Desjardins Investments Inc. and the Desjardins Completion Investments Fund
Headnote
Regulation 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted to a speciality fund to invest more than 10 percent of its net asset value, taken at market value at the time of the transaction, in debt securities issued by a foreign government or a permitted supranational agency, subject to certain conditions -- Regulation 81-102 Mutual Funds.
Applicable Legislative Provisions
Regulation 81-102 Mutual Funds, s. 2.1(1).
[Translation]
March 30, 2012
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
QUÉBEC AND ONTARIO
(the Jurisdictions)
AND
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF
DESJARDINS INVESTMENTS INC.
(THE FILER)
AND
THE DESJARDINS COMPLETION
INVESTMENTS FUND
(the Fund)
DECISION
Background
The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filer on the behalf of the Fund for a decision under the securities legislation of the Jurisdictions (the Legislation) for an exemption under section 19.1 of Regulation 81-102 respecting Mutual Funds (Regulation 81-102) from the concentration restriction in subsection 2.1(1) of Regulation 81-102 in order to permit the Fund to invest more than 10% of its net asset value, taken at market value at the time of the transaction, in evidences of indebtedness of permitted supranational agencies or governments other than the government of Canada, the government of a jurisdiction or the government of the United States of America (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
a) the Autorité des marchés financiers is the principal regulator for this application,
b) the Filer has provided notice that section 4.7(1) of Regulation 11-102 respecting passport system (Regulation 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador, Nunavut, Northwest Territories and Yukon Territory (collectively, the Other Jurisdictions), and
c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Interpretation
Terms defined in Regulation 14-101 respecting Definitions, Regulation 11-102 and Regulation 81-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation established under theBusiness Corporation Act (Québec) and is registered as an investment fund manager in Quebec. The filer is not in default of securities legislation in any of the Jurisdictions or the Other Jurisdictions.
2. The Filer is the investment fund manager, promoter, registrar and transfer agent of the Fund.
3. The Fund is a mutual fund and its securities of which are qualified for distribution in each Jurisdiction and the Other Jurisdictions, under a simplified prospectus and annual information form filed with applicable securities regulatory authorities.
4. The Fund is a reporting issuer and is not in default of securities legislation in any Jurisdiction or Other Jurisdictions.
5. The Fund's investment objective is to provide both income and long-term capital appreciation. The Fund aims to provide investors with improved diversification by focusing on asset classes that complement a portfolio made up of traditional asset classes.
6. To achieve its investment objective, the Fund invests primarily, either directly or by investing in units of other mutual funds, in fixed-income securities and income-oriented equity securities of issuers located throughout the world. The Fund's Portfolio Advisor will determine the relative weight for each of the following asset classes and investment strategies based on its predictions of future market developments and its view of the relative potential of each strategy and asset class. As of December 31, 2011, the Fund invested approximately 40% of its net asset value in bonds and 20% of its net asset value in international bonds.
7. The Filer would like the Fund to have the flexibility to invest up to:
(a) 20% of the Fund's net asset value, taken at market value at the time of purchase, in evidences of indebtedness of any one issuer if those evidences of indebtedness are (i) issued, or guaranteed fully as to principal and interest, by a permitted supranational agency or governments other than the government of Canada, the government of a jurisdiction or the government of the United States of America, and (ii) rated "AA" by Standard & Poor's, or have an equivalent rating by one or more other approved credit rating organizations; and
(b) 35% of the Fund's net asset value, taken at market value at the time of purchase, in evidences of indebtedness of any one issuer if those evidences of indebtedness are (i) issued, or guaranteed fully as to principal and interest, by a permitted supranational agency or governments other than the government of Canada, the government of a jurisdiction or the government of the United States of America, and (ii) rated "AAA" by Standard & Poor's, or have an equivalent rating by one or more other approved credit rating organizations,
(such evidences of indebtedness are collectively referred to as Foreign Government Securities).
8. Subsection 2.1(1) of Regulation 81-102 prohibits the Fund from purchasing a security of an issuer if, immediately after the transaction, more than 10% of the net asset value of the Fund, taken at market value at the time of the transaction, would be invested in securities of any issuer (the Concentration Restriction).
9. The Concentration Restriction does not apply to a purchase of, among other things, a "government security" which, under Regulation 81-102, means an evidence of indebtedness that is issued, or fully and unconditionally guaranteed as to principal and interest, by any of the government of Canada, the government of a jurisdiction or the government of the United States of America.
10. Foreign Government Securities do not meet the definition of "government security", as such term is defined in Regulation 81-102.
11. The Exemption Sought, which relaxes the limitations in the Concentration Restriction, will enhance the ability of the Fund to pursue and achieve its investment objective.
12. Standard & Poor's uses two general categories to derive a credit rating for government debt, namely economic risk and political risk. The first category is a quantitative assessment of a government's ability to meet its debt obligations. The second is the government's preparedness to meet its obligations, for a government may be able to pay, but be unwilling to do so for policy reasons. Standard & Poor's rates issuers on a scale from the highest credit rating of AAA to a lowest rating of D. The Requested Relief contemplates only investing in the two highest rating levels of investment grade debt. Other approved credit rating organizations have similar practices.
13. Higher concentration limits may allow the Fund to benefit from investment efficiencies and reduced transaction costs as certain foreign government treasury offerings are more readily available for investment and trades can be completed faster in certain markets that are more readily accessible to foreign investment.
14. The risks and liquidity characteristics of the Foreign Government Securities are similar to the risks and liquidity characteristics of the types of securities that fall within the meaning of "government security" in Regulation 81-102. As such, a limited increase in the maximum percentage of the net asset value of the Fund that can be invested in the Foreign Government Securities will not result in a material increase in risks related to the Fund.
15. The Filer believes that the Exemption Sought is not contrary to the public interest, is in the best interest of the Fund and represents the business judgement of responsible persons uninfluenced by considerations other than the best interests of the Fund.
Decision
Each of the Decision Maker is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Maker under the Legislation is that the Exemption Sought is granted provided that:
(a) the Fund may only invest up to:
(i) 20% of the Fund's net asset value, taken at market value at the time of purchase, in evidences of indebtedness of any one issuer if those evidences of indebtedness are (1) issued, or guaranteed fully as to principal and interest, by a permitted supranational agency or governments other than the government of Canada, the government of a jurisdiction or the government of the United States of America, and (2) rated "AA" by Standard & Poor's, or have an equivalent rating by one or more other approved credit rating organizations (as defined in Regulation 81-102);
(ii) 35% of the Fund's net asset value, taken at market value at the time of purchase, in evidences of indebtedness of any one issuer if those evidences of indebtedness are (1) issued, or guaranteed fully as to principal and interest, by a permitted supranational agency or governments other than the government of Canada, the government of a jurisdiction or the government of the United States of America, and (2) rated "AAA" by Standard & Poor's, or have an equivalent rating by one or more other approved credit rating organizations (as defined in Regulation 81-102);
(b) subparagraphs (i) and (ii) above cannot be combined for any one issuer;
(c) the securities that are purchased pursuant to this Decision are traded on a mature and liquid market;
(d) the acquisition of the evidences of indebtedness pursuant to this Decision is consistent with the fundamental investment objective of the Fund;
(e) the simplified prospectus of the Fund discloses any additional risks associated with the concentration of net assets 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 that issuer is located; and
(f) the simplified prospectus or annual information form of the Fund discloses the details of the exemption granted along with the conditions imposed and the type of securities covered by this Decision.