CI Investments Inc.
Headnote
National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief from subsection 2.1(1) of National Instrument 81-102 -- Investment Funds to permit funds to invest more than 10 percent of net assets in debt securities issued, or guaranteed fully as to principal and interest, by foreign governments or supranational agencies -- subject to conditions -- decision includes revocation of prior relief from concentration restriction previously granted to certain funds.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, ss. 2.1(1) and 19.1.
August 16, 2022
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF CI INVESTMENTS INC. (the Filer)
DECISION
The principal regulator in the Jurisdiction has received an application from the Filer, on behalf of Global Fixed Income Corporate Class, Global Fixed Income Pool, CI Global Bond Fund, CI Global Green Bond Fund, CI Global Bond Currency Neutral Fund (the Current Funds), and other existing or future investment funds subject to National Instrument 81-102 Investment Funds (NI 81-102) that are or will be managed by the Filer or an affiliate or successor of the Filer (the Future Funds and together with the Current Funds, the Funds) for a decision under the securities legislation of the principal regulator (the Legislation):
(a) revoking the Previous Decisions (as described below) (the Revocation); and
(b) replacing the Previous Decisions with a decision pursuant to section 19.1 of NI 81-102 exempting the Funds from subsection 2.1(1) of NI 81-102 (the Concentration Restriction) to permit each Fund to invest up to:
(i) 20% of its net assets, taken at market value at the time of purchase in evidences of indebtedness of any one issuer if those evidences of indebtedness are issued, or guaranteed fully as to principal and interest, by supranational agencies or governments other than the government of Canada, the government of a jurisdiction in Canada, or the government of the United States of America and are rated "AA" by S&P Global Ratings Canada (S&P) or its "DRO affiliate" (as defined in NI 81-102), or have an equivalent rating by one or more other "designated rating organizations" (as defined in NI 81-102) or their DRO affiliates; and
(ii) 35% of its net assets, taken at market value at the time of purchase, in evidences of indebtedness of any one issuer if those evidences of indebtedness are issued, or guaranteed fully as to principal and interest, by supranational agencies or governments other than the government of Canada, the government of a jurisdiction in Canada, or the government of the United States of America and are rated "AAA" by S&P or its DRO affiliate, or have an equivalent rating by one or more other designated rating organizations or their DRO affiliates
(such evidences of indebtedness are collectively referred to as Foreign Government Securities)
(collectively, the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is to be relied upon by the Funds in each of the other provinces and territories of Canada (together with Ontario, the Canadian Jurisdictions).
Interpretation
Unless expressly defined herein, terms in this application have the respective meanings given to them in NI 81-102, National Instrument 14-101 Definitions and MI 11-102.
Representations
This decision is based on the following facts represented by the Filer:
The Filer
1. The Filer is a corporation amalgamated under the laws of the Province of Ontario with its head office and registered office located in Toronto, Ontario.
2. The Filer is registered as follows:
(a) as an investment fund manager under the securities legislation in Ontario, Québec and Newfoundland and Labrador;
(b) as a portfolio manager and exempt market dealer under the securities legislation of each of the Canadian Jurisdictions; and
(c) as a commodity trading counsel and commodity trading manager under the Commodity Futures Act (Ontario).
3. The Filer or an affiliate or associate of the Filer acts, or will act, as manager of each Fund.
4. The Filer is not in default of securities legislation in any of the Canadian Jurisdictions.
The Previous Decisions
5. In a decision dated September 28, 2007, the Filer was granted relief exempting Global Fixed Income Corporate Class from the Concentration Restriction to permit the Fund to invest more than 10% of its net assets in a Foreign Government Security on similar representations and conditions as this decision.
6. The Filer also believes that it was granted similar relief (likely under National Policy Statement No. 39 (NP 39), the predecessor instrument to NI 81-102) exempting each of Global Fixed Income Pool and CI Global Bond Fund from the Concentration Restriction to permit the Funds to invest more than 10% of its net assets in a Foreign Government Security. Global Fixed Income Pool and CI Global Bond Fund have disclosed their reliance on this exemption in their disclosure documents since May 28, 1997 and June 27, 1997, respectively. However, such decisions cannot be located.
The Funds Generally
7. Each Fund is, or will be, an investment fund organized and governed by the laws of Canada or a Canadian Jurisdiction.
8. Each Fund is, or will be, governed by the applicable provisions of NI 81-102, subject to any exemptions therefrom that have been, or may in the future be, granted by the securities regulatory authorities.
9. Each Fund is, or will be, a reporting issuer in one or more Canadian Jurisdictions. Securities of Global Fixed Income Corporate Class and Global Fixed Income Pool are offered for sale pursuant to a simplified prospectus prepared in accordance with National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) dated July 15, 2022. Securities of CI Global Bond Fund are offered for sale pursuant to a simplified prospectus prepared in accordance with NI 81-101 dated July 22, 2022. Securities of CI Global Green Bond Fund are offered for sale pursuant to a simplified prospectus prepared in accordance with NI 81-101 dated June 30, 2022. A preliminary simplified prospectus dated July 7, 2022 for CI Global Bond Currency Neutral Fund was prepared in accordance with NI 81-101 and filed in each of the Canadian Jurisdictions. Each of the Future Funds will prepare and file a prospectus either under NI 81-101 or under National Instrument 41-101 General Prospectus Requirements to distribute its securities in one or more of the Canadian Jurisdictions.
10. Each Current Fund is not in default of applicable securities legislation in any Canadian Jurisdiction.
Global Fixed Income Corporate Class
11. The investment objective of Global Fixed Income Corporate Class is to provide income and long-term capital growth primarily through investments in high quality debt securities of or guaranteed by governments, governmental agencies, other governmental entities and supranational agencies in a variety of countries throughout the world and denominated in the currencies of such countries. Global Fixed Income Corporate Class also invests in high quality publicly-traded debt securities, denominated in foreign currencies, of major corporations throughout the world and may invest in other mutual funds.
12. Global Fixed Income Corporate Class currently achieves its investment objectives by investing all of its assets in Global Fixed Income Pool (the underlying fund), which has the same portfolio adviser and similar investment objective as the Fund.
Global Fixed Income Pool
13. The investment objective of Global Fixed Income Pool is to provide income and long-term capital growth primarily through investments in high quality debt securities of or guaranteed by governments, governmental agencies, other governmental entities and supranational agencies in a variety of countries throughout the world and denominated in the currencies of such countries. Global Fixed Income Pool also invests in high quality publicly-traded debt securities, denominated in foreign currencies, of major corporations throughout the world.
14. The portfolio adviser of Global Fixed Income Pool employs an active, top-down, quantitative analytical process in selecting undervalued debt securities and currencies from around the world (including Foreign Government Securities).
15. Allowing the Fund to hold highly rated fixed income securities issued by foreign governments (such as the Foreign Government Securities) provides exposure to a fixed income sector that can deliver defensive characteristics during an equity market downturn -- or other adverse market conditions -- as investors seek higher quality and safe asset classes. Furthermore, allowing the Fund to hold Foreign Government Securities provides an opportunity for the portfolio adviser to express its view on interest rates, duration, credit spreads and government spreads based on the market environment.
16. The increased flexibility for the Fund to hold Foreign Government Securities can provide differentiated fixed income risk-return profiles relative to Canadian government or U.S. treasury securities. This may include enhanced yield or greater potential for price appreciation.
CI Global Bond Fund
17. The investment objective of CI Global Bond Fund is to obtain long-term total return. CI Global Bond Fund invests primarily in fixed income and floating rate securities of governments and companies throughout the world that the portfolio advisor believes offer an attractive yield and opportunity for capital gains. CI Global Bond Fund may make large investments in any country, including emerging markets and emerging industries of developed markets, and in high yield securities of developed markets.
18. The portfolio adviser of CI Global Bond Fund selects securities (including Foreign Government Securities) that it believes have fundamental value that is not reflected in their credit rating and yield. The portfolio adviser evaluates the financial condition and management of an issuer, its industry and the overall economies of the country and region.
19. Allowing the Fund to hold highly rated fixed income securities issued by foreign governments (such as the Foreign Government Securities) provides exposure to a fixed income sector that can deliver defensive characteristics during an equity market downturn -- or other adverse market conditions -- as investors seek higher quality and safe asset classes. Furthermore, allowing the Fund to hold Foreign Government Securities provides an opportunity for the portfolio adviser to express its view on interest rates, duration, credit spreads and government spreads based on the market environment.
20. The increased flexibility for the Fund to hold Foreign Government Securities can provide differentiated fixed income risk-return profiles relative to Canadian government or U.S. treasury securities. This may include enhanced yield or greater potential for price appreciation.
CI Global Green Bond Fund
21. The investment objective of CI Global Green Bond Fund is to provide long-term total return. CI Global Green Bond Fund follows an approach to investing that focuses on sustainable and responsible issuers by primarily investing in labelled green bonds issued by government, government-related and corporate issuers, located anywhere in the world.
22. CI Global Green Bond Fund seeks to achieve its investment objective by investing primarily in labelled green bonds (which may be Foreign Government Securities). The Fund may also invest in self-labelled bonds, unlabelled bonds and other fixed income securities that have met certain criteria. The portfolio adviser selects securities of sustainable and responsible issuers that it believes have fundamental value that is not reflected in their credit rating and yields. The portfolio adviser evaluates the financial condition and management of an issuer, its industry and the overall economies of the country and region. The Fund may invest in securities such as government and corporate bonds and debentures (including Foreign Government Securities).
23. Allowing the Fund to hold highly rated fixed income securities issued by foreign governments (such as the Foreign Government Securities) provides exposure to a fixed income sector that can deliver defensive characteristics during an equity market downturn -- or other adverse market conditions -- as investors seek higher quality and safe asset classes. Furthermore, allowing the Fund to hold Foreign Government Securities provides an opportunity for the portfolio adviser to express its view on interest rates, duration, credit spreads and government spreads based on the market environment.
24. Further, the market for environmental, social and governance (ESG) fixed income securities is significantly more developed in Europe than in Canada and the United States. Therefore, allowing the Fund to hold Foreign Government Securities provides flexibility to invest into a more diverse and potentially more liquid ESG fixed income universe.
25. The increased flexibility for the Fund to hold Foreign Government Securities can provide differentiated fixed income risk-return profiles relative to Canadian government or U.S. treasury securities. This may include enhanced yield or greater potential for price appreciation.
CI Global Bond Currency Neutral Fund
26. The investment objective of CI Global Bond Currency Neutral Fund will be to provide long-term total return. CI Global Bond Currency Neutral Fund will invest primarily in fixed income and floating rate securities of governments and companies throughout the world that the portfolio adviser believes offer an attractive yield and opportunity for capital gains. The Fund may make large investments in any country, including emerging markets and emerging industries of developed markets, and in high yield securities of developed markets. The Fund will use derivatives to minimize its exposure to foreign currency fluctuations against the Canadian dollar.
27. The portfolio adviser of CI Global Bond Currency Neutral Fund will select securities (including Foreign Government Securities) that it believes have fundamental value that is not reflected in their credit rating and yield. The portfolio adviser will evaluate the financial condition and management of an issuer, its industry and the overall economies of the country and region.
28. Allowing the Fund to hold highly rated fixed income securities issued by foreign governments (such as the Foreign Government Securities) provides exposure to a fixed income sector that can deliver defensive characteristics during an equity market downturn -- or other adverse market conditions -- as investors seek higher quality and safe asset classes. Furthermore, allowing the Fund to hold Foreign Government Securities provides an opportunity for the portfolio adviser to express its view on interest rates, duration, credit spreads and government spreads based on the market environment.
29. The increased flexibility for the Fund to hold Foreign Government Securities can provide differentiated fixed income risk-return profiles relative to Canadian government or U.S. treasury securities. This may include enhanced yield or greater potential for price appreciation.
The Future Funds
30. The Future Funds will have investment objectives and strategies that permit them to invest a majority of their net assets in fixed income securities, including Foreign Government Securities.
Necessity for Relief
31. The Concentration Restriction prohibits a fund from purchasing a security of an issuer, other than a "government security" as defined in NI 81-102, if immediately after the purchase more than 10% of the net asset value of the fund, taken at market value at the time of the purchase, would be invested in securities of the issuer.
32. Foreign Government Securities are not within the meaning of "government security" as defined in NI 81-102.
33. The Filer believes that the Exemption Sought will provide more flexibility and more favourable prospects for the Funds which would better enable the Funds to achieve their fundamental investment objectives, thereby benefitting the Funds' investors.
Generally
34. Each Fund will only purchase Foreign Government Securities if the purchase is consistent with that Fund's fundamental investment objectives.
35. The prospectus for each Fund will disclose the risks associated with concentration of net assets of the Fund in Foreign Government Securities.
36. The Filer believes the Exemption Sought will enhance the Funds' ability to pursue and achieve their investment objectives.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that:
1. The Revocation is granted; and
2. the Exemption Sought is granted provided that:
(a) the Funds have investment objectives and strategies that permit them to invest a majority of their net assets in fixed income securities, including Foreign Government Securities;
(b) paragraphs (b)(i) and (b)(ii) of the Exemption Sought cannot be combined for any one issuer;
(c) any security that may be purchased under the Exemption Sought is traded on a mature and liquid market;
(d) the acquisition of Foreign Government Securities purchased pursuant to this decision is consistent with the fundamental investment objectives of each Fund;
(e) each Fund's prospectus discloses, or will disclose in its next renewal following the date of this decision, the additional risk associated with the concentration of the net asset value of the Fund in securities of fewer issuers, such as the potential additional exposure to the risk of default of the issuer in which the Fund has so invested and the risks, including foreign exchange risks, of investing in the country in which the issuer is located; and
(f) each Fund's prospectus discloses, or will disclose in its next renewal following the date of this decision, in the investment strategies section, a summary of the nature and terms of the Exemption Sought, along with the conditions imposed and the type of securities covered by this decision.