CIBC Asset Management Inc.



National Policy 11-203 -- Process for Exemptive Relief applications in Multiple Jurisdictions -- relief granted from short selling restrictions in National Instrument 81-102 Investment Funds to permit alternative mutual funds to short sell "government securities" up to 300% of their net asset value in connection with the fund's investment strategies -- relief subject to conditions.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 2.6.1(1)(c)(v), 2.6.2 and 19.1.

May 12, 2022




The principal regulator in the Jurisdiction has received an application from the Filer on behalf of CIBC Alternative Credit Strategy (the Initial Fund) of which the Filer will be the investment fund manager, for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Initial Fund and any alternative mutual funds for which the Filer or an affiliate of the Filer acts as investment fund manager and which employ short selling strategies similar to the Initial Fund (the Future Funds and together with the Initial Fund, the Funds or individually, a Fund) from the following provisions of National Instrument 81-102 Investment Funds (NI 81-102) in order to permit each Fund to short sell "government securities" as that term is defined in NI 81-102, up to a maximum of 300% of a Fund's net asset value (NAV) (the Exemption Sought):

(a) subparagraph 2.6.1(1)(c)(v) of NI 81-102, which restricts a Fund from selling a security short if, at the time, the aggregate market value of the securities sold short by the Fund exceeds 50% of the Fund's NAV; and

(b) section 2.6.2 of NI 81-102, which states that a Fund may not borrow cash or sell securities short if, immediately after entering into a cash borrowing or short selling transactions, the aggregate value of cash borrowed combined with the aggregate market value of the securities sold short by the Funds would exceed 50% of the Fund's NAV.

(collectively, the Short Selling Restrictions).

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 Filer has provided notice that paragraph 4.7(1)(c) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other provinces and territories of Canada (together with Ontario, the Jurisdictions).


Terms defined in National Instrument 14-101 Definitions, and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.


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

The Filer

1. The Filer is a corporation incorporated under the laws of Canada with its head office located in Toronto, Ontario.

2. The Filer will be the investment fund manager, trustee and portfolio manager of the Initial Fund. The Filer or an affiliate of the Filer, will be the investment fund manager and portfolio manager of the Future Funds.

3. The Filer is registered as: (i) a portfolio manager in all Jurisdictions; (ii) an investment fund manager in Ontario, Québec and Newfoundland and Labrador; (iii) a commodity trading manager in Ontario; and (iv) a derivative portfolio manager in Québec.

4. The Filer is not in default of securities legislation in any Jurisdiction.


5. Each Fund will be organized as a trust established under the laws of the Province of Ontario.

6. Each Fund will be an "alternative mutual fund" to which NI 81-102 applies, subject to any exemptions therefrom that may be granted by the applicable securities regulatory authorities.

7. The Filer has filed a preliminary simplified prospectus dated April 11, 2022 to qualify for sale securities of the Initial Fund in each of the Jurisdictions.

8. Securities of the Future Funds will be offered by a prospectus, fund facts and, in certain instances, ETF facts, filed in the Jurisdictions and, accordingly, each Future Fund will be a reporting issuer in the Jurisdictions.

9. The Initial Fund's investment objective is to provide a positive total net return over a full market cycle, regardless of general market direction, by investing primarily in long and short positions in North American corporate and government fixed-income securities.

10. The Initial Fund may use leverage. Leverage may be created through the use of short sales, cash borrowings, and/or derivatives. The Initial Fund's leverage shall not exceed the limits on the use of leverage described in the "Investment Strategies" section in the simplified prospectus or as otherwise permitted under applicable securities legislation.

11. The investment objective of each Future Fund will differ but, in each case, key investment strategies which may be utilized by a Fund will include short selling strategies similar to the Initial Fund.

The Short Hedging Strategy

12. An important investment strategy expected to be used by the Initial Fund will be to enter into long positions primarily in corporate bonds while hedging the interest rate risk of those bonds by taking short positions in government bonds (the Short Hedging Strategy). The Short Hedging Strategy is effective because there is a high degree of correlation between the movement of government and corporate fixed income securities caused by changes in interest rates, creating a hedge against losses in the value of the long corporate position. This relationship is a fundamental part of the fixed-income market such that dealers quote the price of corporate bond based on the incremental yield of the corporate bonds over an equivalent term government bond.

13. Ultimately, the Exemption Sought would allow the Initial Fund to effectively manage the portfolio's duration risk while increasing potential returns.

14. The Filer is of the view that it would be in the Funds' best interest to permit the Funds to physically short sell government securities, up to 300% of the Fund's NAV, instead of being limited to achieve the same degree of leverage through either specified derivatives alone, or a combination of physical short selling and specified derivatives, for the following reasons:

(a) While derivatives can be used to create similar investment exposure as the Short Hedging Strategy up to 300% of the Fund's NAV, the use of derivatives is less effective, is more complex, and is riskier than the Short Hedging Strategy. Derivatives typically provide credit exposure that is less targeted than the Short Hedging Strategy with a longer duration that increases risk, often without commensurately higher returns. In addition, implementing derivatives strategies necessitates incremental transactional steps. These steps increase both operational risk and counterparty risk, as well as cost.

(b) The risk of covering short government securities positions in a rising market is largely mitigated by several factors: (i) the strong correlation between the government security sold short and the corporate fixed income security held long by the Fund which provides a hedge against short cover risk; (ii) government securities are highly liquid and more than one issuance of government securities can be used to hedge interest rate risk; (iii) government securities have markedly lower price volatility than equity securities; (iv) unlike equity securities, government securities have an effective upper value limit; and (v) financial institutions that facilitate short selling are regulated and implement effective risk controls on short sellers.


15. The Future Funds will employ an investment strategy similar to the Short Hedging Strategy in that each Future Fund will contemplate short selling government securities concurrently with investing in levered long positions primarily in corporate fixed income securities.

16. The only securities sold short by the Funds in excess of 50% of a Fund's NAV will be "government securities" as such term is defined in NI 81-102. The Funds will otherwise comply with the provisions governing short selling by an alternative mutual fund under sections 2.6.1 and 2.6.2 of NI 81-102.

17. Each Fund's aggregate exposure to short selling, cash borrowing and specified derivatives transactions will not exceed the 300% of the Fund's NAV, in compliance with section 2.9.1 (the Aggregate Leverage Limit).

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

(a) the Fund will assume the obligation to return to the borrowing agent (as defined in NI 81-102) the securities borrowed to effect the short sale;

(b) the 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 will monitor the short positions of the Fund at least as frequently as daily;

(d) the security interest provided by the Fund over any of its assets that is required to enable the Fund to effect a short sale transaction is made in accordance with section 6.8.1 of NI 81-102 and will otherwise be made in accordance with industry practice for that type of transaction and relates only to obligations arising under such short sale transaction;

(e) the Fund 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; and

(f) the Filer and the Fund will keep proper books and records of short sales and all of its assets deposited with borrowing agents as security.

19. Each Fund's prospectus (the Prospectus) will contain adequate disclosure of the Fund's short selling activities, including material terms of the Exemption Sought.


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 provided that:

1. The only securities which a Fund will sell short in an amount that exceeds 50% of the Fund's NAV will be securities that meet the definition of a "government security" as that term is defined in NI 81-102;

2. Each short sale made by a Fund will otherwise comply with all of the short sale requirements applicable to alternative mutual funds in sections 2.6.1 and 2.6.2 of NI 81-102;

3. A Fund's aggregate exposure to short selling, cash borrowing and specified derivatives will not exceed the Aggregate Leverage Limit;

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

5. The Fund's Prospectus will disclose that the Fund is able to short sell "government securities" (as defined in NI 81-102) in an amount up to 300% of the Fund's NAV, including the material terms of this decision.

"Darren McKall"


Investment Funds and Structured Products

Ontario Securities Commission


Application File #: 2022/0217

SEDAR Project #: 3375038