The Securities Commission granted an exemption to Fidelity Investments Canada ULC (the Filer) from paragraph 2.5(2)(b) of National Instrument 81-102 Investment Funds (NI 81-102). This exemption allows Fidelity Funds to invest in the Fidelity Inflation Focused Fund, which may hold more than 10% of its net assets in other mutual funds and commodity ETFs not managed by the Filer or its affiliates, subject to certain conditions.
Key points and reasoning:
1. The Filer manages various mutual funds, exchange-traded funds, and alternative mutual funds (collectively, Fidelity Funds), including the Inflation Focused Fund.
2. The Inflation Focused Fund seeks a real return and may invest in Third-Tier Funds and Commodity ETFs, which could exceed 10% of its net assets due to market movements.
3. NI 81-102 generally prohibits a fund from investing in another fund that holds more than 10% of its assets in other investment funds (Multi-Tier Prohibition).
4. The Filer received previous relief allowing for a Three-Tier Structure, but this did not cover investments in Commodity ETFs not managed by the Filer or its affiliates.
5. The exemption sought is based on the belief that investing in Commodity ETFs is more efficient and provides greater liquidity than direct commodity investments.
6. The Filer has policies to ensure fair treatment of investors and prevent fee duplication in fund-of-fund structures.
Outcome:
The exemption was granted under the following conditions:
– The Filer must be the investment fund manager and portfolio manager of each Fidelity Fund but not any Commodity ETF.
– The investment strategies of each Fidelity Fund must disclose the potential for other mutual funds to invest more than 10% of their assets in other funds.
– Investments by the Inflation Focused Fund in Third-Tier Funds and Commodity ETFs must not exceed 10% of its net assets immediately after purchase, although this may be exceeded due to market movements.
– There must be no duplication of management or administrative fees within the Three-Tier Structure.
– The Filer must maintain policies for investor protection, liquidity, and redemption risk management.
– Each Fidelity Fund must comply with disclosure requirements as if investing directly in the Third Tier Funds.
– The Inflation Focused Fund and Third Tier Funds cannot be alternative mutual funds and must not rely on discretionary relief to exceed leverage exposure limits.
The decision is based on the Filer’s representations and the belief that the exemption is consistent with the protection of investors and the public interest.