criteria to deliver a simple, clear description of a fund's success in meeting certain goals, such as preserving capital, lowering expenses or building wealth. LSEG Leader Lipper Ratings (as defined below) provide an instant measure of a fund's success against a specific set of key metrics, and can be useful to investors in identifying funds that meet particular characteristics.
In Canada, the LSEG Lipper Leader Rating System includes LSEG Lipper Ratings for Consistent Return (reflecting funds' historical risk-adjusted returns relative to funds in the same classification), LSEG Lipper Ratings for Total Return (reflecting funds' historical total return performance relative to funds in the same classification), LSEG Lipper Ratings for Preservation (reflecting funds' historical loss avoidance relative to other funds in the same classification) and LSEG Lipper Ratings for Expense (reflecting funds' expense minimization relative to funds with similar load structures) (collectively, the LSEG Lipper Leading Ratings). In each case, the categories for fund classification used by Lipper for the LSEG Lipper Leader Ratings are those maintained by CIFSC (or a successor to CIFSC). LSEG Lipper Leader Ratings are measured monthly over 36-, 60- and 120-month periods, and an overall rating is also measured, which is an unweighted average of the previous three periods. The highest 20% of funds in each category are named LSEG Lipper Leaders for that particular rating and receive a score of 5, the next 20% receive a score of 4, the middle 20% are scored 3, the next 20% are scored 2 and the lowest 20% are scored 1.
The LSEG Lipper Awards, awarded annually in Canada, are based on the LSEG Lipper Ratings for Consistent Return measure, which, as generally described above, is a risk-adjusted mutual fund return performance measure used by Lipper that takes into account both short- and long-term risk-adjusted performance relative to fund classification, together with a measure of a fund's consistency. In respect of the LSEG Lipper Awards for Canada, the LSEG Lipper Ratings for Consistent Return are measured over the 36-, 60- and 120-month periods ending at the end of July of each year. As noted above, the highest 20% of funds in each classification are named LSEG Lipper Leaders for Consistent Return, and the highest LSEG Lipper Leader for Consistent Return in each applicable fund classification over these periods wins a LSEG Lipper Award.
Sales Communication Disclosure
FundGrade Ratings and FundGrade A+ Awards
The FundGrade Ratings fall within the definition of "performance data" under NI 81-102, as they constitute "a rating, ranking, quotation, discussion or analysis regarding an aspect of the investment performance of an investment fund", given that the FundGrade Ratings are based on performance measures calculated by Fundata. The FundGrade A+ Awards may be considered to be "overall ratings or rankings", given that the awards are based on the FundGrade Ratings as described above. Therefore, references to FundGrade Ratings and FundGrade A+ Awards in sales communications relating to the Funds need to meet the applicable requirements in Part 15 of NI 81-102.
Paragraph 15.3(4)(c) of NI 81-102 imposes a "matching" requirement for performance ratings or rankings that are included in sales communications for mutual funds. If a performance rating or ranking is referred to in a sales communication, it must be provided for, or "match", each period for which standard performance data is required to be given for the fund, except for the period since the inception of the fund (i.e., for one-, three-, five and ten-year periods, as applicable).
While FundGrade Ratings are based on calculations for a minimum of two years through to a maximum of ten years, and the FundGrade A+ Awards are based on a yearly average of monthly FundGrade Ratings, specific ratings for the three-, five- and ten-year periods within the two- to ten-year measurement period are not given. This means that a sales communication referencing FundGrade Ratings cannot comply with the "matching" requirement contained in paragraph 15.3(4)(c) of NI 81-102. Relief from paragraph 15.3(4)(c) of NI 81-102 is therefore required in order for a Fund to use FundGrade Ratings in sales communications.
The exemption in subsection 15.3(4.1) of NI 81-102 for references to overall ratings or rankings of funds cannot be relied upon to reference the FundGrade A+ Awards in sales communications for the Funds because it is available only if a sales communication "otherwise complies" with the requirements of subsection 15.3(4). As noted above, sales communications referencing the FundGrade A+ Awards cannot comply with the "matching" requirement in subsection 15.3(4) because the underlying FundGrade Ratings are not available for the three-, five- and ten-year periods within the two- to ten-year measurement period for the FundGrade Ratings, rendering the exemption in subsection 15.3(4.1) unavailable. Relief from paragraph 15.3(4)(c) is therefore required in order for the Funds to reference the FundGrade A+ Awards and the FundGrade Ratings in sales communications.
Paragraph 15.3(4)(f) of NI 81-102 imposes certain restrictions on disclosure in sales communications. This paragraph provides that in order for a rating or ranking such as a FundGrade A+ Award to be used in an advertisement, the advertisement must be published within 45 days of the calendar month end to which the rating or ranking applies. Further, in order for the rating or ranking to be used in any other sales communication, the rating or ranking must be published within three months of the calendar month end to which the rating or ranking applies.
Because the evaluation of Funds for the FundGrade A+ Awards will be based on data aggregated until the end of December in any given year and the results will be published in January of the following year, by the time a Fund receives a FundGrade A+ Award in January, paragraph 15.3(4)(f) of NI 81-102 will only allow the FundGrade A+ Award to be used in an advertisement until the middle of February and in other sales communications until the end of March. Relief from paragraph 15.3(4)(f) is required in order for the FundGrade A+ Awards to be referenced in sales communications relating to the Funds outside the above periods.
Lipper Leader Ratings and Lipper Awards
The LSEG Lipper Leader Ratings are performance ratings or rankings under NI 81-102 and LSEG Lipper Awards may be considered to be performance ratings or rankings under NI 81-102 given that the awards are based on the LSEG Lipper Leader Ratings as described above. Therefore, references to LSEG Lipper Leader Ratings and LSEG Lipper Awards in sales communications relating to the Funds need to meet the applicable requirements in Part 15 of NI 81-102.
In Canada and elsewhere, LSEG Lipper Leader Ratings are calculated only for 36-, 60- and 120- month periods and are not calculated for a one-year period. This means that a sales communication referencing a LSEG Lipper Leader Rating cannot comply with the "matching" requirement contained in paragraph 15.3(4)(c) of NI 81-102 because a rating is not available for the one-year period. Relief from paragraph 15.3(4)(c) of NI 81-102 is therefore required in order for the Funds to reference LSEG Lipper Leader Ratings in sales communications.
In addition, a sales communication referencing the overall LSEG Lipper Leader Ratings and the LSEG Lipper Awards, which are based on the LSEG Lipper Leader Ratings, must disclose the corresponding LSEG Lipper Leader Rating for each period for which standard performance data is required to be given. As noted above, because a rating for the one-year period is not available for the LSEG Lipper Leader Ratings, sales communications referencing the overall LSEG Lipper Leader Ratings or LSEG Lipper Awards also cannot comply with the matching requirement contained in paragraph 15.3(4)(c) of NI 81-102.
The exemption in subsection 15.3(4.1) of NI 81-102 for references to overall ratings or rankings of funds cannot be relied upon to reference the overall LSEG Lipper Leader Ratings or LSEG Lipper Awards in sales communications for the Funds because subsection 15.3(4.1) of NI 81-102 is available only if a sales communication otherwise complies with the requirements of subsection 15.3(4) of NI 81-102. As noted above, sales communications referencing the overall LSEG Lipper Leader Ratings or LSEG Lipper Awards cannot comply with the "matching" requirement in subsection 15.3(4) of NI 81-102 because the underlying LSEG Lipper Leader Ratings are not available for the one-year period, rendering the exemption in subsection 15.3(4.1) of NI 81-102 unavailable. Relief from paragraph 15.3(4)(c) of NI 81- 102 is therefore required in order for the Funds to reference overall LSEG Lipper Leader Ratings and the LSEG Lipper Awards in sales communications.
Paragraph 15.3(4)(f) of NI 81-102 imposes certain restrictions on disclosure in sales communications. The paragraph provides that in order for a rating or ranking such as a LSEG Lipper Award to be used in an advertisement, the advertisement must be published within 45 days of the calendar month end to which the rating or ranking applies. Further, in order for the rating or ranking to be used in any other sales communication, the rating or ranking must be published within three months of the calendar month end to which the rating or ranking applies.
Because the evaluation of funds for the LSEG Lipper Awards will be based on data aggregated until the end of July in any given year and the results will be published in November of that year, by the time a fund receives an award in November, paragraph 15.3(4)(f) of NI 81- 102 will prohibit it from publishing news of the award altogether.
The Exemption Sought is required in order for the FundGrade Ratings, FundGrade A+ Awards, LSEG Lipper Leader Ratings and LSEG Lipper Awards to be referenced in sales communications relating to the Funds.
General
The Exemption Sought will provide investors with helpful information
The FundGrade A+ Awards, FundGrade Ratings, LSEG Lipper Awards, and LSEG Lipper Leader Ratings provide important tools for investors, as they provide them with context when evaluating investment choices.
The FundGrade A+ Awards, FundGrade Ratings, LSEG Lipper Awards, and LSEG Lipper Leader Ratings provide an objective, transparent and quantitative measure of performance that is based on the expertise of Fundata or Lipper, as applicable, in fund analysis and alleviates any concern that references to them may be misleading and therefore, contrary to paragraph 15.2(1)(a) of NI 81-102.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation of the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted to permit the FundGrade A+ Awards, FundGrade Ratings, LSEG Lipper Awards and LSEG Lipper Leader Ratings to be referenced in sales communications relating to a Fund provided that:
- The sales communication that refers to the FundGrade A+ Awards, FundGrade Ratings, LSEG Lipper Awards and LSEG Lipper Leader Ratings complies with Part 15 of NI 81-102 other than as set out herein and contains the following disclosure in at least 10-point type:
a. the name of the category for which the Fund has received the award or rating;
b. the number of mutual funds in the category for the applicable period;
c. the name of the ranking entity, i.e., Fundata or Lipper;
d. the length of period and the ending date, or the first day of the period and the ending date on which the FundGrade A+ Awards, FundGrade Rating, LSEG Lipper Awards or LSEG Lipper Leader Ratings is based;
e. a statement that FundGrade Ratings and LSEG Lipper Leader Ratings are subject to change every month;
f. in the case of a FundGrade A+ Award or LSEG Lipper Award, a brief overview of the FundGrade A+ Award or LSEG Lipper Award, as applicable;
g. in the case of a FundGrade Rating (other than FundGrade Ratings referenced in connection with a FundGrade A+ Award) or a LSEG Lipper Leader Rating (other than LSEG Lipper Leader Ratings referenced in connection with a LSEG Lipper Award), a brief overview of the FundGrade Rating or LSEG Lipper Leader Rating, as applicable;
h. where LSEG Lipper Awards are referenced, the corresponding LSEG Lipper Leader Rating that the LSEG Lipper Award is derived from is presented for each period for which standard performance data is required other than the one-year and since inception periods;
i. where a LSEG Lipper Leader Rating is referenced, the LSEG Lipper Leader Ratings are presented for each period for which standard performance data is required other than the one-year and since inception periods;
j. disclosure of the meaning of the FundGrade Ratings from A to E (e.g., rating of A indicates a fund is in the top 10% of its category) or LSEG Lipper Leader Ratings from 1 to 5 (e.g., rating of 5 indicates a fund is in the top 20% of its category), as applicable; and
k. reference to Fundata's website (www.fundata.com) for greater detail on the FundGrade A+ Awards and the FundGrade Ratings or reference to Lipper's website for greater detail on the LSEG Lipper Awards and LSEG Lipper Leader Ratings, which includes the rating methodology prepared by Fundata or Lipper, as applicable;
The FundGrade A+ Awards and LSEG Lipper Awards being referenced must not have been awarded more than 365 days before the date of the sales communication; and
The FundGrade A+ Awards, FundGrade Ratings, LSEG Lipper Awards, and LSEG Lipper Leader Ratings being referenced are calculated based on comparisons of performance of mutual funds within a specified category established by the CIFSC (or a successor to the CIFSC).
"Darren McKall"
Darren McKall Manager, Investment Management Division Ontario Securities Commission
Application No. 2025/0104; SEDAR+ 6244998