The Ontario Securities Commission granted Onex Canada Asset Management Inc. (the Filer) exemptive relief on behalf of its managed funds, including the Onex Global Special Situations Alternative Fund and future alternative mutual funds, from certain restrictions under National Instrument 81-102 Investment Funds (NI 81-102). The relief pertains to limits on short selling, cash borrowing, and issuer concentration.
Key Facts:
1. The Filer sought exemptions to allow its funds to sell securities short and borrow cash up to 100% of the fund’s net asset value (NAV), exceeding the standard 50% limit.
2. The Filer also requested relief from the restriction that limits short selling of a single issuer’s securities to 10% of the fund’s NAV, specifically for index participation units (IPUs).
Reasoning:
1. The Filer argued that market-neutral strategies, which involve balancing long and short positions, require the ability to exceed the current limits to effectively manage risk and generate returns.
2. Physical short selling and cash borrowing are often more cost-effective and flexible compared to using derivatives.
3. IPUs are diversified and liquid, reducing the risks associated with short selling a single issuer’s securities.
Outcome:
The Commission granted the requested exemptions, subject to conditions ensuring that:
1. The aggregate market value of all securities sold short and the value of cash borrowed do not exceed 100% of the fund’s NAV.
2. The fund’s aggregate exposure to short selling, cash borrowing, and specified derivatives does not exceed 300% of the fund’s NAV.
3. The funds’ prospectuses disclose these capabilities and associated risks.
Relevant Laws:
– National Instrument 81-102 Investment Funds, ss. 2.6.1(1)(c)(v), 2.6(2)(c), 2.6.2, 2.6.1(1)(c)(iv), and 19.1.
– National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions.