Canoe Financial LP

July 23, 2025

Decision

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief from subparagraph 2.6.1(1)(c)(v), paragraph 2.6(2)(c), and section 2.6.2 of NI 81-102 to borrow cash and short sell up to 100% of NAV; from subparagraph 2.6.1(1)(c)(iv) of NI 81-102 to permit short sales of index participation units of one or more issuers up to 100% of NAV; from subsection 6.1(1) of NI 81-102 to appoint additional custodians and to clarify that short sale proceeds are excluded for the purposes of calculating non-custodial borrowing agent collateral limits under section 6.8.1 of NI 81-102; and from subsection 6.8(1) and paragraph 6.8(2)(c) of NI 81-102 to permit a fund to deposit margin with individual dealers in excess of the margin deposit limits; all subject to conditions.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 2.6.1(1)(c)(iv) and 2.6.1(1)(c)(v), 2.6(2)(c), 2.6.2, 6.1(1), 6.8(1), 6.8(2)(c), 6.8.1, and 19.1.

Citation: Re Canoe Financial LP, 2025 ABASC 105

July 23, 2025

IN THE MATTER OF THE SECURITIES LEGISLATION OF ALBERTA AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF CANOE FINANCIAL LP (Canoe)

DECISION

Background

The securities regulatory authority in each of the Jurisdictions (each a Decision Maker) has received an application from Canoe (the Filer), on behalf of Canoe Equity Plus Fund and Canoe Energy Plus Fund (the Proposed Alternative Funds), and any future alternative mutual funds (which includes exchange-traded funds) that may be managed by the Filer or an affiliate of, or successor to, the Filer (each, a Future Alternative Fund and, collectively with the Proposed Alternative Funds, the Alternative Funds and each, an Alternative Fund), as well as any existing conventional mutual fund (the Existing Conventional Funds), and any future conventional mutual funds (which includes exchange-traded funds) that may be managed by the Filer or an affiliate of, or successor to, the Filer (each, a Future Conventional Fund and, collectively with the Existing Conventional Funds, the Conventional Funds and each, a Conventional Fund), each of which is, or will be, an investment fund subject to National Instrument 81-102 Investment Funds (NI 81-102) (the Alternative Funds and the Conventional Funds are referred to herein as the Funds and each, a Fund), for a decision under the securities legislation of the Jurisdictions (the Legislation) exempting the Funds from the following requirements (the Exemptions Sought):

(i) in respect of each Alternative Fund, the following restrictions of NI 81-102 to permit each Alternative Fund to sell securities short and/or borrow cash up to a combined aggregate total of 100% of the net asset value (NAV) of the Alternative Fund:
(a) subparagraph 2.6.1(1)(c)(iv) of NI 81-102, which restricts an Alternative Fund from selling a security of an issuer, other than a "government security" (as defined in NI 81-102) short if, at the time, the aggregate market value of the securities of that issuer sold short by the Alternative Fund exceeds 10% of the Alternative Fund's NAV (the Single Issuer Short Restriction) in order to permit each Alternative Fund to exceed the Single Issuer Short Restriction to short sell IPUs (as such term is defined below) of one or more IPU Issuers (as such term is defined below) up to a maximum of 100% of an Alternative Fund's NAV at the time of the sale;
(b) subparagraph 2.6.1(1)(c)(v), which restricts an Alternative Fund from selling a security short if, at the time, the aggregate market value of all securities sold short by the Alternative Fund exceeds 50% of the Alternative Fund's NAV (together with (i)(d) below, the Short Selling Limit);
(c) subparagraph 2.6(2)(c), which restricts an Alternative Fund from borrowing cash if the value of cash borrowed, when aggregated with the value of all outstanding borrowing by the Alternative Fund, exceeds 50% of the Alternative Fund's NAV (together with (i)(d) below, the Cash Borrowing Limit); and
(d) section 2.6.2, which restricts an Alternative Fund from borrowing cash or selling securities short if, immediately after entering into a cash borrowing or short selling transaction, the aggregate value of cash borrowed combined with the aggregate market value of all securities sold short by the Alternative Fund (the Combined Aggregate Value) would exceed 50% of the Alternative Fund's NAV and which requires an Alternative Fund, if the Combined Aggregate Value exceeds 50% of the Alternative Fund's NAV, as quickly as commercially reasonable, to take all necessary steps to reduce the Combined Aggregate Value to 50% or less of the Alternative Fund's NAV;
((i)(a) the Single Issuer Short Relief, (i)(b) and (i)(d) together, the Short Selling Relief and (i)(c) and (i)(d) together, the Cash Borrowing Relief);
(ii) in respect of each Fund, the requirement set out in subsection 6.1(1) of NI 81-102 which provides that, except as provided in section 6.8, 6.8.1 and 6.9, all portfolio assets of an investment fund must be held under the custodianship of one qualified custodian:
(a) to permit a Fund to deposit portfolio assets with a borrowing agent that is not the Fund's custodian or sub-custodian in connection with a short sale of securities, if the aggregate market value of the portfolio assets held by the borrowing agent after such deposit, excluding the aggregate market value of the proceeds from outstanding short sales of securities held by the borrowing agent, does not (i) in the case of a Fund that is a mutual fund, other than an alternative mutual fund, exceed 10% of the NAV of the mutual fund at the time of deposit, and (b) in the case of a Fund that is an alternative mutual fund or a non-redeemable investment fund, exceed 25% of the NAV of the alternative mutual fund or non-redeemable investment fund at the time of deposit (the Short Sale Collateral Relief); and
(b) to permit each Fund to appoint more than one custodian, each of which satisfies the requirements of section 6.2 of NI 81-102, subject to certain conditions (the Custodian Relief);
(iii) in respect of each Fund, the requirement set out in:
(a) subsection 6.8(1) of NI 81-102, which restricts an investment fund from depositing portfolio assets as margin with a member of a regulated clearing agency or dealer that is a member of a self-regulatory organization that is a participating member of the Canadian Investor Protection Fund (CIPF) for a transaction in Canada involving certain specified derivatives in excess of 10% of the NAV of the investment fund at the time of deposit; and
(b) subparagraph 6.8(2)(c) of NI 81-102, which restricts an investment fund from depositing portfolio assets as margin with a member of a regulated clearing agency or dealer for a transaction outside of Canada involving certain specified derivatives in excess of 10% of the NAV of the investment fund as at the time of deposit;
to permit each Fund to deposit as margin portfolio assets of up to 35% of the Fund's NAV as at the time of deposit with any one futures commission merchant in Canada or the United States (each a Dealer) and up to 70% of each Fund's NAV at the time of deposit with all Dealers in the aggregate, for transactions involving standardized futures, clearing corporation options, options on futures, or cleared specified derivatives, such as cleared swaps, that are traded or cleared on or through a stock exchange or futures exchange, a recognized clearing agency, or a swap execution facility that is exempted from recognition as an exchange under applicable securities legislation (together, Exchange Traded Specified Derivatives) (the Exchange Traded Specified Derivatives Relief).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application),

(a) the Alberta Securities Commission is the principal regulator for the application;
(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick, Prince Edward Island, Nova Scotia, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut; and
(c) this 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 National Instrument 14-101 Definitions, MI 11-102 and NI 81-102 have the same meaning if used in this decision, unless otherwise defined herein. In addition, capitalized terms used herein have the following meanings:

Aggregate Limit means the aggregate gross exposure restriction in section 2.9.1 of NI 81-102, which places an overall limit on an alternative mutual fund's exposure to cash borrowing, short selling and specified derivatives equal to 300% of such fund's NAV.
IPU means "index participation unit", as defined in NI 81-102.
IPU Issuer means an investment fund the securities of which are IPUs.
Prime Broker means any entity that acts as, among other things, a borrowing agent to one or more investment funds, whether the investment fund is an alternative mutual fund, a mutual fund or an exchange-traded fund.
Prospectus means a simplified prospectus of a Fund prepared in accordance with Form 81-101F1 Contents of Simplified Prospectus or a prospectus of a Fund prepared in accordance with Form 41-101F2 Information Required in an Investment Fund Prospectus, as the same may be amended from time to time.
Securities Lending Agreements means agreements that effect securities lending, repurchase, or reverse repurchase transactions between a Fund, as lender of the securities, third party borrowers, and the Fund's securities lending agent.

Representations

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

The Filer

1. The Filer is a limited partnership established under the laws of the Province of Alberta. The general partner of the Filer is Canoe Financial Corp., a corporation incorporated under the laws of the Province of Alberta. The Filer's head office is located in Calgary, Alberta.

2. The Filer is registered as (a) an investment fund manager in each of Alberta, Newfoundland and Labrador, Ontario, and Québec, (b) a portfolio manager in each of Alberta, Ontario, and Québec, (c) an exempt market dealer in each of Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island, Québec, Saskatchewan, and Yukon, (d) a commodity trading manager in Ontario, and (e) a derivatives portfolio manager in Québec.

3. The Filer is, or will be, the investment fund manager of the Funds. The Filer or a related or third-party portfolio manager retained by the Filer is, or will be, the portfolio manager of the Funds. The portfolio manager of a Fund may also engage a sub-adviser to advise in respect of the investments of such Fund.

4. The Filer is not in default of applicable securities legislation in any jurisdiction of Canada.

The Funds

5. Each Fund is, or will be, an investment fund organized and governed by the laws of a province or territory of Canada or the laws of Canada.

6. Each Fund is, or will be, governed by the provisions of NI 81-102, subject to any exemptions therefrom that have been, or may be, granted by the applicable securities regulatory authorities.

7. The securities of each Fund are, or will be, qualified for distribution in one or more of the jurisdictions of Canada under a Prospectus prepared and filed in accordance with the securities legislation of such jurisdictions.

8. No existing Fund is in default of applicable securities legislation in any jurisdiction of Canada.

9. Except as permitted by the Exemptions Sought and other exemptive relief that is applicable, the investment strategies of the Funds are, or will be, limited to the investment practices permitted by NI 81-102.

Reasons for the Exemptions Sought

Short Selling Relief and Cash Borrowing Relief

10. The investment objective of each Alternative Fund will differ but, in each case, key investment strategies that may be utilized by an Alternative Fund may include (a) the use of market-neutral, offsetting, inverse, or shorting strategies requiring the use of short selling in excess of the Short Selling Limit and/or (b) the use of cash borrowing to provide additional investment exposure in connection with the investment strategies of the Alternative Fund in excess of the Cash Borrowing Limit.

11. Market-neutral strategies are well-recognized for limiting market risk, and balancing long and short positions within an investment portfolio with the objective of providing positive returns regardless of whether the broader market rises, falls or is flat. Market-neutral strategies are designed to have less volatility than the broader market when measured over medium to long-term periods. Market-neutral strategies also provide diversification to investors as returns are intended to be uncorrelated to the performance of the broader market -- such strategies are designed to effectively remove any "beta" component from their returns and investment exposures.

12. As part of an investment strategy, short positions can serve as both a hedge against exposure to a long position or a group of long positions, and also as a source of returns with an offsetting long position or positions. The Alternative Funds will generally seek to generate an attractive risk/return profile independent of the direction of the broad markets. As such, at the portfolio level, these strategies will seek to hedge out an Alternative Fund's exposure to the direction of broad markets, and to generate positive performance from the difference, specifically, the spread, between the performance of the portfolio's long and short positions.

13. The ability to engage in additional short selling and cash borrowing in connection with the investment strategies of an Alternative Fund may provide material cost savings to the Alternative Fund compared to obtaining the same level of investment exposure through the use of specified derivatives while, at the same time, not increasing the overall level of risk to the Alternative Fund.

14. The costs to the Alternative Funds of engaging in physical short sales and cash borrowing are typically less when compared to the equivalent derivative transactions due to a number of factors which may include:

(a) Prime brokers typically have greater flexibility to offer more favourable financing terms to an Alternative Fund in relation to the aggregate amount of the Alternative Fund's assets held in the prime brokerage margin account in relation to short sales and cash borrowing.
(b) Margin requirements for derivative instruments are primarily based on the underlying investment exposure and, as a result, can be high.
(c) Certain derivative instruments (such as futures contracts) require cash or near cash securities (such as government treasuries) to be deposited with the counterparty as collateral. This would require an Alternative Fund to use these portfolio assets to satisfy collateral requirements rather than utilizing them in connection with the Alternative Fund's investment strategies.

15. The Alternative Funds may use cash borrowing as a more flexible and cost-efficient means of providing additional leverage for investment strategies such as merger arbitrage strategies where the use of derivative instruments to provide the same level of exposure may not be practical. In connection with such strategies, the Filer (or, where applicable, the portfolio manager or sub-advisor) is typically required to respond in a timely manner to public disclosure relating to a transaction and market movements in the share price of the target and/or acquiror company. The use of cash borrowing in such circumstances provides an easily accessible tool that enables the Filer (or, where applicable, the portfolio manager or sub-advisor) to implement the investment decision more quickly compared to the use of derivative instruments that provide the same level of exposure on a synthetic basis.

16. Cash borrowing is more efficient to utilize on a day-to-day basis compared to derivative instruments, which generally require a higher degree of negotiation and ongoing administration on the part of the Filer (or, where applicable, the portfolio manager or sub-advisor). The Cash Borrowing Relief would provide the Filer (or, where applicable, the portfolio manager or sub-advisor) with access to a more functional source of additional leverage to utilize on behalf of the Alternative Funds at a lower cost which, in turn, would benefit investors.

17. The investment strategies of each Alternative Fund permit, or will permit, it to:

(a) sell securities short, provided that, at the time the Alternative Fund sells a security short (i) the aggregate market value of securities of any one issuer (other than "government securities" as defined in NI 81-102 and IPU Issuers) sold short by the Alternative Fund does not exceed 10% of the Alternative Fund's NAV and (ii) the aggregate market value of all securities sold short by the Alternative Fund does not exceed 100% of its NAV;
(b) borrow cash, provided that, at the time, the value of cash borrowed when aggregated with the value of all outstanding borrowing by the Alternative Fund does not exceed 100% of the Alternative Fund's NAV;
(c) borrow cash or sell securities short, provided that the aggregate value of cash borrowed combined with the aggregate market value of the securities sold short by the Alternative Fund does not exceed 100% of the Alternative Fund's NAV (the Total Borrowing and Short Selling Limit). If the Total Borrowing and Short Selling Limit is exceeded, the Alternative Fund shall, as quickly as is commercially reasonable, take all necessary steps to reduce the aggregate value of cash borrowed combined with the aggregate market value of securities sold short to be within the Total Borrowing and Short Selling Limit; and
(d) borrow cash, sell securities short, or enter into specified derivatives transactions, provided that, immediately after entering into a cash borrowing, short selling, or specified derivative transaction, the aggregate value of cash borrowed combined with the aggregate market value of securities sold short and aggregate notional amount of the Alternative Fund's specified derivatives positions (other than positions held for hedging purposes, as defined in NI 81-102) would not exceed the Aggregate Limit. If the Aggregate Limit is exceeded, the Alternative Fund shall, as quickly as is commercially reasonable, take all necessary steps to reduce the aggregate value of cash borrowed combined with the aggregate market value of securities sold short and the aggregate notional amount of the Alternative Fund's specified derivatives positions (other than positions held for hedging purposes) to be within the Aggregate Limit.

18. NI 81-102 contemplates that alternative mutual funds may utilize shorting strategies using a combination of short sale transactions (subject to the Short Selling Limit) and specified derivative positions and obtain additional investment exposure using a combination of cash borrowing (subject to the Cash Borrowing Limit) and specified derivative positions subject, in all cases, to the Aggregate Limit. Alternative mutual funds that were previously known as commodity pools provide 100% or 200% inverse exposure through the use of specified derivatives, which is consistent with the Aggregate Limit and does not trigger the application of the Short Selling Limit or Cash Borrowing Limit for which the Filer is requesting exemptive relief. Accordingly, the Short Selling Relief and Cash Borrowing Relief would simply allow the Alternative Funds to do directly what they could otherwise do indirectly through the use of specified derivatives.

19. The Alternative Funds require the flexibility to enter into physical short positions and borrow cash when doing so is, in the opinion of the Filer (or, where applicable, the portfolio manager or sub-advisor), in the best interests of the applicable Alternative Fund and to not be obligated to utilize an equivalent short position or amount of leverage synthetically through the use of specified derivatives as a result of regulatory restrictions in NI 81-102 that the Filer (or, where applicable, the portfolio manager or sub-advisor) believes do not provide any material additional benefit or protection to investors.

20. The Filer believes that the Short Selling Relief and the Cash Borrowing Relief would allow the Filer (or, where applicable, the portfolio manager or sub-advisor) to more effectively manage each Alternative Fund's investment exposure by providing it with the ability to respond to market developments in a timely manner and enabling the Filer to reduce the related expenses incurred by the Alternative Funds. In addition, specified derivative options may not be readily available for certain securities, may be relatively illiquid or may require large capital commitments on the part of the Alternative Fund.

21. While there may be certain situations where using a synthetic short position may be preferable, physical short positions are typically less costly, because of the ability to execute trades with a larger number of counterparties, compared to a single counterparty for synthetic shorts. This can result in lower borrowing costs for the Alternative Fund and reduce its exposure to counterparty risk (e.g., counterparty default, counterparty insolvency, and premature termination of derivatives) compared to a synthetic short position.

22. The Filer (or, where applicable, the portfolio manager or sub-advisor), as a registrant and a fiduciary, is in the best position to determine, depending on the surrounding circumstances, whether the Alternative Funds should enter into a physical short position and/or obtain additional investment exposure via cash borrowing versus achieving the same result through the use of specified derivatives. The Short Selling Relief and Cash Borrowing Relief would provide the Filer (or, where applicable, the portfolio manager or sub-advisor of the Alternative Fund) with the required flexibility to make timely trading decisions between physical and synthetic short sale positions and/or achieving additional investment exposure through cash borrowing or synthetic transactions. Accordingly, the Short Selling Relief and the Cash Borrowing Relief would permit the Alternative Funds to implement more effective portfolio management activities. Investors would benefit by obtaining access to a more diversified set of investment opportunities than are currently available, while remaining within the overall investment limits set out in NI 81-102.

23. Any physical short position or cash borrowing transaction entered into by an Alternative Fund will be consistent with the investment objectives and strategies of the applicable Alternative Fund.

24. The investment strategies of each Alternative Fund will clearly disclose that the short selling and cash borrowing strategies and abilities of the Alternative Fund are outside the scope of NI 81-102, including that the aggregate market value of all securities sold short by the Alternative Fund and/or the aggregate amount of cash borrowed may exceed 50% of the Fund's NAV. The Prospectus will also contain appropriate risk disclosure, alerting investors of any material risks associated with such investment strategies.

25. The Filer believes that it is in the best interests of each of the Alternative Funds to be permitted to engage in physical short selling and to obtain additional investment exposure through the use of cash borrowing in excess of the current limits set out in NI 81-102.

Single Issuer Short Relief

26. Subsection 2.1(1.1) of NI 81-102 restricts an alternative mutual fund from purchasing a security of an issuer, entering into a specified derivatives transaction or purchasing an IPU if, immediately after the transaction, more than 20% of its NAV would be invested in securities of any one issuer (the Concentration Restriction).

27. Subsection 2.1(2) of NI 81-102 provides an exception to the Concentration Restriction for an IPU that is a security of an investment fund. The Filer has submitted that the rationale for this exception is in part that an IPU Issuer should be considered a look-through vehicle in that it is comprised of and represents a diversified group of issuers whose securities it holds in proportion to the underlying index, thereby mitigating the concentration risk otherwise associated with an Alternative Fund holding the securities of a single issuer. The Filer believes a similar rationale can be applied in respect of shorting IPU Issuers.

28. A significant risk associated with short positions generally is the potential to be unable to obtain the securities required to cover the short position, or to be unable to obtain them without additional costs, at the required time due to a lack of liquidity in the market. The Filer has submitted that the liquidity of the IPU Issuers, as described above, significantly reduces the risk that an Alternative Fund may not be able to cover or exit a short position in an IPU Issuer. On this basis, short sales of IPU Issuers will not have the same risk profile as a short sale of a single issuer or of a security that lacks liquidity of this magnitude.

29. The Alternative Funds are, or will be, as the case may be, permitted to short sell IPUs of multiple IPU Issuers up to the limits of the Short Selling Relief.

30. The Filer is of the view that, in the case of IPU Issuers, for the reasons set out below, the concentration risk otherwise associated with shorting securities of a single issuer is mitigated, and accordingly, the Single Issuer Short Relief permits the Alternative Funds to benefit from efficiencies without prejudicing investors:

(a) IPU Issuers seek to provide investment results that correspond generally to the performance of a specified widely quoted market index comprised of multiple issuers by holding a portfolio of securities that are included in the index or otherwise investing in a manner that causes the IPU Issuer to replicate the performance of that index. Accordingly, the portfolio holdings of IPU Issuers are generally diversified.
(b) The creation process for IPUs of IPU Issuers can quickly increase the available supply of IPUs of IPU Issuers in the marketplace, making the potential for a liquidity issue inherently lower.
(c) The portfolio holdings of IPU Issuers are generally liquid, which also makes the potential for a liquidity issue inherently lower.

31. The weight of each underlying security held in the portfolio of an IPU Issuer substantially corresponds to the weight of such security in the underlying index.

32. The Single Issuer Short Relief is requested to permit each Alternative Fund to short sell IPUs of IPU Issuers without otherwise impacting such Alternative Fund's ability to borrow cash or engage in short sales under NI 81-102, in circumstances where the Filer (or, where applicable, the portfolio manager or sub-advisor of the particular Alternative Fund) believes that it is more beneficial to gain the desired short exposure to IPU Issuers (a) through shorting fewer IPU Issuers than would otherwise be necessary under the Single Issuer Short Restriction, and (b) by way of short sales rather than by way of specified derivative transactions.

33. While an Alternative Fund could acquire exposure, including short exposure, to IPU Issuers in pursuit of its respective investment strategy through derivative transactions, the Filer believes that short sales of IPU Issuers may provide a faster, more efficient and flexible means of achieving diversification and hedging against market risk.

34. As such, the Filer is of the view that it would be in each Alternative Fund's best interest to permit the Alternative Fund to physically short sell IPUs of IPU Issuers, up to 100% of the Alternative Fund's NAV at the time of sale, instead of being limited to achieving that degree of leverage through either specified derivatives alone, or a combination of physical short selling and specified derivatives, including for the following reasons:

(a) In some circumstances, the availability of derivatives with similar risk characteristics to corresponding indices may be limited. Alternatively, pricing of a short position at a particular point in time may be preferable to the pricing of a corresponding derivatives contract.
(b) Granting the Single Issuer Short Relief would expand the scope of available tools at the disposal of the Filer (or, where applicable, the portfolio manager or sub-advisor) to achieve market hedging, and thereby provide the Filer (or, where applicable, the portfolio manager or sub-advisor) with the best execution and best liquidity.
(c) The Single Issuer Short Relief is less risky than certain derivatives transactions by allowing the Alternative Fund to, in part, mitigate against settlement risk (which is the risk that one of the parties to the derivatives contract defaults under the derivatives contract). Use of derivatives may also be incrementally riskier by exposing the Alternative Fund to operational risk (such as the case of a party to a derivatives contract failing to maintain adequate internal procedures or controls including intra-day settlements or managing closing-out the transaction) and liquidity risk.

35. The Single Issuer Short Relief would allow the Filer (or, where applicable, the portfolio manager or sub-advisor of the applicable Alternative Fund) greater flexibility and liquidity in pursuing a hedging strategy that reduces potential market volatility by expanding options for hedging to include selling highly liquid IPU Issuers short.

36. Notwithstanding the Exemptions Sought the Alternative Funds would otherwise still be required to comply with all of the requirements applicable to alternative mutual funds in sections 2.6.1 and 2.6.2 of NI 81-102, subject to any relief granted therefrom by the securities regulatory authorities.

37. The Exemptions Sought would not change an Alternative Fund's obligation to comply with the Aggregate Limit. The Aggregate Limit would continue to apply to an Alternative Fund's combined exposure to borrowing, short selling and derivatives. A decision to grant the Exemptions Sought would not permit an Alternative Fund to exceed the Aggregate Limit through a combination of investment strategies.

38. If an Alternative Fund's aggregate gross exposure were to exceed the Aggregate Limit, subsection 2.9.1(5) of NI 81-102 would require the Alternative Fund to, as quickly as commercially reasonable, take all necessary steps to reduce the aggregate gross exposure to 300% of the Alternative Fund's NAV or less.

39. Each Alternative Fund will implement the following controls when conducting a short sale:

(a) The Alternative Fund will assume the obligation to return to the borrowing agent the securities borrowed to effect the short sale.
(b) The Alternative Fund will receive cash for the securities sold short within normal trading settlement periods for the market in which the short sale is effected.
(c) The Filer (or, where applicable, the portfolio manager or sub-advisor) will monitor the short positions within the constraints of the Exemptions Sought as least as frequently as daily.
(d) The security interest provided by the Alternative Fund over any of its assets that is required to enable the Alternative Fund to effect a short sale transaction is made in accordance with industry practice for that type of transaction and relates only to obligations arising under such short sale transactions.
(e) The Filer (or, where applicable, the portfolio manager or sub-advisor) will maintain appropriate internal controls regarding short sales, including written policies and procedures for the conduct of short sales, risk management controls and proper books and records.

40. Each short sale by an Alternative Fund will be made consistent with the Alternative Fund's investment objective(s), strategies and restrictions.

41. Each Alternative Fund's Prospectus will contain adequate disclosure of the Alternative Fund's short selling activities, including the material terms of the Exemptions Sought.

Short Sale Collateral Relief

42. In connection with, among other things, the short sale of securities that the Funds will or may engage in, each Fund is permitted to grant a security interest in favour of, and deposit pledged portfolio assets with, its Prime Broker. If a Fund engages as its Prime Broker an entity that is not its custodian or sub-custodian, then a Fund that is not an Alternative Fund may, under section 6.8.1 of NI 81-102, only deliver to its Prime Broker portfolio assets having a market value, in the aggregate, of not more than 10% of the NAV of the Fund at the time of deposit, and an Alternative Fund may, under section 6.8.1 of NI 81-102, only deliver to its Prime Broker portfolio assets having a market value, in the aggregate, of not more than 25% of the NAV of the Alternative Fund at the time of deposit.

43. A Prime Broker may not wish to act as borrowing agent for a Fund that is not an Alternative Fund and that wants to sell short securities having an aggregate market value of up to 10% of the Fund's NAV if the Prime Broker is only permitted to hold, as security for such transactions, portfolio assets, including the proceeds from the short sale, having an aggregate market value that is not in excess of 10% of the NAV of the Fund. The issue is even greater in the context of an Alternative Fund, as a Prime Broker will not act as borrowing agent for an Alternative Fund that wants to sell short securities having an aggregate market value of up to 100% of the Alternative Fund's NAV if the Prime Broker is only permitted to hold, as security for such transactions, portfolio assets, including the proceeds from the short sale, having an aggregate market value that is not in excess of 25% of the NAV of the Alternative Fund.

44. Since January 3, 2019 when NI 81-102 was amended to include alternative mutual funds, the ability of alternative mutual funds to borrow cash and to sell short securities more extensively than other investment funds governed by NI 81-102 has led to the increased involvement of Prime Brokers in the operations of these alternative mutual funds. While the prime brokerage business model works well in the exempt investment fund space, the prime brokerage community and investment fund managers are experiencing greater difficulties in applying that model to alternative mutual funds and other investment funds under NI 81-102.

45. The prime brokerage operational and pricing models in the context of short selling are premised on the ability of the Prime Broker to retain, as collateral for the obligations of the applicable Fund, the proceeds from the sale of the short sales, whether such proceeds are cash or are used by the Fund to purchase other portfolio assets. These models are also based on the ability of the Prime Broker to hold additional assets of the Fund as collateral for those obligations.

46. Given the collateral requirements that Prime Brokers impose on their customers that engage in the short sale of securities, if the 10% and 25% of NAV limitations set out in subsection 6.8.1 of NI 81-102 apply, then the Funds will need to retain two, or possibly three, Prime Brokers in order to sell short securities to the extent permitted under section 2.6.1 of NI 81-102. This would result in inefficiencies for the Funds and would increase their costs of operations. Alternatively, in order to address this issue, different methodologies have been adopted in connection with the calculation of the 10% and the 25% of NAV limitations.

47. The Funds will otherwise comply with subsections 6.8.1(2) and (3) of NI 81-102.

Custodian Relief

48. The Filer would like the flexibility for each Fund to engage additional custodians that are qualified to act as a custodian under subsection 6.2(3) of NI 81-102, which may include engaging Prime Brokers that satisfy such requirements (each an Additional Custodian). The ability to appoint a Prime Broker to act as an Additional Custodian will increase operational efficiency and reduce execution risk and costs for a Fund as it will avoid the need to transfer the Fund's portfolio assets from a third party custodian to the Prime Broker to effect transactions conducted by the Fund through the Prime Broker. The Filer and any Additional Custodians would be subject to all requirements applicable to custodians under Part 6 of NI 81-102, other than the requirement in subsection 6.1(1) of NI 81-102 that there only be one custodian.

49. An Additional Custodian may also be appointed as a securities lending agent of the Funds and, in such circumstances, would provide the Funds with the opportunity to enter into a greater number of Securities Lending Agreements than would be the case with a single custodian and would, therefore, have the potential to increase revenues to the Funds from securities lending activities.

50. Prime Brokers are not widely appointed as sub-custodians by custodians under NI 81-102 as it can be both operationally challenging for the custodian and the Filer to appoint them to act in such capacity.

51. If the Custodian Relief is granted, an Additional Custodian's responsibility for custody of a Fund's assets will apply only to the assets held by the Additional Custodian on behalf of the Fund (the Relevant Assets). The custodial arrangements between a Fund and an Additional Custodian will comply with the requirements of Part 6 of NI 81-102 other than subsection 6.1(1).

52. Any Additional Custodian will meet the requirements of NI 81-102 to act as a custodian for an investment fund and will have experience acting as custodian of the assets of public investment funds governed by NI 81-102. As custodian of the Relevant Assets, an Additional Custodian will comply with the standard of care applicable to qualified custodians under section 6.6 of NI 81-102, will hold the Relevant Assets in the name of the applicable Fund in accordance with section 6.5 of NI 81-102, and will include the provisions prescribed in section 6.4 of NI 81-102 in its custody agreement with the Filer and applicable Fund(s). Each Additional Custodian will complete the review and provide compliance reports to the Filer as contemplated in section 6.7 of NI 81-102.

53. The ability to terminate an Additional Custodian as custodian of the Relevant Assets of a Fund at any time without cause on written notice will ensure that the Filer maintains ultimate control over all of the portfolio assets of the Funds if the Filer considers it to be in the best interests of the Funds and their respective securityholders to do so.

54. The appointment of an Additional Custodian should not have an impact on the safety of the portfolio assets of the Funds while also enhancing the Funds' abilities to engage in the efficient short selling of securities under section 6.8.1 of NI 81-102 and to enter into additional Securities Lending Arrangements.

55. Disclosure regarding the particulars of the appointment of any Additional Custodian of the Existing Funds with respect to the Relevant Assets will be included in the next Prospectus filed with respect to the applicable Funds after such appointment is made.

Exchange Traded Specified Derivatives Relief

56. The investment objective and strategies of each Fund permit or will permit the Fund to invest in Exchange Traded Specified Derivatives.

57. The Filer (or, where applicable, the portfolio manager or sub-advisor to a Fund) is, or will be, authorized to establish, maintain, change and close brokerage accounts on behalf of the Fund. In order to facilitate transactions on behalf of a Fund, the Filer (or, where applicable, the portfolio manager or sub-advisor to a Fund) will establish one or more accounts (each an Account) with one or more Dealers.

58. Each Dealer in Canada (each a Canadian Dealer) is a member of the Canadian Investment Regulatory Organization (CIRO) in Canada and is registered under applicable securities legislation as a futures commission merchant or equivalent.

59. Each Canadian Dealer is a member of the exchanges, clearing agencies or swap execution facility through which the Exchange Traded Specified Derivatives are primarily traded. Each such exchange, clearing agency and swap execution facility is obliged to apply its surplus funds and the security deposits of its members to reimburse clients of failed members.

60. Each Dealer in the United States (each a U.S. Dealer) is regulated by the Commodity Futures Trading Commission (the CFTC) and the National Futures Association (the NFA) in the United States and is required to segregate the initial margin held on behalf of clients, including the Funds. Each U.S. Dealer is subject to regulatory audit and must have insurance to guard against employee fraud. Each U.S. Dealer has a net worth, determined from its most recent audited financial statements, in excess of the equivalent of C$50 million. Each U.S. Dealer has an exchange assigned to it as its designated self-regulatory organization (DSRO). As a member of a DSRO, each U.S. Dealer must meet capital requirements, comply with the conduct rules of the CFTC, NFA and its DSRO, and participate in an arbitration process with a complainant.

61. Where a U.S. Dealer is not a member of an exchange over which it wishes to effect a trade on behalf of a Fund, it must engage a carrying broker that is a member of such exchange to effect the trade. Consequently, whether the trades are done directly by the U.S. Dealer or through a carrying broker, the U.S. Dealer is required to segregate the assets of the Fund deposited as Initial Margin from the assets of the U.S. Dealer. Each Fund shall deposit portfolio assets as Initial Margin with a U.S. Dealer only if that dealer is required to segregate those portfolio assets from its own assets.

62. A Dealer will require, for each Account, that portfolio assets of the Fund be deposited with the Dealer as collateral for transactions in Exchange Traded Specified Derivatives (Initial Margin). Initial Margin represents the minimum initial amount of portfolio assets that must be deposited with a Dealer to initiate trading in specified derivatives transactions or to maintain the Dealer's open position in standardized futures.

63. Levels of Initial Margin are established at a Dealer's discretion. At no time will more than 70% of the NAV of a Fund be deposited as Initial Margin with all Dealers in the aggregate.

64. The records of each Dealer will show that the applicable Fund is the beneficial owner of the Initial Margin, and evidence that, subject to the satisfaction of the Dealer's applicable margin requirements, the applicable Fund will have the right to the return of the portfolio assets deposited as Initial Margin with the Dealer, such assets being of the same issue as the deposited margin, including the same class and series, if applicable, and having the same current aggregate market value of the deposited margin at the time of such return.

65. The use of Initial Margin is an essential element of investing in Exchange Traded Specified Derivatives for the Funds.

66. The Exchange Traded Specified Derivatives Relief would allow the Funds to invest in Exchange Traded Specified Derivatives more extensively with any one Dealer, which would allow the Funds to pursue their investment strategies more efficiently and flexibly.

67. Opening Accounts and transacting with multiple Dealers adds complexity and cost to the management of the Funds. Using fewer Dealers will considerably simplify the Funds' investments and operations and will reduce the cost of implementing each Fund's strategy. Using fewer Dealers also simplifies compliance and risk management, as monitoring the data, controls and policies of a smaller number of Dealers is less complex.

68. On the basis of the foregoing, the Filer submits that it would not be prejudicial to the public interest to grant the Exemptions Sought.

Decision

Each of the Decision Makers 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 Makers under the Legislation is that the Exemptions Sought are granted on the following conditions:

In Respect of the Short Selling Relief and the Cash Borrowing Relief:

1. An Alternative Fund may sell a security short or borrow cash only if, immediately after the cash borrowing or short selling transaction:

(a) the aggregate market value of all securities sold short by the Alternative Fund does not exceed 100% of the Alternative Fund's NAV;
(b) the aggregate value of all cash borrowing by the Alternative Fund does not exceed 100% of the Alternative Fund's NAV;
(c) the aggregate market value of securities sold short by the Alternative Fund combined with the aggregate value of cash borrowing by the Alternative Fund does not exceed 100% of the Alternative Fund's NAV; and
(d) the Alternative Fund's aggregate exposure to short selling, cash borrowing and specified derivatives does not exceed the Aggregate Limit.

2. In the case of a short sale, the short sale:

(a) otherwise complies with all of the short sale requirements applicable to alternative mutual funds under sections 2.6.1 and 2.6.2 of NI 81-102, subject to any relief granted therefrom by the securities regulatory authorities; and
(b) is consistent with the Alternative Fund's investment objective and strategies.

3. In the case of a cash borrowing transaction, the transaction:

(a) otherwise complies with all of the cash borrowing requirements applicable to alternative mutual funds under sections 2.6 and 2.6.2 of NI 81-102; and
(b) is consistent with the Alternative Fund's investment objective and strategies.

4. The Prospectus under which securities of an Alternative Fund are offered discloses, or will disclose at the time of its next renewal, as applicable, that the Alternative Fund can sell securities short or borrow cash up to, and subject to, the limits described in condition 1 above.

In Respect of the Single Issuer Short Relief:

1. The only securities that an Alternative Fund will sell short (other than "government securities", as defined in NI 81-102), resulting in the aggregate market value of the securities of that issuer sold short by the Alternative Fund exceeding 10% of the Alternative Fund's NAV at the time of sale, will be IPUs of IPU Issuers.

2. The relief granted by this decision only applies in respect of an Alternative Fund's short sales of IPUs of an IPU Issuer and each Alternative Fund will comply with the Single Issuer Short Restriction in respect of its exposure to the securities held by each IPU Issuer the IPUs of which the Alternative Fund sells short. For each IPU of an IPU Issuer the Alternative Fund sells short, the Alternative Fund will be considered to be directly selling short its proportionate share of the securities held by the IPU Issuer, except that it will not be considered to be directly selling short a security or instrument that is a component of, but represents less than 10% of, the securities held by the IPU Issuer.

3. An Alternative Fund may sell an IPU of an IPU Issuer short or borrow cash only if, immediately after the transaction (i) the aggregate market value of all securities sold short by the Alternative Fund does not exceed 100% of the Alternative Fund's NAV and (ii) the aggregate market value of securities sold short by the Alternative Fund combined with the aggregate value of cash borrowing by the Alternative Fund does not exceed 100% of the Alternative Fund's NAV.

4. Each Alternative Fund will otherwise comply with all of the requirements applicable to alternative mutual funds in sections 2.6.1 and 2.6.2 of NI 81-102, subject to any relief granted therefrom by the securities regulatory authorities.

5. An Alternative Fund's aggregate exposure to short selling, cash borrowing and specified derivatives will not exceed the Aggregate Limit.

6. Each short sale will be made consistent with the Alternative Fund's investment objectives and investment strategies.

7. Each Alternative Fund's Prospectus discloses, or will disclose at the time of its next renewal, as applicable, that the Alternative Fund is able to sell short IPUs of one or more IPU Issuers in an amount up to 100% of the Alternative Fund's NAV at the time of sale.

In Respect of the Short Sale Collateral Relief:

1. The Funds otherwise comply with subsections 6.8.1(2) and (3) of NI 81-102.

In Respect of the Custodian Relief:

1. A Fund may appoint one or more Additional Custodians provided that the following conditions are met:

(a) a single entity reconciles all the portfolio assets of the Fund and provides the Fund with valuation and securityholder recordkeeping services and will complete daily reconciliations amongst the custodians before calculating a daily NAV;
(b) the Filer maintains such operational systems and processes, as between two or more custodians and the single entity referred to in (a) above, in order to keep a proper reconciliation of all the portfolio assets that will move amongst the custodians, as appropriate; and
(c) the Additional Custodian will act as custodian, securities lending agent, and/or prime broker only for the portion of portfolio assets of the Funds transferred to it.

In Respect of the Exchange Traded Specified Derivatives Relief:

1. Each Fund will rely on this decision only with respect to investment in derivatives that are Exchange Traded Specified Derivatives.

2. Each Fund shall only use Initial Margin such that the amount of Initial Margin held by any one Dealer on behalf of the Fund does not exceed 35% of the NAV of the Fund, taken at market value as at the time of the deposit.

3. Each Fund shall only use Initial Margin such that the amount of Initial Margin held by Dealers in aggregate on behalf of each Fund does not exceed 70% of the NAV of each Fund as at the time of the deposit.

"Denise Weeres"
Director, Corporate Finance
Alberta Securities Commission