Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from the Act and NI 31-103 to permit registered portfolio managers to engage the pooled funds they advise, in fund-of-fund investments -- the portfolio managers advise both the top and bottom funds -- pooled funds are 'associates' of one of the portfolio managers - reporting relief also granted from the monthly reporting requirements under the Act.

Applicable Legislative Provisions

Securities Act (Ontario), ss. 111(2)(b), 111(2)(c) 111(3), 113, 117(1)(a), 117(2).

National Instrument 31-103 Registration Requirements , ss. 13.5(2)(b)(ii) and (iii), 15.1.

March 12, 2010

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

PICTON MAHONEY ASSET MANAGEMENT

(the Filer)

AND

PICTON MAHONEY DIVERSIFIED

STRATEGIES FUND

(the First Top Fund)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on its behalf and on behalf of the First Top Fund and any other investment fund established and managed by the Filer after the date hereof (the Future Top Funds and, together with the First Top Fund, the Top Funds) for a decision under the securities legislation of the principal regulator (the Legislation) exempting the Top Funds and the Filer from:

(a) the restriction in the Legislation that prohibits a mutual fund from knowingly making and holding an investment,

(i) in a person or company in which the mutual fund, alone or together with one or more related mutual funds, is a substantial security holder; or

(ii) in an issuer in which,

(1) an officer or director of the mutual fund, its management company or distribution company or an associate of any of them, or

(2) any person or company who is a substantial security holder of the mutual fund, its management company or its distribution company,

has a significant interest (the Related Issuer Relief);

(b) the requirement in the Legislation of a management company to file a report of every transaction of purchase or sale of securities between a mutual fund it manages and any related person or company in respect of each mutual fund to which it provides services or advice, within thirty days after the end of the month in which it occurs (the Reporting Relief); and

(c) the restriction in the Legislation that prohibits a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as an adviser, to purchase securities of an issuer in which a responsible person or an associate of the responsible person is a partner, officer or director unless this fact is disclosed to the client and the written consent of the client to the purchase is obtained before the purchase (the Related Party Relief).

(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;

(b) in respect of the Related Issuer Relief and the Reporting Relief, the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta; and

(c) in respect of the Related Party Relief section 4.7(1) of MI 11-102 is intended to be relied upon in each of the provinces and territories of Canada.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 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:

Manager

1. The Filer is a general partnership formed under the laws of the Province of Ontario with its head office located in Toronto, Ontario.

2. The Filer is registered with the Ontario Securities Commission as an adviser in the category of portfolio manager and as a dealer in the category of exempt market dealer.

3. The Filer is the investment fund manager and portfolio manager for the Underlying Funds, As such, the Filer is responsible for managing the assets of the Underlying Funds, has complete discretion to invest and reinvest the Underlying Funds' assets, and is responsible for executing all portfolio transactions.

4. The Filer is the investment fund manager and portfolio manager for the Top Funds. As such, the Filer is responsible for managing the assets of the Top Funds, has complete discretion to invest and reinvest the Top Funds' assets, and is responsible for executing all portfolio transactions.

5. The Filer is not a reporting issuer in any jurisdiction and is not, to its knowledge, in default of securities legislation of any jurisdiction of Canada.

Underlying Funds

6. Each Underlying Fund is an open-ended trust established under the laws of the Province of Ontario by declaration of trust (the Master Trust Declaration).

7. Pursuant to the Master Trust Declaration, the Filer also acts as the trustee of the Underlying Funds, has authority to manage the business and affairs of the Underlying Funds and has authority to bind the Underlying Funds.

8. Each of the Underlying Funds has separate investment objectives, strategies and/or restrictions.

9. Securities of the Underlying Funds are issued pursuant to prospectus exemptions in accordance with National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106). Securities of the Underlying Funds are currently held by holders in addition to the Top Funds.

10. The Underlying Funds are not reporting issuers in any jurisdiction of Canada and are not in default of securities legislation in any province or territory of Canada.

Top Funds

11. The Top Funds are sold pursuant to prospectus exemptions in accordance with NI 45-106 and are not reporting issuers in any jurisdiction of Canada and are not in default of securities legislation in any province or territory of Canada.

12. The First Top Fund is an open-ended trust established under the laws of the Province of Ontario by the Master Trust Declaration.

13. Pursuant to the Master Trust Declaration, the Filer also acts as the trustee of the First Top Fund, has authority to manage the business and affairs of the First Top Fund and has authority to bind the First Top Fund.

14. The First Top Fund was formed for the purpose of providing unitholders with consistent long-term capital appreciation and to provide unitholders with an attractive risk-adjusted rate of return. The First Top Fund will initially invest in First Underlying Funds which employ a variety of strategies. The First Top Fund may invest all, or less than all, its assets in the Underlying Funds and other Future Underlying Funds.

Fund-on-Fund Structure

15. The Top Funds allow investors in the Top Funds to obtain exposure to the investment portfolios of the Underlying Funds and their investment strategies through, primarily, direct investments by the Top Funds in securities of the Underlying Funds (the Fund-on-Fund Structure). The Filer believes that the Fund-on-Fund Structure provides an efficient and cost-effective manner of pursuing portfolio diversification on behalf of the Top Funds rather than through the direct purchase of securities.

16. The amounts invested from time to time in an Underlying Fund by a Top Fund may exceed 20% of the outstanding voting securities of any single Underlying Fund. Accordingly, each Top Fund could, either along or together with the other Top Funds, become a substantial security holder of an Underlying Fund. The Top Funds are, or will be, related mutual funds by virtue of the common management by the Filer.

17. For the purpose of implementing the Fund-on-Fund Structure, the Filer shall ensure that:

(a) the arrangements between or in respect of each Top Fund and the Underlying Funds are such as to avoid the duplication of management fees or incentive fees;

(b) no sales fees or redemption fees are payable by the Top Fund in relation to its purchases or redemptions of securities of the Underlying Funds;

(c) the offering memorandum of each Top Fund will describe the Top Funds' intent, or ability, to invest in securities of the Underlying Funds and that the Underlying Funds are also managed by the Filer; and

(d) the Top Fund does not vote the securities of the Underlying Fund held by the Top Fund, unless the Top Fund is the sole owner of the securities of an Underlying Fund at the time of the meeting or the effective date of the resolution, in which case the Filer will arrange for all the securities of the Underlying Fund, held by the Top Fund to be voted by the beneficial owners of securities of the Top Fund.

Generally

18. In the absence of the Related Issuer Relief and the Related Party Relief, the Top Fund would be precluded from implementing the Fund-on-Fund Structure due to certain investment restrictions contained in the Legislation.

19. In the absence of the Reporting Relief, the Filer would be required to file a report for every transaction between a Top Fund and an Underlying Fund under section 117(1) of the Legislation.

20. The Fund-on-Fund Structure represents the business judgment of responsible persons uninfluenced by considerations other than the best interests of each Top Fund.

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 the Reporting Relief is granted.

The decision of the principal regulator under the Legislation is that the Related Issuer Relief and the Related Party Relief is granted provided that;

(a) securities of a Top Fund are distributed in Canada solely pursuant to exemptions from the prospectus requirements in NI 45-106;

(b) the investment by a Top Fund in an Underlying Fund is compatible with the fundamental objectives of a Top Fund;

(c) no management fees or incentive fees are payable by a Top Fund that, to a reasonable person, would duplicate a fee payable by an Underlying Fund for the same service;

(d) no sales fee or redemption fees are payable by a Top fund in relation to its purchases or redemptions of securities of an Underlying Fund;

(e) the Top Fund does not vote the securities of the Underlying Fund held by the Top Fund, unless the Top Fund is the sole owner of the securities of an Underlying Fund at the time of the meeting or the effective date of the resolution, in which case the Filer will arrange for all the securities of the Underlying Fund, held by the Top Fund to be voted by the beneficial owners of securities of the Top Fund. ;

(f) if available, the offering memorandum (or similar document) of a Top Fund will disclose:

(i) that a Top Fund may purchase units of the Underlying Funds;

(ii) the fact that the Filer is the investment adviser to both the Top Funds and the Underlying Funds; and

(iii) that substantially all of the net assets (or the percentage of net assets) of the Top Funds will be invested in securities of the Underlying Funds.

The Related Party Relief

"Vera Nunes"
Assistant Manager, Investment Funds Branch
Ontario Securities Commission

The Related Issuer Relief

"Margot C. Howard"
Commissioner
Ontario Securities Commission
 
"Paulette Kennedy
Commissioner
Ontario Securities Commission