Securities Law & Instruments


Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – relief granted to permit funds to invest in non-exchange traded debt securities issued by related issuers and to permit pooled funds to also invest in exchange traded securities issued by related issuers – related parties to funds are significant issuers of debt securities in Canada – transactions in non-exchanged traded debt securities will be subject to terms and conditions regarding pricing – purchases of exchange traded securities by pooled funds will comply with NI 81-107.

Applicable Legislative Provisions

Securities Act (Ontario), R.S.O. 1990, c. S.5, as am., ss. 111(2)(a), 111(2)(c)(ii), 111(4), 113.

March 30, 2017

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
I.G. INVESTMENT MANAGEMENT, LTD.
(the Filer)

AND

IN THE MATTER OF
THE INVESTORS GROUP FUNDS
(as defined below)

DECISION

BACKGROUND

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) on behalf of Investors Risk Parity Private Pool and future mutual funds of which the Filer or an affiliate of the Filer is, or will be, the investment fund manager and portfolio advisor, to which National Instrument NI 81-102 – Investment Funds (NI 81-102) does not apply (each a Private Pool Fund and, collectively, the Private Pools) and existing mutual funds and future mutual funds of which the Filer is, or will be, the investment fund manager and portfolio advisor, to which NI 81-102 applies (each an NI 81-102 Fund, and, collectively, the NI 81-102 Funds, and together with the Private Pools, the Investors Group Funds) for exemptive relief from the provisions in securities legislation (the Related Issuer Prohibition) that prohibit an investment fund from knowingly making or holding an investment in:

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

(b)           an issuer in which any person or company who is a substantial security holder of the investment fund, its management company or its distribution company has a significant interest

(each such person, company or issuer, a Related Issuer) in order to permit:

(a)           the Private Pools to purchase, in the secondary market, non-exchange-traded debt securities and exchange-traded debt or equity securities of a Related Issuer; and

(b)           the Investors Group Funds to purchase, in the secondary market, non-exchange-traded debt securities of a Related Issuer;

(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 Filers have provided notice that section 5.4(1) of Multilateral Instrument 11-102 – Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, New Brunswick, Nova Scotia, and Newfoundland and Labrador (the Passport Jurisdictions).

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. The following terms have the following definitions:

“Canadian Jurisdictions” means the Jurisdiction and the Passport Jurisdictions;

“IRC” means the independent review committee of the Investors Group Funds; and

“NI 81-107” means National Instrument 81-107 – Independent Review Committee.

REPRESENTATIONS

This decision is based on the following facts represented by the Filer:

The Filer and the Investors Group Funds

1.             The head office of the Filer is located in Winnipeg, Manitoba.

2.             Each NI 81-102 Fund is, or will be, organized under the laws of Manitoba as an open-ended mutual fund established as a trust pursuant to a master declaration of trust dated October 1, 2007, as amended from time to time or is, or will be, organized as an open-ended mutual fund established as a separate class of mutual fund shares issued by Investors Group Corporate Class Inc., a mutual fund corporation governed by the Canada Business Corporations Act.

3.             The Filer, or an affiliate of the Filer, is, or will be, the investment fund manager and portfolio advisor of the NI 81-102 Funds.

4.             Each Private Pool is, or will be, organized under the laws of Manitoba as an open-ended mutual fund established as a trust pursuant to a master declaration of trust dated as of January 15, 2016, as amended from time to time, or is, or will be, organized as an open-ended mutual fund established as a separate class of mutual fund shares issued by IG Corporate Class Inc.

5.             The Filer, or an affiliate of the Filer, is, or will be, the investment fund manager and portfolio advisor of the Private Pools.

6.             The Filer is registered as a portfolio manager and an investment fund manager in Manitoba, Ontario and Quebec, and as an investment fund manager in Newfoundland and Labrador. It is also registered as an advisor under the Commodity Futures Act in Manitoba.

7.             Each of the NI 81-102 Funds is, or will be, a reporting issuer in each of the Canadian Jurisdictions. The securities of the NI 81-102 Funds are, or will be, qualified for distribution pursuant to simplified prospectuses, annual information forms and fund facts prepared and filed in accordance with the securities legislation of each of the Canadian Jurisdictions.

8.             Investors Risk Parity Private Pool is not a reporting issuer under the Legislation. None of the future Private Pools will be a reporting issuer under the Legislation. The securities of the Private Pools are, or will be, distributed in Canada pursuant to exemptions from the prospectus requirement. The Private Pools are not, or will not, be subject to NI 81-102.

9.             Neither the Filer nor any Investors Group Fund is in default of securities legislation in any Jurisdiction.

10.          Each of Power Corporation of Canada (PCC), Power Financial Corporation (PFC) and Great- West Lifeco Inc. (GWL) is, indirectly, a substantial securityholder of the Filer and is thus a Related Issuer of the Filer.

11.          Each of PCC, PFC and GWL may, from time to time, hold a significant interest in other issuers which will result in such other issuers being Related Issuers of the Filer.

Exemption Sought

12.          The Filer wishes to invest on behalf of the Investors Group Funds in the securities of the Related Issuers when such investments are consistent with the investment objectives and strategies of the relevant Investors Group Fund.

13.          PCC, PFC and GWL are significant issuers of securities that are listed on the Toronto Stock Exchange. PCC, PFC and GWL are also significant issuers of non-exchange traded, investment grade quality fixed income securities in the debt markets.

14.          The Related Issuer Prohibition applies to both the NI 81-102 Funds and the Private Pools.

15.          The Related Issuer Prohibition prohibits the Filer, on behalf of an Investors Group Fund from making an investment in a substantial securityholder of the Investors Group Fund, the Filer, or a distribution company of the Investors Group Fund. The Related Issuers are substantial securityholders of the Filer, therefore, the Filer is prohibited from making an investment in a Related Issuer on behalf of an Investors Group Fund.

16.          The NI 81-102 Funds can rely on the exemption set out in section 6.2 of NI 81-107 (the Related Issuer Exemption), which permits NI 81-102 Funds to invest in securities of Related Issuers, subject to certain conditions, including that trades in securities of Related Issuers are made on an exchange and approved by the IRC of the NI 81-102 Funds.

17.          The Related Issuer Exemption is not available to the Private Pools as the Private Pools are not reporting issuers and thus are not subject to NI 81-107.

18.          The Related Issuer Exemption is also not available to the NI 81-102 Funds where the securities of the Related Issuer are non-exchange-traded debt securities.

19.          There may be significant benefit to a Private Pool to be able to trade in the secondary market in exchange-traded debt and equity securities of Related Issuers, and the Filer is capable of complying with the same conditions as apply to the NI 81-102 Funds that rely on the Related Issuer Exemption when trading in exchange-traded equity and debt securities of Related Issuers on behalf of the Private Pools.

20.          There may be significant benefit to the Investors Group Funds to be able to invest in non-exchange traded debt securities of Related Issuers with a “designated rating” by a “designated rating organization” within the meaning of National Instrument 44-101 – Short Form Prospectus Distributions (NI 44-101), on the terms and conditions noted below, for the following reasons:

(i)            there is a limited supply of debt securities issued by an issuer other than the federal or a provincial government which have a “designated rating” by a “designated rating organization”;

(ii)           diversification is reduced to the extent that an Investors Group Fund is limited with respect to investment opportunities; and

(iii)          investing in debt securities of Related Issuers cannot be replicated by investing in other securities of similarly situated issuers, as they are a distinct investment. Investors Group Funds may be prejudiced if they cannot purchase non-exchange-traded debt securities of Related Issuers that are consistent with the Investors Group Fund’s investment objective.

21.          The Filer has determined that it would be in the best interests of the Investors Group Funds to have the ability to invest in non-exchange-traded debt securities of Related Issuers.

22.          The Filer has also determined that it would be in the best interests of the Private Pools to have the same ability to invest in exchange-traded debt and equity securities of Related Issuers as the NI 81-102 Funds have.

23.          Each exchange-traded debt or equity security of a Related Issuer purchased by a Private Pool in the secondary market pursuant to the Exemption Sought will be purchased on an exchange where the securities are listed.

24.          Each purchase of securities of a Related Issuer will occur in the secondary market, and not under primary distributions or treasury offerings of a Related Issuer.

25.          Each purchase of securities of a Related Issuer conducted by an Investors Group Fund will represent the business judgement of ‘responsible persons’ uninfluenced by considerations other than the best interests of the Investors Group Funds.

Independent Review Committee

26.          The Filer has established an IRC in respect of each NI 81-102 Fund in accordance with the requirements of NI 81-107.

27.          The IRC has adopted procedures for approving transactions by NI 81-102 Funds in securities of Related Issuers in accordance with the Related Issuer Exemption.

28.          The Filer has amended the mandate of the IRC to include approving the transactions entered into by the NI 81-102 Funds in non-exchange-traded debt securities of Related Issuers and by the Private Pools in exchange-traded debt and equity securities of Related Issuers (the Exempt Transactions).

29.          The IRC is, and will continue to be, comprised by the Filer in accordance with section 3.7 of NI 81-107 and is expected to comply with the standard of care set out in section 3.9 of NI 81-107.

30.          The Exempt Transactions will be referred to and approved by the IRC under sections 5.2(1) and 5.4 of NI 81-107.

31.          The IRC will not provide approval for any Exempt Transaction unless it has made the determination set out in section 5.2(2) of NI 81-107.

32.          The Filer and the IRC will comply with section 5.4 of NI 81-107 in respect of any standing instructions the IRC provides in connection with the Exempt Transactions.

33.          If the IRC becomes aware of an instance where the Filer did not comply with the terms of the Exemption Sought or a condition imposed by the IRC in its approval, the IRC will, as soon as reasonably practicable, notify the securities regulatory authority or regulator in the jurisdiction under which the Investors Group Fund is organized in writing.

34.          The Filer has determined that it will be in the best interests of the Investors Group Funds to receive the Exemption Sought.

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 Exemption Sought is granted to permit:

1.             a Private Pool to make and hold an investment in exchange-traded securities of a Related Issuer listed and traded on an exchange, on the following conditions:

(a)           the purchase is made on an exchange where the securities are listed and traded;

(b)           the purchase or holding is consistent with, or is necessary to meet, the investment objective of the Private Pool;

(a)           at the time of the purchase, the IRC of the Private Pool has approved the transaction in accordance with section 5.2(2) of NI 81-107;

(b)           the Filer, as the manager of the Private Pool, complies with section 5.1 of NI 81-107 and the Filer, as the manager of the Private Pool, and the IRC of the Private Pool comply with section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with the investment;

(c)           the transaction complies with any applicable “market integrity requirements” as defined in NI 81-107; and

(d)           no later than the time the Private Pool files its annual financial statements, if required, and no later than the 90th day after each financial year-end of the Private Pool, the Filer, or an affiliate of the Filer, as manager of the Private Pool, files with the securities regulatory authority or regulator the particulars of any such investments; and

2.             an Investors Group Fund to make and hold an investment in non-exchange traded debt securities of a Related Issuer in the secondary market on the following conditions:

(a)           the purchase or holding is consistent with, or is necessary to meet, the investment objective of the Investors Group Fund;

(b)           at the time of the purchase, the IRC has approved the transaction on behalf of the Investors Group Fund in accordance with subsection 5.2(2) of NI 81-107;

(c)           the Filer, as the manager of the Investors Group Fund, complies with section 5.1 of NI 81-107 and the Filer, as the manager of the Investors Group Fund, and the IRC comply with section 5.4 of NI 81.107 for any standing instructions the IRC provides in connection with the investment;

(d)           the security has been given and continues, at the time of purchase, to have a “designated rating” by a “designated rating organization” within the meaning of NI 44-101;

(e)           the price payable for the security is not more than the ask price of the security;

(f)            the ask price of the security is determined as follows:

(i)            if the purchase occurs on a marketplace, the price payable is determined in accordance with the requirements of that marketplace; or

(ii)           if the purchase does not occur on a marketplace,

A.            the Investors Group Fund may pay the price for the security at which an independent, arm’s-length seller is willing to sell the security; or

B.            if the Investors Group Fund does not purchase the security from an independent arm’s length seller, the Investors Group Fund must pay the price quoted publicly by an independent marketplace or obtain, immediately before the purchase, at least one quote from an independent, arm’s length purchaser or seller and not pay more than that quote;

(g)           the transaction complies with any applicable “market integrity requirements” as defined in NI 81-107; and

(h)           no later than the time the Investors Group Fund files its annual financial statements, and no later than the 90th day after each financial year-end of the Investors Group Fund, the Filer, or an affiliate of the Filer, as manager of the Investors Group Fund, files with the securities regulatory authority or regulator the particulars of any such investments.

“Philip Anisman”
Commissioner

“Frances Kordyback”
Commissioner