Desjardins Investments Inc.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief from subsection 2.1(1) of National Instrument 81-102 Investment Funds to permit funds to invest more than 10% of net assets in debt securities issued by, or guaranteed fully as to principal and interest, by foreign governments or permitted supranational agencies -- subject to conditions.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, ss. 2.1(1) and 19.1.
April 28, 2022
IN THE MATTER OF THE SECURITIES LEGISLATION OF QUÉBEC AND ONTARIO (the "Jurisdictions") AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF DESJARDINS INVESTMENTS INC. (the "Filer") AND THE DESJARDINS SOCIETERRA EMERGING MARKETS BOND FUND (the "SocieTerra Fund") AND SUCH OTHER INVESTMENT FUNDS MANAGED BY THE FILER OR AN AFFILIATE OF THE FILER THAT ARE SUBJECT TO REGULATION 81-102 RESPECTING INVESTMENT FUNDS (the "Future Funds", and together with the SocieTerra Fund, the "Funds", each a "Fund")
The securities regulatory authority or regulator in each of the Jurisdictions ("Decision Makers") has received an application from the Filer on behalf of the Funds for a decision under the securities legislation of the Jurisdictions (the "Legislation") for an exemption under section 19.1 of Regulation 81-102 respecting Investment Funds (c. V-1.1, r. 39) ("Regulation 81-102") from the concentration restriction in subsection 2.1(1) of Regulation 81-102 (the "Concentration Restriction") in order to permit each Fund to invest up to:
(a) 20 % of its net asset value, immediately after the transaction, in evidences of indebtedness of any one issuer if those evidences of indebtedness are (i) issued, or guaranteed fully as to principal and interest, by supranational agencies or governments other than the government of Canada, the government of a jurisdiction of Canada or the government of the United States of America and (ii) rated "AA" by S&P Global Ratings Canada ("S&P") or its DRO affiliate, or have an equivalent rating by one or more other designated rating organizations; and
(b) 35 % of its net asset value, immediately after the transaction, in evidences of indebtedness of any one issuer, if those evidences of indebtedness are (i) issued by issuers described in paragraph (a) above and (ii) rated "AAA" by S&P or its DRO affiliate, or have an equivalent rating by one or more other designated rating organizations.
(such evidences of indebtedness are collectively referred to as "Foreign Government Securities"), (collectively, the "Requested Relief").
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Autorité des marchés financiers is the principal regulator for this application,
(b) the Filer has provided notice that section 4.7(1) of Regulation 11-102 respecting passport System (c. V-1.1, r. 1) ("Regulation 11-102") is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Nunavut and Northwest Territories (collectively with the Jurisdictions, the "Jurisdictions of Canada"), and
(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Terms defined in Regulation 14-101 respecting Definitions (c. V-1.1, r. 3), Regulation 25-101 respecting Designated Rating Organizations (c. V-1.1, r. 8.1), Regulation 11-102 and Regulation 81-102 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation incorporated under the Business Corporation Act (Québec) (RSQ, c. S-31.1).
2. The Filer's head office is located at 1 Complexe Desjardins, C.P. 7, South Tower, 25th Floor, Montréal, Québec, Canada, H5B 1B2.
3. The Filer is duly registered as an investment fund manager in Québec, Ontario and Newfoundland and Labrador.
4. The Filer, or an affiliate of the Filer, will be the investment fund manager of the Funds.
5. The Filer is not in default of securities legislation in any of the Jurisdictions of Canada.
The SocieTerra Fund
6. The SocieTerra Fund will be an open-ended investment fund trust to be established under the laws of Québec pursuant to an amended and restated declaration of trust dated February 25, 2022, as amended (the "DoT"). Desjardins Trust Inc. will act as trustee of the SocieTerra Fund.
7. The SocieTerra Fund filed a preliminary prospectus dated March 8, 2022 governed by Regulation 81-101 respecting Mutual Fund Prospectus Disclosure (c. V-1.1, r. 38) ("Regulation 81-101") in each of the Jurisdictions of Canada in order to proceed with an initial public offering. It is expected that the SocieTerra Fund will become a reporting issuer subject to both Regulation 81-102 and Regulation 81-107 respecting Independent Review Committee for Investment Funds (c. V-1.1, r. 43), among others, in all Jurisdictions of Canada upon the issuance of a receipt for its final simplified prospectus (the "Simplified Prospectus").
8. Desjardins Global Asset Management Inc. ("DGAM") will act as portfolio manager to the SocieTerra Fund and will also be responsible for retaining portfolio sub-managers for the SocieTerra Fund.
9. DGAM is registered in the category of portfolio manager and exempt market dealer in all the Jurisdictions of Canada. DGAM is also registered in the category of investment fund manager in Québec, Alberta, Manitoba, Ontario, Nova Scotia and Newfoundland and Labrador. In addition, DGAM is registered as an adviser in Manitoba pursuant to the Commodity Futures Act (Manitoba) (C.C.S.M. c. C-152) ("CFAM"), commodity trading manager in Ontario pursuant to the Commodity Futures Act (Ontario) (RSO, 1990, c. C.20) ("CFAO") and as derivatives portfolio manager in Québec pursuant to the Derivatives Act (Québec) (RSQ, c.1-14.01).
10. PIMCO Canada Corp. (the "Sub-manager") will act as portfolio sub-manager to the SocieTerra Fund. The Sub-manager is registered as portfolio manager and exempt market dealer in the provinces of Québec, Alberta, British-Columbia, Prince Edward Island, Manitoba, New Brunswick, Nova Scotia, Ontario, Saskatchewan and Newfoundland and Labrador. In addition, the Sub-manager is registered as investment fund manager in the provinces of Québec, Newfoundland and Labrador, Ontario. The Sub-manager is also registered in Ontario as commodity trading manager pursuant to the CFAO and as adviser in Manitoba pursuant to the CFAM.
11. The SocieTerra Fund, DGAM and the Sub-manager are not in default of securities legislation in any of the Jurisdictions of Canada.
Investment Objective of the SocieTerra Fund
12. The investment objective of the SocieTerra Fund will be to provide a high income return and some long-term capital appreciation by investing primarily in fixed-income securities from issuers in, or economically tied to, emerging or developing countries. The SocieTerra Fund follows the responsible approach to investing described in the section on "responsible investing" ("RI") in the first part of the Simplified Prospectus.
13. The SocieTerra Fund will invest primarily in government bonds in emerging markets denominated in U.S. dollars or local currencies. The SocieTerra Fund may also invest in emerging markets corporate bonds. The SocieTerra Fund may invest up to 100 % of its assets in emerging markets securities.
The Future Funds
14. The Future Funds will be open-ended investment funds to be established under the laws of Québec or Canada pursuant to the DoT or to any other constating agreements. Desjardins Trust Inc. will act as trustee for the Future Funds established as trusts.
15. Each Future Fund will prepare and file a prospectus (collectively with the Simplified Prospectus, the "Funds' Prospectus") under Regulation 81-101 or Regulation 41-101 General Prospectus Requirements (c. V-1.1, r. 14) to distribute their securities in one or more of the Jurisdictions of Canada and will be a reporting issuer subject to Regulation 81-102.
16. The Future Funds will have investment objectives and strategies that permit them to invest a majority of their net assets in fixed income securities, including Foreign Government Securities.
Necessity of Requested Relief
17. The Concentration Restriction prohibits the Funds from purchasing a security of an issuer other than a "government security", as defined in Regulation 81-102, if immediately after the purchase, more than 10 % of the net asset value of a Fund, taken at market value at the time of the purchase, would be invested in securities of any issuer.
18. Foreign Government Securities are not within the meaning of "government security" as defined in Regulation 81-102.
19. The Filer believes that the ability to purchase Foreign Government Securities beyond the limit in the Concentration Restriction in Regulation 81-102 will better enable each Fund to achieve its fundamental investment objectives, thereby benefitting each Fund's investors.
20. Each Fund will only purchase Foreign Government Securities if the purchase is consistent with that Fund's fundamental investment objective.
21. The Funds' Prospectus will disclose the risks associated with concentration of net assets of the Funds in securities of a limited number of issuers.
22. The Filer believes that the Requested Relief is not contrary to the public interest, is in the best interest of the Funds and represents the business judgement of responsible persons uninfluenced by considerations other than the best interests of the Funds.
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Makers to make the decision.
The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that:
(a) the Funds have investment objectives and strategies that permit them to invest a majority of their net assets in fixed income securities, including Foreign Government Securities;
(b) paragraphs (a) and (b) of the Requested Relief cannot be combined for any one issuer;
(c) the securities that are purchased pursuant to the Requested Relief are traded on a mature and liquid market;
(d) the acquisition of the evidences of indebtedness pursuant to the Requested Relief is consistent with the fundamental investment objective of the Funds;
(e) the Funds' Prospectus will disclose any additional risks associated with the concentration of net assets of the Funds in securities of fewer issuers, such as the potential additional exposure to the risk of default of the issuer in which the Funds have so invested and the risks, including foreign exchange risks, of investing in the country in which that issuer is located; and
(f) the Funds' Prospectus will disclose, in the investment strategies section, the details of the exemption granted along with the conditions imposed and the type of securities covered by the Requested Relief.