IA Clarington Investments Inc.

Headnote

Policy Statement 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Existing and future mutual funds managed by the Filer or an affiliate of the Filer granted relief from paragraphs 15.3(4)(c) and (f) of Regulation 81-102 respecting Investment Funds to permit references to FundGrade A+ Awards, FundGrade Ratings, Lipper Awards and Lipper Leaders Ratings in sales communications -- Relief subject to conditions requiring specified disclosure and the requirement that the FundGrade A+ Awards and Lipper Awards being referenced not have been awarded more than 365 days before the date of the sales communication.

Applicable Legislative Provisions

Regulation 81-102 respecting Investment Funds, ss. 15.3(4)(c) and (f) and 19.1.

[TRANSLATION]

February 27, 2020

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 IA CLARINGTON INVESTMENTS INC. (the Filer)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Maker) has received an application from the Filer on behalf of the Funds (as defined below) 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, CQLR, c. V-1.1, r. 39 (Regulation 81-102) from the requirements set out in paragraphs 15.3(4)(c) and 15.3(4)(f) of Regulation 81-102, which provide that a sales communication must not refer to a performance rating or ranking of a mutual fund or asset allocation service unless:

a) the rating or ranking is provided for each period for which standard performance data is required to be given, except the period since the inception of the mutual fund, and

b) the rating or ranking is to the same calendar month end that is:

i. not more than 45 days before the date of the appearance or use of the advertisement in which it is included, and

ii. not more than three months before the date of first publication of any other sales communication in which it is included;

(together, the Exemption Sought), to permit the FundGrade A+ Awards, FundGrade Ratings, Lipper Awards and Lipper Leaders Ratings to be referenced in sales communications relating to the Funds.

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, CQLR, c. V-1.1, r. 1 (Regulation 11-102) is intended to be relied upon in each of the jurisdictions of Canada other than the Jurisdictions, and

c) the 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 Regulation 14-101 respecting Definitions, CQLR, c. V-1.1, r. 3, Regulation 11102 and Regulation 81-102 have the same meanings if used in this decision, unless otherwise defined.

Fund or Funds means, individually or collectively, the existing and future mutual funds governed by the provisions of Regulation 81-102 for which the Filer, or a duly registered affiliate of the Filer is, or in the future will be, the investment fund manager.

Representations

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

The Filer and the Funds

1. The Filer's head office is in Québec.

2. The Filer is registered as an investment fund manager in Québec, Ontario and Newfoundland and Labrador, as an exempt market dealer in Québec and Ontario, and as a portfolio manager in all the jurisdictions of Canada.

3. The Filer or an affiliate of the Filer is, or will be, the investment fund manager of each Fund.

4. Each of the Funds is, or will be, a mutual fund established under the laws of Canada or a jurisdiction of Canada.

5. Each of the Funds is, or will be, a reporting issuer in one or more of the jurisdictions of Canada.

6. Securities of each of the Funds are, or will be, qualified for distribution pursuant to a prospectus that has been, or will be, prepared and filed in accordance with the securities legislation of each applicable jurisdiction of Canada.

7. Each of the Funds is, or will be, subject to Regulation 81-102, including Part 15 of Regulation 81-102, which governs sales communications.

8. Neither the Filer nor any of the existing Funds is in default of the securities legislation in any jurisdiction of Canada.

FundGrade Ratings and FundGrade A+ Awards

9. The Filer wishes to include in sales communications of the Funds references to the FundGrade Ratings and references to the FundGrade A+ Awards, where such Funds have been awarded a FundGrade A+ Award.

10. Fundata Canada Inc. (Fundata) is a "mutual fund rating entity" as that term is defined in Regulation 81-102, and is not a member of the organization of the Funds. Fundata is a supplier of mutual fund information, analytical tools, and commentary.

11. One of Fundata's programs is the FundGrade A+ Awards program. This program highlights funds that have excelled in delivering consistently strong risk-adjusted performance relative to their peers. The FundGrade A+ Awards designate award-winning funds in most individual fund classifications for the previous calendar year, and the awards are announced in January of each year. The categories for fund classification used by Fundata are those maintained by the Canadian Investment Funds Standards Committee (CIFSC) (or a successor to CIFSC), a Canadian organization that is independent of Fundata.

12. The FundGrade A+ Awards are based on a proprietary rating methodology developed by Fundata, the FundGrade Rating system. The FundGrade Rating system evaluates funds based on their risk adjusted performance, measured by three metrics: the Sharpe Ratio, the Information Ratio, and the Sortino Ratio. The ratios are calculated for the two through ten year time periods for each fund. When there is more than one eligible series of a fund, an average ratio is taken for each period. The ratios are ranked across all time periods and an overall score is calculated by equally weighting the yearly rankings.

13. The FundGrade Ratings are letter grades for each fund and are determined each month and released on the seventh business day of the following month. Because the overall score of a fund is calculated by equally weighting the periodic rankings, to receive an A Grade, a fund must show consistently high scores for all ratios across all time periods.

14. Fundata calculates a grade using only the retail series of each fund. Institutional series or fee-based series of any fund are not included in the calculation. A fund must have at least two years of history to be included in the calculation. Once a letter grade is calculated for a fund, it is then applied to all related series of that fund.

15. At the end of each calendar year, Fundata calculates a fund grade point average or "GPA" for each fund based on the full year's performance. The fund GPA is calculated by converting each month's FundGrade Rating letter grade into a numerical score. Any fund earning a GPA of 3.5 or greater earns a FundGrade A+ Award.

Lipper Leaders Ratings and Lipper Awards

16. The Filer also wishes to include in sales communications of the Funds references to the Lipper Leaders Ratings and references to the Lipper Awards, where such Funds have been awarded a Lipper Award.

17. Lipper, Inc. (Lipper) is a "mutual fund rating entity" as that term is defined in Regulation 81-102, and is not a member of the organization of the Funds. Lipper is part of the Refinitiv group of companies, and is a global supplier of mutual fund information, analytical tools, and commentary.

18. One of Lipper's programs is the Lipper Fund Awards from Refinitiv program (the Lipper Awards). This program recognizes funds that have excelled in delivering consistently strong risk-adjusted performance relative to peers and also recognizes fund families with high average scores for all funds within a particular asset class or overall.

19. The Lipper Awards are based on a proprietary rating methodology prepared by Lipper, the Lipper Leaders Rating System. The Lipper Leaders Rating System includes Lipper Ratings for Consistent Return, Lipper Ratings for Total Return, Lipper Ratings for Preservation, Lipper Ratings for Tax Efficiency and the Lipper Ratings for Expense. Lipper Ratings provide an instant measure of a fund's success against a specific set of key metrics, and can be useful to investors in identifying funds that meet particular characteristics.

20. In each case, the categories for fund classification used by Lipper for the Lipper Leaders Ratings are those maintained by CIFSC (or a successor to CIFSC), a Canadian organization that is independent of Lipper. Lipper Leaders Ratings are measured monthly over 36, 60 and 120 month periods, and an overall rating is also measured, which is an unweighted average of the previous three periods. The highest 20% of funds in each category are named Lipper Leaders for that particular rating.

21. The Lipper Awards, awarded annually in Canada, are based on the Lipper Ratings for Consistent Return measure, which is a risk-adjusted mutual fund return performance measure used by Lipper that takes into account both short- and long-term risk-adjusted performance relative to fund classification, together with a measure of a fund's consistency. In respect of the Lipper Awards for Canada, the Lipper Ratings for Consistent Return are measured over the 36, 60 and 120 month periods ending at the end of July of each year. The highest Lipper Leader for Consistent Return in each applicable fund classification over these periods wins a Lipper Award.

Relief from paragraph 15.3(4)(c) of Regulation 81-102

22. The FundGrade Ratings and Lipper Leaders Ratings fall within the definition of "performance data" under Regulation 81-102 as they constitute "a rating, ranking, quotation, discussion or analysis regarding an aspect of the investment performance of an investment fund". The FundGrade A+ Awards and Lipper Awards may be considered to be "overall ratings or rankings" given that the awards are based on the FundGrade Ratings and Lipper Leaders Ratings respectively, as described above. Therefore, references to

23. FundGrade Ratings, FundGrade A+ Awards, Lipper Leaders Ratings and Lipper Awards in sales communications relating to the Funds need to meet the applicable requirements in Part 15 of Regulation 81-102.

24. Paragraph 15.3(4)(c) of Regulation 81-102 imposes a "matching" requirement for performance ratings or rankings that are included in sales communications for mutual funds. If a performance rating or ranking is referred to in a sales communication, it must be provided for, or "match", each period for which standard performance data is required to be given for a fund, except for the period since the inception of the fund (i.e. for one, three, five and ten year periods, as applicable).

25. While FundGrade Ratings are based on calculations for a minimum of two years through to a maximum of ten years and the FundGrade A+ Awards are based on a yearly average of monthly FundGrade Ratings, specific ratings for the three, five and ten year periods within the two to ten year measurement period are not given. This means that a sales communication referencing FundGrade Ratings cannot comply with the "matching" requirement contained in paragraph 15.3(4)(c) of Regulation 81-102. Relief from paragraph 15.3(4)(c) of Regulation 81-102 is, therefore, required in order for a Fund to use FundGrade Ratings in sales communications.

26. Lipper Leaders Ratings are calculated only for 36, 60 and 120 month periods and are not calculated for a one year period. This means that a sales communication referencing a Lipper Leaders Rating cannot comply with the "matching" requirement contained in paragraph 15.3(4)(c) of Regulation 81-102 because a rating is not available for the one year period. Relief from paragraph 15.3(4)(c) of Regulation 81-102 is therefore required in order for a Fund to reference Lipper Leaders Ratings in sales communications.

27. The exemption in subsection 15.3(4.1) of Regulation 81-102 for references to overall ratings or rankings of funds cannot be relied upon to reference the FundGrade A+ Awards and Lipper Awards in sales communications for the Funds because it is available only if a sales communication "otherwise complies" with the requirements of subsection 15.3(4) of Regulation 81-102. As noted above, sales communications referencing the FundGrade A+ Awards and Lipper Awards cannot comply with the "matching" requirement in paragraph 15.3(4)(c) of Regulation 81-102, given that the awards are based on the FundGrade Ratings and Lipper Leaders Ratings, respectively, rendering the exemption in subsection 15.3(4.1) of Regulation 81-102 unavailable. Relief from paragraph 15.3(4)(c) of Regulation 81-102 is, therefore, required in order for a Fund to reference the FundGrade A+ Awards and Lipper Awards in sales communications.

Relief from paragraph 15.3(4)(f) of Regulation 81-102

28. Paragraph 15.3(4)(f) of Regulation 81-102 provides that in order for a rating or ranking such as a FundGrade A+ Award or Lipper Award to be used in an advertisement, the advertisement must be published within 45 days of the calendar month end to which the rating or ranking applies. Further, in order for the rating or ranking to be used in any other

29. sales communication, the rating or ranking must be published within three months of the calendar month end to which the rating or ranking applies.

30. Because the evaluation of funds for the FundGrade A+ Awards will be based on data aggregated until the end of December in any given year and the results will be published in January of the following year, by the time a fund receives FundGrade A+ Award in January, paragraph 15.3(4)(f) of Regulation 81-102 will only allow the FundGrade A+ Award to be used in an advertisement until the middle of February and in other sales communications until the end of March.

31. Because the evaluation of funds for the Lipper Awards will be based on data aggregated until the end of July in any given year and the results will be published in November of that year, by the time a fund receives an award in November, paragraph 15.3(4)(f) of Regulation 81-102 will prohibit it from publishing news of the award altogether.

Reasons for the Exemption Sought

32. The Filer submits that the FundGrade A+ Awards, FundGrade Ratings, Lipper Awards and Lipper Leaders Ratings provide important tools for investors, as they provide investors with context when evaluating investment choices. These awards and ratings provide an objective, transparent and quantitative measure of performance that is based on the expertise of FundGrade or Lipper, as applicable, in fund analysis that alleviates any concern that references to them may be misleading and, therefore, contrary to paragraph 15.2(1)(a) of Regulation 81-102.

33. The Filer further submits that the Exemption Sought is not detrimental to the protection of investors.

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 Exemption Sought is granted to permit the FundGrade A+ Awards, FundGrade Ratings, Lipper Awards, and Lipper Leaders Ratings to be referenced in sales communications relating to a Fund, provided that:

1. the sales communication that refers to the FundGrade A+ Awards, FundGrade Ratings, Lipper Awards or Lipper Leaders Ratings complies with Part 15 of Regulation 81-102, other than as set out herein, and contains the following disclosure in at least 10 point type:

(a) the name of the category for which the Fund has received the award or rating;

(b) the number of mutual funds in the category for the applicable period;

(c) the name of the ranking entity, i.e., Fundata or Lipper;

(d) the length of period and the ending date, or, the first day of the period and the ending date on which the FundGrade A+ Award, FundGrade Rating, Lipper Award or Lipper Leaders Rating is based;

(e) a statement that FundGrade Ratings or Lipper Leaders Ratings are subject to change every month;

(f) in the case of a FundGrade A+ Award or Lipper Award, a brief overview of the FundGrade A+ Award or Lipper Award, as applicable;

(g) in the case of a FundGrade Rating (other than FundGrade Ratings referenced in connection with a FundGrade A+ Award) or a Lipper Leaders Rating (other than Lipper Leaders Ratings referenced in connection with a Lipper Award), a brief overview of the FundGrade Rating or Lipper Leaders Rating, as applicable;

(h) where Lipper Awards are referenced, the corresponding Lipper Leaders Rating that the Lipper Award is derived from is presented for each period for which standard performance data is required other than the one year and since inception periods;

(i) where a Lipper Leaders Rating is referenced, the Lipper Leaders Ratings are presented for each period for which standard performance data is required other than the one year and since inception periods;

(j) disclosure of the meaning of the FundGrade Ratings from A to E (e.g., rating of A indicates a fund is in the top 10% of its category) or Lipper Leaders Ratings from 1 to 5 (e.g., ranking of 5 indicates a fund is in the top 20% of its category), as applicable; and

(k) reference to Fundata's website (www.fundata.com) for greater detail on the FundGrade A+ Awards and the FundGrade Ratings or reference to Lipper's website (www.lipperweb.com) for greater detail on the Lipper Awards and Lipper Leaders Ratings, which includes the rating methodology prepared by Fundata or Lipper, as applicable;

2. the FundGrade A+ Awards and Lipper Awards being referenced must not have been awarded more than 365 days before the date of the sales communication; and

3. the FundGrade A+ Awards, FundGrade Ratings, Lipper Awards, and Lipper Leaders Ratings being referenced are calculated based on comparisons of performance of mutual funds within a specified category established by CIFSC (or a successor to CIFSC).

"Jacinthe Des Marchais"

Acting Senior Director, Investment Funds