Labour-sponsored venture capital funds

Discuss your favourite picks, broker, and trading or investment style.
DanH
Veteran Contributor
Veteran Contributor
Posts: 2174
Joined: 21 Feb 2005 14:25
Contact:

Post by DanH »

Why labour fund investors should exit - if they still can
I wrote:If you still can't resist the generous tax credits still available from LSIFs, consider buying one outside your RRSP. This is contrary to industry marketing, which is heavily focused on the weeks leading up to the RRSP contribution deadline. But for investors, it makes good tax sense.

Unlike most tax shelters, the LSIF tax credits granted at the time of purchase do not reduce the adjusted cost base of the fund, unless the holding is in a loss position at the time of sale. This advantage is lost when the fund is held inside an RRSP.
Big Bob
Contributor
Contributor
Posts: 67
Joined: 07 Dec 2007 11:04

Post by Big Bob »

SoninlawofGus wrote:So, the Vengrowth I and II funds have frozen redemptions, promising an "annual distribution."

Sadly, we own this one. It's bad enough that it's mythically valued around 50% of what we paid for it, but now we can't even redeem the stupid thing at any price. Rather, we're left twitching in the wind with nothing but the faint hope of crumbs in August of every year. And, to add salt to the wounds, Vengrowth keeps collecting their 2% MER! :x

Perhaps someone can enlighten me: Does this announement mean that we cannot ever sell this fund? Does this mean we just have to wait for Vengrowth to give us whatever they're going to give us every August?
What further grates is that so far as I can tell, the managers continue to collect their fees. The option was certainly there to merge this into another VenGrowth fund but I think we might be able to guess why this didn't happen.

Disclosure: I did bite the bullet and sell out what I considered to be the dodgiest of my LSIFs - lesson learned.
User avatar
parvus
Veteran Contributor
Veteran Contributor
Posts: 10014
Joined: 20 Feb 2005 16:09
Location: Waiting for the real estate meltdown on Rua Açores.

Post by parvus »

Labour funds fall from favour
Unimpressive performance, volatile markets and demise of Ontario tax credit combine to push sales down 37 per cent in quarter
John Varghese, president of the Canadian Retail Venture Capital Association, suggested the main culprit in declining fund sales stems from the reluctance of financial advisers in Ontario to promote an asset class whose incentive program is winding down.

"They can get the credit now [for their clients], but they are asking themselves why do they want to support a program that is dying," Mr. Varghese, also a managing partner at VentureLink Funds, said in an interview. "It is that mentality that has more of an effect than does getting the credit."

When funds cannot raise a lot of money, advisers also worry about whether there will be enough cash in future years to provide second- and third-round financing for emerging companies, he said.

Labour-sponsored funds require an eight-year holding period, and offer tax credits to investors to compensate for these higher-risk investments.
Wovon man nicht sprechen kann, darüber muß man schweigen — a wit
Imagefiniki, the Canadian financial wiki Your go-to guide for financial basics
Image
User avatar
Bylo Selhi
Veteran Contributor
Veteran Contributor
Posts: 29494
Joined: 16 Feb 2005 10:36
Location: Waterloo, ON
Contact:

Re: Labour-sponsored venture capital funds

Post by Bylo Selhi »

No redemption to be found in some labour-sponsored funds [my bold]
Labour-sponsored funds were once a popular investment for RRSPs. Now they're shunned by both investors and salespeople. Mediocre performance is only part of the story. Investors could get $1,500 back on a $5,000 LSIF purchase because of federal and provincial tax credits...

Another problem is lack of liquidity. Several managers suspended redemptions after the stock market crash in 2008 and still don't allow redemptions...

[VenGrowth II]'s compound annual return is minus 13.4 per cent over the past five years (to Jan. 31) – and minus 8.65 per cent over 10 years... [while the] fund's management-expense ratio, according to Morningstar Canada, is a whopping 4.79 per cent... The MER will continue to accrue to the managers, Cohen said. This despite the fact the investors are a captive market, unable to leave until the fund is wound up...

It's a reminder that no investment, despite tax credits from two levels of government, is a sure thing.
I would add that any investment that depends on tax credits from two levels of government and/or sports an MER of ~5% should set off alarm bells that can be heard from coast to coast to coast.
Sedulously eschew obfuscatory hyperverbosity and prolixity.
User avatar
SoninlawofGus
Veteran Contributor
Veteran Contributor
Posts: 1284
Joined: 21 Aug 2007 12:10
Location: Ottawa

Re: Labour-sponsored venture capital funds

Post by SoninlawofGus »

Bylo Selhi wrote:I would add that any investment that depends on tax credits from two levels of government and/or sports an MER of ~5% should set off alarm bells that can be heard from coast to coast to coast.
True, and once-boneheads like me that bought into them continue to pay the price. I've allocated a value of $0 to the three that I own, just so anything that comes back feels a little better.

One of them, the Axis Wireless Technology Fund (it's since changed names and owners and is virtually impossible to find any information on), is now worth just $546. It's lost almost 90% of its value, and we still have to hold it for two more years (assuming it's not frozen).
bill2009
Contributor
Contributor
Posts: 351
Joined: 03 Mar 2005 14:22

Re: Labour-sponsored venture capital funds

Post by bill2009 »

Bylo Selhi wrote:No redemption to be found in some labour-sponsored funds [my bold]
Labour-sponsored funds were once a popular investment for RRSPs. Now they're shunned by both investors and salespeople. Mediocre performance is only part of the story. Investors could get $1,500 back on a $5,000 LSIF purchase because of federal and provincial tax credits...

Another problem is lack of liquidity. Several managers suspended redemptions after the stock market crash in 2008 and still don't allow redemptions...

[VenGrowth II]'s compound annual return is minus 13.4 per cent over the past five years (to Jan. 31) – and minus 8.65 per cent over 10 years... [while the] fund's management-expense ratio, according to Morningstar Canada, is a whopping 4.79 per cent... The MER will continue to accrue to the managers, Cohen said. This despite the fact the investors are a captive market, unable to leave until the fund is wound up...

It's a reminder that no investment, despite tax credits from two levels of government, is a sure thing.
I would add that any investment that depends on tax credits from two levels of government and/or sports an MER of ~5% should set off alarm bells that can be heard from coast to coast to coast.
I can't help wondering though, whether there isn't some chargeable malfeasance going on to yield such appalling results - e.g. what are the directors paid and what did they do in return. We've put everyone else in jail, why not these guys?
User avatar
kcowan
Veteran Contributor
Veteran Contributor
Posts: 16033
Joined: 18 Apr 2006 20:33
Location: Pacific latitude 20/49

Re: Labour-sponsored venture capital funds

Post by kcowan »

bill2009 wrote:I can't help wondering though, whether there isn't some chargeable malfeasance going on to yield such appalling results - e.g. what are the directors paid and what did they do in return. We've put everyone else in jail, why not these guys?
I remember is the 70s that MURBs were all the rage. My mentor at the time said that any investment that is subsidized by the government is done for a reason. The reason is usually that the market fundmentals do not work without the government inducements.

So I have saved much money since then by avoiding MURBs, Flowthrough Shares (LLP) and labour-sponsored funds.

As far as shooting the wounded goes, I think the rules for fiduciary duty do not encompass punishing people for incompetence. :mrgreen:
For the fun of it...Keith
mikester
Contributor
Contributor
Posts: 236
Joined: 04 Feb 2007 22:12
Location: Toronto
Contact:

Re: Labour-sponsored venture capital funds

Post by mikester »

kcowan wrote:I remember is the 70s that MURBs were all the rage. My mentor at the time said that any investment that is subsidized by the government is done for a reason. The reason is usually that the market fundmentals do not work without the government inducements.

So I have saved much money since then by avoiding MURBs, Flowthrough Shares (LLP) and labour-sponsored funds.

As far as shooting the wounded goes, I think the rules for fiduciary duty do not encompass punishing people for incompetence. :mrgreen:
That's funny - my Dad got burned by Murbs back in the 70s. Unfortunately, I still got burned by LSIFs in the 90s.

I'm eligible to redeem mine now but I'm afraid to even look at them. :)
Mike
Money Smarts Blog
Investing and Personal Finance (It used to be Four Pillars)
User avatar
SoninlawofGus
Veteran Contributor
Veteran Contributor
Posts: 1284
Joined: 21 Aug 2007 12:10
Location: Ottawa

Re: Labour-sponsored venture capital funds

Post by SoninlawofGus »

Got a statement from AXIS, who are trying to sell their entire LSIF fund for a whopping $465,000. Supposedly, this will provide an exit point. My statement balance is something like $200. It is essentially worthless.
Big Bob
Contributor
Contributor
Posts: 67
Joined: 07 Dec 2007 11:04

Re: Labour-sponsored venture capital funds

Post by Big Bob »

mikester wrote:
kcowan wrote:I remember is the 70s that MURBs were all the rage. My mentor at the time said that any investment that is subsidized by the government is done for a reason. The reason is usually that the market fundmentals do not work without the government inducements.

So I have saved much money since then by avoiding MURBs, Flowthrough Shares (LLP) and labour-sponsored funds.

As far as shooting the wounded goes, I think the rules for fiduciary duty do not encompass punishing people for incompetence. :mrgreen:
That's funny - my Dad got burned by Murbs back in the 70s. Unfortunately, I still got burned by LSIFs in the 90s.

I'm eligible to redeem mine now but I'm afraid to even look at them. :)
The trend is towards suspending redemptions - I have been getting out while I still can and chalking it up to experience.
DanH
Veteran Contributor
Veteran Contributor
Posts: 2174
Joined: 21 Feb 2005 14:25
Contact:

Re: Labour-sponsored venture capital funds

Post by DanH »

Axis investment fund bites the dust
Axis Investment Fund Inc., a struggling labour-sponsored investment fund, is being put out of its misery.

Shareholders have approved the windup of the fund and sale of the assets to NorthStar Bancorp Ltd., a Toronto-based merchant banking firm. The net proceeds from the sale will be distributed to shareholders.

The fund, which was first set up in 2001 to focus on the technology sector, lost 84.4 per cent for the year ended July 31, and has posted an average annual loss of 50 per cent over the last five years.
More LSIFs are likely to be sold via a bulk sale of the venture portfolios as LSIFs encounter difficulty exiting profitably from investments.
User avatar
adrian2
Veteran Contributor
Veteran Contributor
Posts: 13333
Joined: 19 Feb 2005 08:42
Location: Greater Toronto Area

Re: Labour-sponsored venture capital funds

Post by adrian2 »

The fund, which was first set up in 2001 to focus on the technology sector, lost 84.4 per cent for the year ended July 31, and has posted an average annual loss of 50 per cent over the last five years.
5 annual halvings equal 3% remaining, or a 97% loss.

Wow! Without using leverage, and staying within the diversification rules / guidelines, that's not an easy task.

As well, for the year ending the last July, losing 5/6 of the investment must rank as unusual...
mikester
Contributor
Contributor
Posts: 236
Joined: 04 Feb 2007 22:12
Location: Toronto
Contact:

Re: Labour-sponsored venture capital funds

Post by mikester »

mikester wrote:
kcowan wrote:I remember is the 70s that MURBs were all the rage. My mentor at the time said that any investment that is subsidized by the government is done for a reason. The reason is usually that the market fundmentals do not work without the government inducements.

So I have saved much money since then by avoiding MURBs, Flowthrough Shares (LLP) and labour-sponsored funds.

As far as shooting the wounded goes, I think the rules for fiduciary duty do not encompass punishing people for incompetence. :mrgreen:
That's funny - my Dad got burned by Murbs back in the 70s. Unfortunately, I still got burned by LSIFs in the 90s.

I'm eligible to redeem mine now but I'm afraid to even look at them. :)
Ok, I finally put the sell orders in this week - they went through and I am now LSIF-free!! Woohoo!
Mike
Money Smarts Blog
Investing and Personal Finance (It used to be Four Pillars)
User avatar
patriot1
Veteran Contributor
Veteran Contributor
Posts: 4883
Joined: 28 Feb 2005 03:53

Re: Labour-sponsored venture capital funds

Post by patriot1 »

Finally out of Working Opportunity Growth WOF891. 20% loss over 8 years, but considering the losses people are taking on other funds I guess I shouldn't complain. :roll:

This fund had its moment of glory during the dot-com bubble when it sold its substantial holding in Hothaus to Broadcom. Downhill ever since.
squid
Contributor
Contributor
Posts: 323
Joined: 18 Jun 2008 14:31

Re: Labour-sponsored venture capital funds

Post by squid »

patriot1 wrote:Finally out of Working Opportunity Growth WOF891. 20% loss over 8 years.
Did you factor in the tax credit and growth on that? My last batch is locked in to Jan 2011 (Crossing fingers all is OK till then).
westcoastfella
Contributor
Contributor
Posts: 565
Joined: 10 Jun 2009 15:47

Re: Labour-sponsored venture capital funds

Post by westcoastfella »

I also had some WOF891, and sold my holdings this past May. Book value was down about 25%, but as squid says, if you consider the initial tax credits, I came out slightly ahead. Not as ahead as I would have liked, but it sounds like others have not fared as well. Like you squid, I have one more batch of WOF890 that is cashable next April. Its currently down about 20%, and I'll be happy when I finally get done with it, and would be happy with a 20% loss at this point - I just want my money!

When I first got into WOF nearly 10 years ago, I was sold on the tax breaks first, and the potential for big money second - the thinking being that the investment would have to lose about 35% in value for me to be underwater, and therefore anything better than a 35% loss was like making money. My advisor at the time sold it this way, and I actually thought that sounded good :oops:
User avatar
patriot1
Veteran Contributor
Veteran Contributor
Posts: 4883
Joined: 28 Feb 2005 03:53

Re: Labour-sponsored venture capital funds

Post by patriot1 »

squid wrote: Did you factor in the tax credit and growth on that?
No, I was just talking about what the fund lost, not what the taxpayers lost. :rofl:
zeno
Contributor
Contributor
Posts: 210
Joined: 17 Jun 2008 23:47

Re: Labour-sponsored venture capital funds

Post by zeno »

Vengrowth Funds to be Bought By Covington

http://www.vengrowth.com/pdfs/PressReal ... eement.pdf

Finally a chance to sell you Vengrowth funds for a fraction of what you paid for them. Covington is buying the assets of the Vengrowth funds and rolling them into its Covington II fund. It's not an easy out though:

"Under the transaction, shareholders of the VenGrowth Funds will receive Class A shares of Covington II, at which point they will have three options:
• Continue to remain a shareholder of the new combined Covington II fund (certain funds’ shareholders will continue to have redemption restrictions)
• Roll-over the shares and receive new tax credits (current shares must have been held for at least 8 years)
• Redeem the shares for cash (subject to a redemption fee)"

I can't see anything in the press release about how much the redemption fee will be, but the Globe seems to suggest 40%. For those who held for 8 years watching their "investment" dwindle then were unable to sell. That's another harsh reminder of a decade old decision to buy these things.
http://www.theglobeandmail.com/globe-in ... le1755851/
User avatar
SoninlawofGus
Veteran Contributor
Veteran Contributor
Posts: 1284
Joined: 21 Aug 2007 12:10
Location: Ottawa

Re: Labour-sponsored venture capital funds

Post by SoninlawofGus »

adrian2 wrote:
As well, for the year ending the last July, losing 5/6 of the investment must rank as unusual...
My current account balance (which I still can't access by the way) is $129. This would seem to be fodder for some kind of legal action. But I've heard nothing of the sort. One question I have is if most people chipped in, say, just $5000 years ago, would anyone own enough of this thing to even bother to prompt an investigation?
DanH
Veteran Contributor
Veteran Contributor
Posts: 2174
Joined: 21 Feb 2005 14:25
Contact:

Re: Labour-sponsored venture capital funds

Post by DanH »

Did VentureLink warn that 'capital repayment' feature was no guarantee?
In a recent Globe and Mail column, Shirley Won wrote about how investors in VentureLink ‘capital repayment’ labour sponsored investment funds are not getting their capital back. The article quoted a financial advisor – who bought the funds for himself and his clients – who is upset that VentureLinkisn’t holding up its end of the bargain. One could argue, however, that this is simply a case study in a lack of due diligence.
squid
Contributor
Contributor
Posts: 323
Joined: 18 Jun 2008 14:31

Re: Labour-sponsored venture capital funds

Post by squid »

westcoastfella wrote: My advisor at the time sold it this way, and I actually thought that sounded good :oops:
I bought mine as a way to diversify into a 'different' type of equity. That is participation in pre-IPO companies, something the average investor can't do. I seem to recall charts showing low correlation to the TSX. I also see that private companies tend to have better valuations than public ones. Is there any legit managers who do this well for the little investor, I wonder?
User avatar
newguy
Veteran Contributor
Veteran Contributor
Posts: 8088
Joined: 10 May 2009 18:24
Location: Montreal

Re: Labour-sponsored venture capital funds

Post by newguy »

Would FTQ(union) funds belong in this thread?
http://www.fondsftq.com/internetfonds.n ... TAN/AprSta
A 30% bonus to buy and they've made money :shock: . They're trying to sell to gf right now.

newguy
brucecohen
Veteran Contributor
Veteran Contributor
Posts: 13310
Joined: 20 Feb 2005 16:47

Re: Labour-sponsored venture capital funds

Post by brucecohen »

newguy wrote:Would FTQ(union) funds belong in this thread?
http://www.fondsftq.com/internetfonds.n ... TAN/AprSta
A 30% bonus to buy and they've made money :shock: . They're trying to sell to gf right now.
IIRC redemption is very limited until you reach retirement age.
DanH
Veteran Contributor
Veteran Contributor
Posts: 2174
Joined: 21 Feb 2005 14:25
Contact:

Re: Labour-sponsored venture capital funds

Post by DanH »

brucecohen wrote:
newguy wrote:Would FTQ(union) funds belong in this thread?
http://www.fondsftq.com/internetfonds.n ... TAN/AprSta
A 30% bonus to buy and they've made money :shock: . They're trying to sell to gf right now.
IIRC redemption is very limited until you reach retirement age.
From Why labour fund investors should exit - if they still can (26-Feb-2009):
An exception to the general woes afflicting labour funds is Quebec's Solidarity Fund QFL. Its 1983 inception gave it a head start, allowing it to have an already mature portfolio by the time most other LSIFs were just getting started. Quebec continues to offer provincial tax credits, and performance has been decent.

Solidarity's superior performance is in part due to its much more mature portfolio and because its $6 billion in assets is invested across a longer list of business in many sectors. While sales have slowed, the fund raised some $350 million from June 1, 2006 through Nov. 30, 2008, in part because a significant number of investors contribute through payroll deduction.
User avatar
newguy
Veteran Contributor
Veteran Contributor
Posts: 8088
Joined: 10 May 2009 18:24
Location: Montreal

Re: Labour-sponsored venture capital funds

Post by newguy »

Thanks for the replies. I've been reading a bit and it seems too complicated. Plus the credits go right at the end of the tax return, reducing tax payable but not giving any other advantage. An rrsp can help make other credits more valuable by reducing net income. If you have to hold them until retirement the 30% credit may not make up for the poor performance.

newguy
Post Reply