The Ontario Securities Commission granted CI Investments Inc. and its affiliates (the Filer) an exemption from specific restrictions under National Instrument 81-102 Investment Funds (NI 81-102) for their existing and future alternative mutual funds. The exemptions pertain to limits on short selling, cash borrowing, and the combined aggregate value of these activities relative to the fund’s net asset value (NAV).
Key Facts:
– CI Investments Inc. sought relief from subparagraphs 2.6.1(1)(c)(v), 2.6(2)(c), and section 2.6.2 of NI 81-102.
– The relief allows funds to exceed the 50% NAV limit on short selling and cash borrowing, up to 100% of NAV.
– The funds can also exceed the combined aggregate value limit of 50% of NAV for short selling and cash borrowing, provided the total does not surpass 100% of NAV.
Reasoning:
– The Filer argued that the ability to engage in additional short selling and cash borrowing could provide cost savings and more effective portfolio management.
– Physical short positions and cash borrowing are often less costly and more flexible compared to equivalent derivative transactions.
– The Filer has comprehensive risk management policies to address the risks associated with these strategies.
Outcome:
– The exemption was granted with conditions ensuring that the aggregate market value of securities sold short and cash borrowed does not exceed 100% of the fund’s NAV.
– The funds must comply with all other short sale and cash borrowing requirements under NI 81-102 and disclose these capabilities in their prospectuses.
Relevant Laws:
– National Instrument 81-102 Investment Funds, sections 2.6.1(1)(c)(v), 2.6(2)(c), 2.6.2, and 19.1.
– Multilateral Instrument 11-202 Passport System, subsection 4.7(1).
This decision allows CI’s funds to utilize more flexible and potentially cost-effective investment strategies while maintaining investor protection through stringent risk management and disclosure requirements.