The Securities Commission has granted an exemption to investment funds managed by Canoe Financial LP (Canoe) from the concentration restriction in subsections 2.1(1) and 2.1(1.1) of National Instrument 81-102 Investment Funds (NI 81-102). This exemption allows these funds to invest more than the standard limits in debt securities issued by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
The decision is based on the understanding that Fannie Mae and Freddie Mac play a critical role in the U.S. mortgage industry and their debt securities are implicitly guaranteed by the U.S. government, despite the lack of an explicit guarantee. The securities of these government-sponsored entities are considered government securities under the U.S. Investment Company Act of 1940 and have a U.S. government equivalent credit rating.
The exemption is subject to conditions, including that the securities must have a U.S. Government Equivalent Rating and a minimum rating of BBB- or equivalent at the time of purchase. The funds must disclose in their prospectus that they have permission to exceed the standard investment concentration limits and must describe the associated risks. If the ratings of the securities fall below the required levels or if the U.S. Congress proposes or enacts legislation that changes or removes the implied guarantee, the funds must divest from these securities to comply with the standard concentration limits of NI 81-102.
The Alberta Securities Commission is the principal regulator for this application, and the decision also applies to Ontario and other Canadian jurisdictions where Canoe operates, in accordance with Multilateral Instrument 11-102 Passport System.