Fund delivering hope to small businesses
Release Date: February 2, 2006
By Jeannie Armstrong – Business Edge
Published: 02/02/2006 – Vol. 2, No. 3
Investing in Saskatchewan pays off, and this RRSP season will offer the province’s residents an even greater opportunity to reap the benefits.
In December 2005, the government of Saskatchewan announced that it would raise the sales cap for the Golden Opportunities Fund, the province’s first and largest labour-sponsored investment fund, to $25 million.
“This will be the second time in the history of Golden Opportunities Fund that the government has raised the cap for us, given the increased demand for the product,” says Grant Kook, CEO and chair of Golden Opportunities Fund.
Labour-sponsored investment funds (LSIFs) are mutual funds that are sponsored or “endorsed” by labour groups, and help create jobs by investing in small businesses. LSIF investors also receive a 35-per-cent tax credit (on investments up to $5,000 per year) in addition to regular RSP benefits.
Since its inception in 1999, the Golden Opportunities Fund in Saskatchewan has generated more than $22 million in tax credits for the more than 10,000 shareholders who have invested approximately $63 million in the fund.
Kook attributes the popularity of the fund to Saskatchewan investors’ confidence in their province and its strong economy.
“People now genuinely believe that investing in Saskatchewan works, and that they can keep their money working in this province. They’ve seen how the 35-per-cent tax credit works, so they know that it pays to do it. Plus, we’ve had strong performance over the past five years, making money for the fund,” he says.
The LSIF model was started in Quebec in 1984 to assist small and medium-sized businesses gain much-needed financing to create employment in that province. Returns were modest in the first few years following the introduction of LSIFs into the Canadian marketplace. But, in recent history, LSIFs have boasted strong returns in addition to their tax benefits.
The Golden Opportunities Fund’s current total value on its investment of $63 million stands at close to $70 million due to gains realized by the fund.
Kook says that steady growth in unit value is attracting financial advisors and investors to the Golden Opportunities Fund. The fund has posted average returns of more than 5.5 per cent over its seven-year history, and unit value increased by 12.78 per cent over the 2005 fiscal year.
In 2005, the fund broke all previous sales records, attracting $18 million in new capital, an increase of 50 per cent over the previous year.
Sales during the last RRSP season exceeded the provincial government’s 2005 cap of $15 million. The government responded by allowing sales to reach $18 million. The fund is sold by more than 1,000 financial advisers across the province.
Fundata, which identifies stellar funds for investors, has consistently awarded the Golden Opportunities Fund an “A” rating. Globefund, the Globe and Mail ratings service for the majority of mutual funds in Canada, ranks Golden Opportunities one of the country’s top-performing labour funds.
In December 2004, the Golden Opportunities Fund was named the Canadian labour-sponsored investment fund of the year at the Canadian Investment Awards.
The millions invested into the fund are reinvested in the Saskatchewan economy.
The fund’s portfolio is comprised of holdings in 29 of Saskatchewan’s most promising growth-oriented companies, spread across 12 different industry sectors. These companies employ more than 1,500 workers and generate combined annual sales revenues of approximately $500 million.
“Our leading sectors right now are oil and gas, mature-stage biotechnology, renewable energy and value-added processing,” says Kook. “We invest in high-growth sectors to maximize shareholder value, but we also believe it’s important to balance out risk with a diversified portfolio.”
The companies in which Golden Opportunities Fund invests receive much-needed capital to facilitate new start-ups and expansions.
A $2.8-million investment by the fund in Big Quill Resources, Canada’s largest producer of potassium sulfate, has allowed the Wynyard-based company to upgrade operations and increase efficiencies.
“We’ve been able to make throughput in our plant much more efficient, modernizing operations to bring us into the current world market,” Big Quill Resources president Dennis Puff says. “Over the past decade, there have been huge capital investments in U.S. factories; their measure of efficiency is seen as so much greater than the Canadian manufacturing sector. These funds allow us to do that catchup, or at least take a good step toward catching up.”
Saskatchewan industry has been hit hard in recent years by rising energy and fuel costs, says Puff. “We’re using Golden Opportunities investment to increase our overall efficiencies. For example, last year we put in a 97-per-cent-efficient boiler with a heat recovery system, which our engineers designed in-house.
“We installed a centralized compressed-air unit, which allows us to dry the air so it’s not wearing out the equipment. We’ve upgraded our electrical substation to match our current usage and output. We’re also looking at areas in our two different manufacturing processes which will increase the quality of our product.”
Compared to its international competitors, Big Quill is a smaller-capacity manufacturer of potassium sulfate, says Puff. “We have to do things better and differently. The money has allowed us to update, upgrade, become more energy efficient, as best we can.”
The company also benefits from the business acumen and international experience of the fund’s managers, who sit on Big Quill’s board of directors.
“We have a very supportive, professional board. It’s allowed us to attract people from outside our local community, who help us put a proper business spin on the company. It’s allowed us to have a global outlook, because our competitors are on a global basis,” says Puff.
A contract with Health Canada to develop medicinal marijuana put Prairie Plant Systems (PPS) in the national spotlight, establishing the Saskatoon company as a world leader in the development of biosecure underground growth chambers (BUGCs).
The first BUGCs were located in unused portions of an otherwise active mine in Flin Flon, Man. Now, Prairie Plant Systems has expanded to three underground research facilities, including a 22,500-acre underground mine in Michigan. The company’s wholly owned subsidiary in Michigan, SubTerra LLC, gives the company a vital U.S. presence.
PPS president and CEO Brent Zettl explains: “Our project in Flin Flon was really a segue to developing plant-made pharmaceuticals en masse, using the growth chambers as a facility to grow these plants in contained, secure environments, so that we could address the development of new drugs that are protein-based, such as cancer drugs or vaccines for treating hepatitis.
“The medical marijuana Health Canada project was really a proof of concept. We went after that project as a means of demonstrating to the pharmaceutical industry as a whole that we could, in fact, grow a pharmaceutical in a plant using BUGCs that would meet all regulatory criteria, and get clinical grade material into the hands of researchers and patients.
“Now we’re embarking upon the actual transference of these pharmaceutically active compounds into a new set of host plants, and using our Michigan facility to manufacture them.”
An investment of $865,000 by the Golden Opportunities Fund has helped facilitate this expansion, at a crucial point in the company’s growth.
“One of the key challenges that businesses have in this part of the world, particularly Saskatchewan, has been raising money for small and medium-sized enterprises (SMEs). Raising money for small companies is extraordinarily difficult. I find when I travel into the U.S. and Eastern Canada, it takes a quarter of the effort to get the same amount of dollars. It’s simply because of the available capital, the population base and the risk-reward paradigm,” says Zettl.
“In this part of the world we’re frugal, we’re taught to be tight with our money. That transcends every financial institution and structure in the province.
“In working with Golden Opportunities Fund, they have been more progressive. They have the vision. Even though they have a bit of a banking background and make us walk through the hoops like they’re a bank, they still have enough of a vision that they see the opportunities and are prepared to risk capital.
“They have been one of the very few organizations in this province that really are progressively minded and put their money into SMEs where there is a business case to be made, even though there isn’t a proven track record or a balance sheet that looks like Microsoft’s third-quarter report.
“Any chump can invest in a winner. It takes an intelligent, visionaried group to be able to make an investment into new technologies or things that are futuristic. Golden Opportunities Fund has the right mix of the checks and balances – the vision, while still being frugal with their money,” says Zettl.
(Jeannie Armstrong can be reached at email@example.com)