Labour-sponsored venture capital funds

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Shakespeare
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Labour-sponsored venture capital funds

Post by Shakespeare »

There seems to be a problem with Manitoba's Crocus fund.
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Post by brucecohen »

The irony is that Crocus was one of the few LSIFs with a real purpose. When it was established, there was a huge problem in Manitoba. Entrepreneurs who created businesses in the '50s and '60s when Winnipeg was booming wanted to cash out and retire, but the province's de-population created difficulty in finding buyers. The original idea was that Crocus would help finance and oversee employee buyouts. Seemed to be working, at least in the early years.
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Post by dakota »

A scandal engulfing Manitoba's Crocus Investment Fund has widened to include a number of labour leaders and government officials and threatens to tarnish the country's labour-sponsored investment fund industry.
You've got the be kidding! Threatens to "tarnish the country's labour-sponsored investment fund industry" indeed!!

Show me 10% that have made money for their investors without taking in account the tax savings, which after all is a gov. handout. and I'll faint! :evil:
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Post by dagan »

[Restored from backup 2006-07-18]

Why would you exclude that tax credits from calculations? Because it is government funded? Show me one company that does not rely of government services and payments. In a world of farm subsidies, Bombardier handouts, and government tax and funding structures that favour all kinds of things at the expense of others, why pick on just this one?
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Post by DanH »

dagan wrote:Why would you exclude that tax credits from calculations? Because it is government funded? Show me one company that does not rely of government services and payments. In a world of farm subsidies, Bombardier handouts, and government tax and funding structures that favour all kinds of things at the expense of others, why pick on just this one?
Good points dagan. I'd expand on this argument by asking critics why they'd like to ignore the unique tax benefits while knocking LSIFs down because of their high costs. The thing is, it is LSIFs' heavy regulation that contributes materially to their higher costs. But they'd probably not get the tax breaks if not for the heavy regulation.

True, in analyzing LSIFs, one must ignore the tax benefits - but only temporarily. For instance, a Manitoba resident can invest in Ensis Growth and get the full 30% credit - or choose one of the nationally available funds and get only the 15% credit. This is real, hard cash that - at some point - must enter the picture. You can't ignore it forever.
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Post by dagan »

[Restored from backup 2006-07-18]

Dan, any guesses as to when a shoe drops on the current program review? I'll award bonus marks for correctly predicting any significant program changes.
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Post by dakota »

Why would you exclude that tax credits from calculations?
It was my understanding that this was a tax saving enticement to the investors for investing in a highly risky venture, not for the fund tu use as a return on investment. :roll:
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Post by DanH »

dakota wrote:
Why would you exclude that tax credits from calculations?
It was my understanding that this was a tax saving enticement to the investors for investing in a highly risky venture, not for the fund tu use as a return on investment. :roll:
It's got nothing to do with the fund using any credit. My question to you and others...why ignore from the return calculation a significant, immediate cash inflow resulting directly from the LSIF investment?
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Post by dakota »

why ignore from the return calculation a significant, immediate cash inflow resulting directly from the LSIF investment?
I do not "ignore" it, in fact if it was not available, I would not have invested in a high risk venture.

What I don't like is the fund using those tax relief figures to show how profitable they are.

Without the tax break most of them would collapse for lack of investors.
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Post by DanH »

dakota wrote:I do not "ignore" it, in fact if it was not available, I would not have invested in a high risk venture.

What I don't like is the fund using those tax relief figures to show how profitable they are.

Without the tax break most of them would collapse for lack of investors.
Energy trusts do it. REITs do it. Why not LSIFs? If you invest in trusts, do you ignore the unique tax deductions that shelter (all or) part of the distribution?
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Post by dakota »

Energy trusts do it. REITs do it. Why not LSIFs? If you invest in trusts, do you ignore the unique tax deductions that shelter (all or) part of the distribution?
Starting to go in circles, pretty soon we'll be talking about Bombardier and their tax breaks :lol:

You think that they're profitable funds so load up, no more for me!
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Post by Norbert Schlenker »

DanH wrote:why ignore from the return calculation a significant, immediate cash inflow resulting directly from the LSIF investment?
That's fair, Dan. OTOH, perhaps some adjustment for risk is also in order. Not only are the underlying investments high risk, but there is a big illiquidity issue.

When valuations of private equity are done, there are usually big haircuts for illiquidity alone. 50% is not unheard of. What does one have with an LSIF other than a (better diversified, admittedly) private equity investment?
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Post by dagan »

[Restored from backup 2006-07-18]
perhaps some adjustment for risk is also in order. Not only are the underlying investments high risk, but there is a big illiquidity issue.

When valuations of private equity are done, there are usually big haircuts for illiquidity alone. 50% is not unheard of. What does one have with an LSIF other than a (better diversified, admittedly) private equity investment?
Presumeably this is already considered. Do we know that it isn't?
pretty soon we'll be talking about Bombardier and their tax breaks
And why not? Maybe what we need is to better clarify positions.

Government assistance to encourage investment is:

a) A good thing?
b) A bad thing?
c) Who cares?
d) Either, depending upon what I'm invested in? :D
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Post by dakota »

Labour-sponsored venture capital funds
That was the topic I believe? :)
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Post by dagan »

[Restored from backup 2006-07-18]

Then, why did you introduce the topic of government assistance for investments? Did you change your mind about what was relevant?
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Post by DanH »

dakota wrote:You think that they're profitable funds so load up, no more for me!
Actually, I think LSIFs are ill-suited for most people. I've always felt that way. This little debate has nothing really to do with LSIFs, and everything to do with proper return calculation methodologies.
Norbert wrote:That's fair, Dan. OTOH, perhaps some adjustment for risk is also in order. Not only are the underlying investments high risk, but there is a big illiquidity issue.
Again, not really a LSIF issue. You could say the same for any investment, and I can again point to REITs and energy trusts as specific groups of securities that offer tax benefits.
Norbert wrote:When valuations of private equity are done, there are usually big haircuts for illiquidity alone. 50% is not unheard of. What does one have with an LSIF other than a (better diversified, admittedly) private equity investment?
That is what a LSIF is - diversified private investments (though not all are equity). True, private equity involves big valuation slices for liquidity alone. There are other issues also related to the big uncertainty in some ventures, depending on how well developed the business is. This is all part of the venture valuation process at the LSIF level both pre-investment and post-investment. This issue is complicated somewhat, however, by the combinations of structures often used by a single venture manager. In other words, it's more common to see a venture financing be a combination of equity and debt - or convertible debt or preferred shares - rather than straight common equity.
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Post by dakota »

dagan wrote:Then, why did you introduce the topic of government assistance for investments? Did you change your mind about what was relevant?
The reason that I introduced the tax break for the LSIF's, and I might add the immediate refund on that year's income tax is what the funds use as an enticement to promote their funds and without that bribe most people would not invest because not all that many funds are viable.

We are talking about LSIF's, not every other company or organization that may qualify for a tax break.
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Post by dagan »

[Restored from backup 2006-07-18]
The reason that I introduced the tax break for the LSIF's, and I might add the immediate refund on that year's income tax is what the funds use as an enticement to promote their funds and without that bribe most people would not invest because not all that many funds are viable.
OK. But then bad accounting or advertising practices are at cause of these not the tax credit itself. If something is advertised improperly, that is somewhat independant of the product.
We are talking about LSIF's, not every other company or organization that may qualify for a tax break.
Yes, but the circumstances of our comments apply to other things. We can't talk about LSIF's in isolation of the entire world. Either tax credits are relevant or not. There cannot be held relevant just for this but ignored for everything else. With respect, I think that you are missing a basic point. We can disagree if you like, but why make comments that suggest that I am off topic, just because you don't want to further a concept that you introduced? If you want to leave it, then leave it. But that means no parting shots.
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Post by dakota »

Yes, . We can't talk about LSIF's in isolation of the entire world
Yes we can and I am talking about LSIF's
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Post by dagan »

[Restored from backup 2006-07-18]

Well, at one point YOU were talking about tax credits. So I guess that you've changed your mind.
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Post by dakota »

The reason that I introduced the tax break for the LSIF's, and I might add the immediate refund on that year's income tax, is what the funds use as an enticement to promote their funds and without that bribe most people would not invest because not all that many funds are viable.
Now you can persue this subject like a dog chasing its tail but I'm finished with it! :) On to the next one. :wink:
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Post by dagan »

[Restored from backup 2006-07-18]

Yes, I thought that you said that before. But, OK. Goodbye. I hope that means that people can talk about the things that they are interested in without suggestions of being off-topic from you. :lol: :D :P :shock: :? :( :wink: :wink: :wink:
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Re: Labour-sponsored venture capital funds

Post by Norbert Schlenker »

Shakespeare wrote:There seems to be a problem with Manitoba's Crocus fund.
A very serious problem.
The Board of Directors of Crocus Investment Fund today advised that the Fund would not return to sale. Having made this decision, Crocus will look for the best way to realize maximum value for shareholders from the Fund's portfolio and other assets.

"The new Board has worked closely with management and concluded that the Crocus Investment Fund should not return to market," said Van Hall, Chair of the newly formed Crocus Board of Directors. "In our view, damage to the Fund's reputation, the high net operating costs (run rate), poor investment performance, the threat of litigation, and other factors make it irresponsible for the Board to ask Manitobans to invest in the Fund at this time. We have concluded that the financial interests of shareholders is best served by working with any and all interested parties to dispose of the assets in the portfolio in a manner that realizes maximum value for shareholders. This is a complicated process and the realized value for shareholders will only be known when the process is complete. In the interim, the Board can make no representation about the realizable value of the portfolio and the corresponding price per share. Accordingly, it is important for shareholders to know that the estimated price of approximately $7 per share is not certain at this time."
Full news release
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Post by Norbert Schlenker »

More of the awful truth in today's G&M.
To fend off any more public criticism and improve the fund's finances, Mr. Kreiner turned to an old ally -- Quebec's Solidarity Fund. Solidarity was the granddaddy of labour-sponsored funds in Canada and was the model Mr. Kreiner used for Crocus.

Mr. Kreiner suggested Solidarity make a $10-million investment in Crocus. The Quebec fund agreed and received 790,000 special Crocus shares in exchange.

Mr. Kreiner announced the deal with huge fanfare calling it "tremendous news for business in Manitoba" because it would enable Crocus to make more investments.

But according to a recent report by Manitoba's Auditor-General, Jon Singleton, Solidarity's shares contained restrictions that made the deal more of a loan than an investment. For example, Crocus was required to pay a $1-million annual dividend and it had to buy back the shares within two years. The $10-million could only be invested in treasury bills and was not available for other Crocus investments, the report alleged. Crocus "misled investors in a significant way," he alleged.

Mr. Kreiner denied the allegations. "We were acting on the advice of our auditors and our lawyers," he said in an interview. Michel Bastien, an official with Solidarity, also said it was an investment, not a loan. "It's like any other corporation who issues different categories of shares, some have some privileges versus others," he said.

Whatever the issues surrounding the Solidarity investment, it did little to improve Crocus's financial fortunes. The fund continued to lose money -- $10-million in 2002 and $5.4-million in 2003-- as redemptions and expenses outpaced revenue. ...

James Umlah, the fund's chief investment officer, was a powerful force inside Crocus.

According to the Auditor-General's report, Mr. Umlah took a personal interest in many Crocus investments and often conducted his own due diligence, usually without documentation. In one case, when his staff recommended against investing in a company because the owners "were out of control," Mr. Umlah ignored the advice and arranged $500,000 in financing, the report alleged.

Internal controls were so lax, the report alleged, that loans to companies often went unpaid for years after they came due. Valuations of investments were also done poorly, and one Crocus official alleged there was internal pressure to value upward instead of fairly.

Mr. Umlah and Mr. Kreiner were very involved in the companies in which Crocus invested and they routinely billed them for consulting work, legal fees and other services. Between 2000 and 2004, Mr. Umlah piled up $1.1-million in expenses. About half of that amount was charged to companies in Crocus's portfolio.

Some of the money was spent on trips to Las Vegas, London, New York, Paris and elsewhere. Mr. Umlah spent $1,300 on a wedding gift and expensed it under the heading of "corporate image," the Auditor-General alleged. Other undocumented expenses allegedly included $467 to rent a Jaguar in Toronto, $265 (U.S.) for a health spa in Hawaii, $1,000 (Canadian) in parking tickets and tickets to a Celine Dion concert in Las Vegas for a family member.

According to the Auditor-General's report, when pressed by the chief financial officer to file his expenses after an eight-month delay, Mr. Umlah replied: "I do not respond well to timelines imposed by you in this fashion. While this is an important issue to both of us, I do not report to you and have significantly more seniority in this company than you do. Therefore I request that you refrain from this type of tactic and put it to you that this would be in both of our best interests." ...
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Post by Bylo Selhi »

GM wrote:Some of the money was spent on trips to Las Vegas, London, New York, Paris and elsewhere... when pressed by the chief financial officer to file his expenses after an eight-month delay, Mr. Umlah replied: "I do not respond well to timelines imposed by you in this fashion. While this is an important issue to both of us, I do not report to you and have significantly more seniority in this company than you do. Therefore I request that you refrain from this type of tactic and put it to you that this would be in both of our best interests."
I "put it" to y'all that Umlah really "put it" to the unitholders. In any case this is no way to "put it" to one's colleague, especially in writing and especially if you're the CEO. Zero class. Conrad Black could learn a thing or two from Umlah :(
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