The Securities Commission granted an exemption to alternative mutual funds managed by CIBC Asset Management Inc. from certain short selling restrictions outlined in National Instrument 81-102 Investment Funds (NI 81-102). This exemption allows these funds to short sell government securities up to 300% of their net asset value (NAV), exceeding the standard limit of 50% of the fund’s NAV for short selling and combined cash borrowing.
The decision was made under the securities legislation of Ontario, with the Ontario Securities Commission acting as the principal regulator. The exemption applies to the CIBC Alternative Credit Strategy (the Initial Fund) and any future funds with similar short selling strategies (Future Funds).
The reasoning behind the exemption includes the effectiveness of the Short Hedging Strategy, which involves taking long positions in corporate bonds and hedging interest rate risk by shorting government bonds. The Commission agreed that this strategy is less risky and more efficient than using derivatives to achieve similar leverage. It also acknowledged the high liquidity and lower price volatility of government securities, as well as the regulated nature of financial institutions facilitating short selling.
The exemption is subject to conditions, including compliance with other short selling requirements, maintaining the aggregate exposure to short selling, cash borrowing, and specified derivatives within 300% of the fund’s NAV, and ensuring that the funds’ prospectuses disclose the ability to short sell government securities up to the permitted limit.
The decision was based on representations by CIBC Asset Management Inc. that the exemption would be in the best interest of the funds, allowing for effective management of portfolio duration risk and potential for increased returns. The exemption is also contingent on the funds implementing appropriate controls and maintaining proper records for short selling activities.