Picton Mahoney Asset Management

March 29, 2019

Decision

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Relief from the conflict of interest restrictions in the Securities Act (Ontario) to permit fund-of-fund structures where top funds are pooled funds that are not reporting issuers and underlying funds are pooled funds or public funds under common management subject to conditions.

Applicable Legislative Provisions

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

March 29, 2019

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

IN THE MATTER OF

THE TOP FUNDS

(as defined below)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer, on behalf of the Filer, each of the funds listed in Schedule “A” and any other investment fund that will not be a reporting issuer in any jurisdiction of Canada that may be established, advised or managed by the Filer in the future (collectively, the Top Funds) for:

(a) a decision to revoke and replace the Prior Relief (as defined below, the Revoke and Replace Decision);

(b) for an order pursuant to the securities legislation of Ontario and Alberta (the Legislation), exempting the Filer and the Top Funds from the restriction which prohibits:

(i) an investment fund in Ontario, or a mutual fund in Alberta, from knowingly making an investment in any person or company in which the investment fund or mutual fund, as applicable, alone or together with one or more related investment funds, is a substantial security holder;

(ii) an investment fund in Ontario, or a mutual fund in Alberta, from knowingly making an investment in an issuer in which:

A. any officer or director of the investment fund or mutual fund, as applicable, its management company or distribution company or an associate of any of them, or

B. any person or company who is a substantial security holder of the investment fund or mutual fund, as applicable, its management company or its distribution company, has a significant interest, and

(iii) a mutual fund, its management company or its distribution company from knowingly holding an investment described in paragraphs (i) and (ii) above.

to permit the Filer to cause the Top Funds to purchase and hold securities of Underlying Funds (defined below) (together with the Revoke and Replace Decision, the Requested Relief).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

1. the Ontario Securities Commission is the principal regulator for this application; and

2. 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 (together with the Jurisdiction, the Passport Jurisdictions).

Interpretation

Terms defined in the Legislation, MI 11-102, National Instrument 14-101 Definitions, National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, National Instrument 81-102 Investment Funds (NI 81-102) and National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) have the same meanings in this decision, unless otherwise defined.

Fund means a Public Fund or a Pooled Fund;

NI 81-107 means National Instrument 81-107 Independent Review Committee for Investment Funds;

Pooled Fund means an existing or future investment fund of which the Filer is the investment fund manager and to which neither NI 81-102 nor NI 81-107 apply;

Public Fund means an existing or future investment fund of which the Filer is the investment fund manager and to which NI 81-102 and NI 81-107 apply; and

Underlying Fund means a Fund in which a Pooled Fund holds securities.

Representations

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

Filer

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 as (i) an investment fund manager in Ontario, Québec and Newfoundland and Labrador; (ii) an adviser in the category of portfolio manager in British Columbia, Saskatchewan, Manitoba, Ontario, Québec and Prince Edward Island; (iii) a dealer in the category of exempt market dealer in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Québec, Newfoundland and Labrador, and Prince Edward Island; and (iv) a commodity trading manager in Ontario.

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

4. The Filer is not in default of securities legislation of any jurisdiction of Canada. The Filer is not a reporting issuer in any jurisdiction of Canada.

5. Pursuant to a decision dated February 17, 2015 (the Prior Relief), the Filer obtained relief to permit the Top Funds to invest in Underlying Funds that are Pooled Funds. The Filer is seeking to expand the Prior Relief to allow the Top Funds to invest in Underlying Funds that are Public Funds. At the time of the Prior Relief, the Filer did not manage any Public Funds and, as such, investments in Underlying Funds that are Public Funds was not contemplated in the Prior Relief.

Top Funds

6. Each Top Fund is or will be an open-ended trust established under the laws of the Province of Ontario by declaration of trust, as the same may be amended, restated or supplemented from time to time (the Master Trust Declaration).

7. Pursuant to the Master Trust Declaration, the Filer acts or will act as the trustee of the Top Funds and has or will have authority to manage the business and affairs of the Top Funds and to bind the Top Funds.

8. Each of the Top Funds is or will be sold pursuant to available exemptions from the prospectus requirement in accordance with National Instrument 45-106 Prospectus Exemptions (NI 45-106) or such other exemptions available in the Act (as defined below).

9. Each of the Top Funds is or will be an investment fund for the purposes of the Securities Act (Ontario) (the Act) or a mutual fund for the purposes of the Securities Act (Alberta), but no Top Fund is or will be a reporting issuer in any jurisdiction of Canada.

10. The existing Top Funds are not in default of securities legislation of any jurisdiction of Canada.

11. The Master Trust Declaration of each of the Top Funds describes, or will describe, the investment objectives and investment restrictions applicable to the Top Funds, and also describes the fees, compensation and expenses payable by the Top Funds, the calculation of net asset value (NAV), distributions, the powers and duties of the investment fund manager and all other matters material to each of the Top Funds, including the fact that in pursuing its investment objectives, each Top Fund may invest all, or less than all, its assets in one or more Underlying Funds as an investment strategy.

Underlying Funds

12. Each Underlying Fund is or will be an open-ended trust established under the laws of the Province of Ontario by declaration of trust, as the same may be amended, restated or supplemented from time to time (the Declaration of Trust).

13. The securities of each Pooled Fund are, or will be, distributed on a private placement basis pursuant to the securities legislation of the Passport Jurisdictions and no Pooled Fund is, or will be, a reporting issuer under the securities legislation of any of the Passport Jurisdictions.

14. Each Public Fund is, or will be, a reporting issuer under the securities legislation of one or more Passport Jurisdictions and the securities of each Public Fund are, or will be, qualified for distribution pursuant to a prospectus and, if applicable, annual information form and fund facts document that have been, or will be, prepared and filed in accordance with the securities legislation of those Passport Jurisdictions.

15. Pursuant to the Declaration of Trust, the Filer, or a third party trustee, acts or will act as the trustee of the Underlying Funds and the Filer has or will have authority to manage the business and affairs of the Underlying Funds and to bind the Underlying Funds.

16. Each of the Underlying Funds has or will have separate investment objectives, strategies and/or restrictions, as described in the Declaration of Trust.

17. Each of the Underlying Funds calculates and will calculate its NAV and offer redemptions at least at the same frequency as the applicable Top Fund.

18. The existing Underlying Funds are not in default of securities legislation of any jurisdiction of Canada.

Fund-on-Fund Structure

19. The Filer has determined it would be in the best interests of the Top Funds to invest all or a portion of their assets in securities of Underlying Funds to achieve the desired diversification and investment profile. All of the investments by Top Funds in securities of Underlying Funds described herein are referred to as Fund-on-Fund Investments. The Filer believes that Fund-on-Fund Investments provide an efficient and cost-effective manner of pursuing portfolio diversification on behalf of a Top Fund rather than through the direct purchase of securities and that such investments will not be detrimental to the interests of other securityholders of the Underlying Funds.

20. No Underlying Fund will be a Top Fund in a Fund-on-Fund Investment.

21. Not more than 10% of the net asset value of each Underlying Fund will be invested in securities of other investment funds except to the extent the Underlying Fund:

a. is a “clone fund” (as defined in NI 81-102);

b. purchases or holds securities of a “money market fund” (as defined in NI 81-102); or

c. purchases or holds securities that are “index participation units” (as defined by NI 81-102).

22. An investment by a Top Fund in an Underlying Fund is, or will be, compatible with the investment objectives of the Top Fund and any such investment will be aligned with the investment objectives, investment strategy, risk profile and other principal terms of the Top Fund.

23. Each Fund-on-Fund Investment will be effected at an objective price calculated in accordance with the Filer’s policies and procedures, being NAV per security of the applicable class or series of the applicable Underlying Fund, calculated in accordance with section 14.2 of NI 81-106.

24. No management fees or incentive fees will be payable by a Top Fund that, to a reasonable person, would duplicate a fee payable by an Underlying Fund for the same service.

25. No sales fee or redemption fees will be payable by a Top Fund in relation to its purchases or redemptions of securities of an Underlying Fund that, to a reasonable person, would duplicate a fee payable by an investor in the Top Fund.

26. The Filer will not cause the securities of an Underlying Fund held by a Top Fund to be voted at any meeting of the holders of such securities, except that the Filer may arrange for the securities the Top Fund holds in the Underlying Fund to be voted by the beneficial owners of the securities of the Top Fund, who are not the Filer or an officer, director or substantial security holder of the Filer.

27. Underlying Funds that are not reporting issuers will be managed to ensure there is sufficient liquidity to provide for redemptions of securities by securityholders of the Top Funds and each Underlying Fund will not hold greater than 10% of its assets in “illiquid assets” as defined in NI 81-102.

28. Underlying Funds that are reporting issuers will be managed in accordance with the liquidity restrictions contained in NI 81-102.

29. A disclosure document, including an offering memorandum where available, of a Top Fund will be provided to each new investor in a Top Fund prior to the time of the investor’s investment, which discloses:

(a) that the Top Fund may purchase securities of Underlying Funds from time to time;

(b) that the Filer, or an affiliate of the Filer, is the investment fund manager and portfolio manager of both the Top Fund and the Underlying Funds;

(c) the approximate or maximum percentage of net assets of the Top Fund that the Top Fund intends to invest in securities of Underlying Funds;

(d) the fees and expenses payable by the Underlying Funds that the Top Fund may invest in, including any incentive fees;

(e) the process or criteria used to select the Underlying Fund;

(f) for each officer, director and/or substantial security holder of the Filer, or of a Top Fund, that has a significant interest in an applicable Underlying Fund, and for the officers and directors and substantial security holders who together in aggregate hold a significant interest in an applicable Underlying Fund, the approximate amount of the significant interest they hold, on an aggregate basis, expressed as a percentage of the applicable Underlying Fund’s NAV, and the potential conflicts of interest which may arise from such relationship;

(g) that investors are entitled to receive from the Filer, on request and free of charge:

i. a copy of the offering memorandum or other similar disclosure document of each Underlying Fund, if available; and

ii. the annual audited financial statements and interim financial reports (if any) relating to each Underlying Fund in which the Top Fund invests.

The disclosure document described above will be provided to each investor in a Top Fund prior their purchase of units in the Top Fund.

30. The Filer will annually inform investors in a Top Fund of their right to receive from the Filer, on request and free of charge, a copy of the offering memorandum or other similar disclosure document of each Underlying Fund, if available, and the annual audited financial statements and interim financial reports relating to each Underlying Fund in which the Top Fund invests.

31. The amounts invested, from time to time in an Underlying Fund by one or more of the Top Funds, may exceed 20% of the outstanding voting securities of any single Underlying Fund. Accordingly, each Top Fund could, either alone or together with Future Top Funds, become a substantial securityholder of an Underlying Fund. The Top Funds are, or will be, related investment funds by virtue of the common management by the Filer.

32. In addition, the Fund-on-Fund Investments may result in a Top Fund investing in an Underlying Fund (i) in which an officer or director of the Top Fund, of the Filer or of any associate of them, has a significant interest, and/or (ii) where a person or company who is substantial securityholder of the Top Fund or the Filer, has a significant interest.

33. Each Top Fund and Underlying Fund subject to NI 81-106 prepares, or will prepare, annual audited financial statements and interim unaudited financial statements in accordance with NI 81-106 and will otherwise comply with the requirements of NI 81-106 applicable to them.

34. A Top Fund's investments in an Underlying Fund represents the business judgment of a responsible person uninfluenced by considerations other than the best interests of the Top Fund.

35. In the absence of the Requested Relief, a Top Fund would be precluded from purchasing and holding securities of an Underlying Fund that is a reporting issuer due to investment restrictions contained in the Legislation.

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 Prior Relief is revoked; and

2. the Requested Relief is granted, provided that:

(a) securities of a Top Fund are distributed in Canada solely pursuant to exemptions from the prospectus requirement under applicable securities legislation;

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

(c) an investment in an Underlying Fund by a Top Fund will be effected at an objective price, calculated in accordance with section 14.2 of NI 81-106;

(d) a Top Fund will not invest in an Underlying Fund, unless the Underlying Fund complies with the provisions of NI 81-106 that apply to a “mutual fund in Ontario” as defined in the Securities Act (Ontario);

(e) no Top Fund will purchase or hold a security of an Underlying Fund unless, at the time of purchasing securities of the Underlying Fund, the Underlying Fund holds no more than 10% of its NAV in securities of other mutual funds, unless the Underlying Fund:

(i) is a “clone fund” (as defined in NI 81-102);

(ii) purchases or holds securities of a “money market fund” (as defined by NI 81-102); or

(iii) purchases or holds securities that are “index participation units” (as defined by NI 81-102) issued by an investment fund;

(f) 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;

(g) no sales fees or redemption fees are payable by the Top Fund in relation to its purchases or redemptions of securities of an Underlying Fund that, to a reasonable person, would duplicate a fee payable by an investor in the Top Fund other than brokerage fees incurred for the purchase or sale of an index participation unit issued by an investment fund;

(h) the Filer does not cause the securities of an Underlying Fund held by a Top Fund to be voted at any meeting of the holders of such securities, except that the Filer may arrange for the securities the Top Fund holds of an Underlying Fund to be voted by the beneficial owners of the securities of the Top Fund who are not the Filer or an officer, director or substantial securityholder of the Filer;

(i) when purchasing and/or redeeming securities of an Underlying Fund, the Filer shall, as investment fund manager of the applicable Top Fund and Underlying Fund, act honestly, in good faith and in the best interests of the Top Fund and the Underlying Fund, respectively, and shall exercise the care and diligence that a reasonably prudent person would exercise in comparable circumstances;

(j) a disclosure document, including an offering memorandum where available, of a Top Fund will be provided to each new investor in a Top Fund prior to the time of the investor’s investment, which discloses:

i) that the Top Fund may purchase securities of Underlying Funds from time to time;

ii) that the Filer, or an affiliate of the Filer, is the investment fund manager and portfolio manager of both the Top Fund and the Underlying Funds;

iii) the approximate or maximum percentage of net assets of the Top Fund that the Top Fund intends to invest in securities of Underlying Funds;

iv) the fees and expenses payable by the Underlying Funds that the Top Fund may invest in, including any incentive fees;

v) the process or criteria used to select the Underlying Fund;

vi) for each officer, director and/or substantial security holder of the Filer, or of a Top Fund, that has a significant interest in an applicable Underlying Fund, and for the officers and directors and substantial security holders who together in aggregate hold a significant interest in an applicable Underlying Fund, the approximate amount of the significant interest they hold, on an aggregate basis, expressed as a percentage of the applicable Underlying Fund’s NAV, and the potential conflicts of interest which may arise from such relationship;

vii) that investors are entitled to receive from the Filer, on request and free of charge:

i. a copy of the offering memorandum or other similar disclosure document of each Underlying Fund, if available; and

ii. the annual audited financial statements and interim financial reports (if any) relating to each Underlying Fund in which the Top Fund invests; and

(k) the Filer shall annually inform investors in a Top Fund of their right to receive from the Filer, on request and free of charge, a copy of the offering memorandum or other similar disclosure document of each Underlying Fund, if available, and the annual audited financial statements and interim financial reports relating to each Underlying Fund in which the Top Fund invests.

“D. Grant Vingoe”

Vice Chair

Ontario Securities Commission

“M. Cecilia Williams”

Commissioner

Ontario Securities Commission

SCHEDULE “A”

List of Funds

Picton Mahoney Market Neutral Equity Fund

Picton Mahoney Global Market Neutral Equity Fund

Picton Mahoney Income Opportunities Fund

Picton Mahoney Concentrated Opportunistic Long Short Fund

Picton Mahoney Diversified Strategies Fund

Picton Mahoney Long Short Equity Fund

Picton Mahoney Global Long Short Equity Fund

Picton Mahoney 130/30 Alpha Extension Canadian Equity Fund

Picton Mahoney World 130/30 Canadian Equity Fund

Picton Mahoney Special Situations Fund