The Securities Commission has granted exemptive relief to investment funds managed by SLGI Asset Management Inc. (SLGI) from certain concentration restrictions under 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 or guaranteed by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
Under NI 81-102, mutual funds (other than alternative mutual funds) are typically restricted from investing more than 10% of their net asset value in a single issuer’s securities, while alternative mutual funds and non-redeemable investment funds are limited to 20%. The exemption permits these funds to exceed these limits for Fannie Mae and Freddie Mac securities, which are implicitly guaranteed by the U.S. government and have a U.S. government equivalent credit rating.
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 securities are considered government securities under the U.S. Investment Company Act of 1940. The exemption is conditional upon the securities maintaining a U.S. Government Equivalent Rating and a minimum credit rating of BBB-. Additionally, funds must disclose the exemption and associated risks in their prospectus, and must divest from the securities if their ratings fall below the required thresholds or if the U.S. Congress enacts legislation that changes or removes the implied government guarantee.
The Ontario Securities Commission, acting as the principal regulator, approved the exemption, which is also applicable in other Canadian jurisdictions through the Multilateral Instrument 11-102 Passport System. The decision is subject to specific conditions to ensure ongoing compliance with the investment prudence and disclosure standards.