The Securities Commission has granted an application by 1832 Asset Management L.P. (the Filer) on behalf of certain existing and future investment funds for exemptive relief from specific provisions of National Instrument 81-102 Investment Funds (NI 81-102). The decision allows alternative mutual funds to engage in physical short selling and cash borrowing up to 100% of their net asset value (NAV), exceeding the usual 50% limit. Additionally, mutual funds are permitted to appoint multiple custodians and clarify that short sale proceeds are excluded when calculating non-custodial borrowing agent collateral limits.
Key points of the decision include:
1. Alternative mutual funds can sell securities short and borrow cash beyond the standard 50% NAV limit, provided that the combined value of short sales and cash borrowing does not exceed 100% of the fund’s NAV, and the total leverage including specified derivatives does not surpass 300% of the NAV.
2. Funds must comply with all other applicable short sale and cash borrowing requirements and ensure transactions are consistent with their investment objectives and strategies.
3. The funds’ prospectuses must disclose their ability to engage in short selling and cash borrowing beyond the standard limits.
4. Funds can deposit portfolio assets with a borrowing agent not acting as a custodian or sub-custodian, subject to certain NAV percentage limits at the time of deposit.
5. Funds are allowed to appoint more than one custodian, provided that a single entity reconciles all portfolio assets and provides valuation and recordkeeping services, and the Filer maintains operational systems for proper asset reconciliation among custodians.
The decision is based on the belief that this flexibility will enable more effective fund management, potentially reduce costs, and provide investors with access to a more diversified set of investment opportunities within the overall limits of NI 81-102. The exemptive relief is subject to conditions ensuring compliance with certain aspects of NI 81-102 and proper disclosure in fund prospectuses.