The Securities Commission has granted an exemption to a mutual fund manager (the Filer) from certain investment restrictions outlined in National Instrument 81-102 Investment Funds (NI 81-102). The exemptions allow the Filer’s managed funds (Existing Funds and Future Funds, collectively referred to as the Funds) to invest in two types of foreign investment vehicles that would otherwise not comply with Canadian regulations:
1. UK Index Participation Units (UK IPUs): The Funds are permitted to invest in UK IPUs, which are exchange-traded funds (ETFs) listed on the United Kingdom stock exchange. These UK IPUs are similar to Canadian or US index participation units but are not traded on a Canadian or US exchange, as normally required by NI 81-102.
2. Foreign Funds: The Funds are allowed to purchase and hold shares of investment funds authorized as Undertakings for Collective Investment in Transferable Securities (UCITS) under European regulations, even though these Foreign Funds are not subject to NI 81-102 and are not reporting issuers in Canada.
The exemptions are subject to several conditions, including that the investments align with the Funds’ fundamental investment objectives and that the UK IPUs and Foreign Funds are subject to regulatory requirements and practices comparable to those in Canada. Additionally, the Funds must disclose in their offering documents that they have obtained the exemptions and must comply with NI 81-102 as if the UK IPUs were Canadian or US IPUs. The Funds are not allowed to invest more than 10% of their net assets in Foreign Funds.
The exemptions will terminate six months after any regulatory amendments that either restrict the Funds’ ability to invest in UK IPUs or permit investment in Foreign Funds under new provisions.
This decision is based on the Filer’s representations that the UK IPUs and Foreign Funds provide efficient and cost-effective means for achieving diversification and exposure to international markets, and that the regulatory regimes governing these investment vehicles are as rigorous as those in Canada. The exemptions were granted under the authority of the British Columbia Securities Commission, which is the principal regulator for this application, and the decision also represents the decision of the securities regulatory authority in Ontario.