The Securities Commission has granted alternative mutual funds an exemption from certain borrowing and short selling limits, as well as custodian requirements, under National Instrument 81-102 Investment Funds (NI 81-102). The decision allows these funds to borrow cash and engage in short selling up to 100% of their net asset value (NAV), exceeding the standard 50% limit. Additionally, the funds may appoint multiple custodians and clarify that short sale proceeds are excluded when calculating non-custodial borrowing agent collateral limits.
The key reasons for the exemptions include:
1. Enabling funds to use market-neutral strategies and respond quickly to market developments.
2. Allowing for cost savings and operational efficiency compared to using specified derivatives for similar exposure.
3. Maintaining the overall level of risk within the funds’ investment objectives and strategies.
The exemptions are subject to conditions ensuring that:
1. Short selling and cash borrowing do not exceed 100% of the fund’s NAV individually or in combination.
2. The fund’s total exposure to short selling, cash borrowing, and specified derivatives does not exceed 300% of the NAV.
3. Transactions comply with the fund’s investment objectives and strategies.
4. Prospectuses disclose the ability to engage in these activities beyond standard NI 81-102 limits.
The decision is based on the belief that these exemptions will benefit investors by providing more diversified investment opportunities without increasing risk beyond the regulatory framework’s intent. The exemptions are conditional upon the funds’ adherence to specific operational controls and risk management policies.