The Securities Commission has granted an exemption to a fund managed by Ninepoint Partners LP, allowing it to short-sell government securities up to 20% of the fund’s net asset value (NAV) for a single issuer. This decision deviates from the standard 5% limit set by subparagraph 2.6.1(1)(c)(ii) of National Instrument 81-102 Investment Funds (NI 81-102). The exemption aims to enhance the fund’s ability to hedge against interest rate risk associated with its corporate bond portfolio.
The decision is contingent upon several conditions:
1. The fund must comply with all other short sale requirements outlined in section 2.6.1 of NI 81-102.
2. Only government securities, as defined by NI 81-102, may be short-sold beyond the 5% NAV limit.
3. Short sales must align with the fund’s stated investment objectives and strategies.
4. The fund’s simplified prospectus must disclose its capacity to short-sell government securities beyond the 5% NAV threshold per issuer upon its next renewal.
The exemption is based on the rationale that government securities are highly liquid and can provide an effective hedge against interest rate fluctuations. The decision also considers that using derivatives for hedging is less efficient and riskier than short-selling government securities. The fund has established controls for managing short sales and maintains appropriate records.
The Ontario Securities Commission, acting as the principal regulator, has approved the exemption under the securities legislation, provided the fund adheres to the specified conditions. This decision applies to the Ninepoint Diversified Bond Fund and any future funds managed by Ninepoint Partners LP that fall under NI 81-102. The exemption is also recognized in multiple jurisdictions across Canada under the Multilateral Instrument 11-102 Passport System.