Put Your Money Where Your Heart Is

Release Date: February 2, 2006
by David Shield

For years, RRSPs and Mutual Funds have been criticized for their slightly impersonal, ‘faceless’ nature.

Sure, investors know the name of their financial institution of choice—even probably that of their broker. But once they sign over their savings, their money generally disappears in a paper-shuffle of portfolios—ending up anywhere from Bahrain to the Bahamas.

However, there’s a way to make sure your investments stay in the province—strengthening Saskatchewan businesses and jobs while still bringing in good returns. Called Labour Sponsored Investment Funds (LSIFs), these specially-designed funds are created to inject ‘venture capital’ into the provincial economy—helping Saskatchewan owned and operated businesses expand and become more competitive.

While the term LSIF hasn’t exactly become a household name in this country, these funds have had a major impact on Canadian businesses, injecting close to ten billion dollars worth of investments into the national economy so far.

Grant Kook, CEO and Chairman of the Golden Opportunities LSIF has been steering the fund ever since its inception in 1999. Out of the 122 Labour Sponsored Funds in the country, Golden Opportunities emerged as the country’s top LSIF, in 2004. He says his fund has had a direct impact on the province’s economy.

“Of the 57 million dollars we’ve invested in the provincial economy, we’ve invested in 47 different Saskatchewan companies and over 20 different communities. So, when you go through the list of companies we’ve invested in, our Saskatchewan shareholders are finding people who say, ‘My uncle works there’ or ‘My mom works there’ or ‘I work there.’ Our money is probably impacting someone you know,” he says.

So far, Golden Opportunities has invested in everything from top-drawer high-tech firms like Saskatoon broadband technology designers VCom to the medical marijuana researchers over at Prairie Plant Systems to numerous oil and gas projects across the province. Since all of Golden Opportunities’ investments are based in Saskatchewan, Kook says that it’s important to keep their web of investments as broadly diversified as possible.

“The reason we have a diversified portfolio is that it’s a way to manage your risk in case one industry hits a cycle, and they all do. Since we’re not going to be investing our money in Toronto or Vancouver, and we’re not going to be geographically diversified, we make sure we’re diversified in our industries in Saskatchewan. We’re diversified across 11 or 12 different industry sectors,” he says.

Dennis Puff, President of Wynyard’s Big Quill Resources, says his company couldn’t have undertaken a recent expansion without a sizable investment from Golden Opportunities. The company, which extracts potassium sulfate from the water of Big Quill Lake, received a 2.8 million dollar investment from Golden Opportunities in 2004. Puff says getting the money was essential to grow the company.

“(Without the investment), growth would have been all but impossible. We did need it, and we continue to need an injection of capital, somebody who’s willing to invest in the future of our company in Saskatchewan,” he says.

Used in everything from high value fertilizer to gypsum manufacturing to drilling mud, potassium sulfate is in demand around the world. Since the company began operations in 1991, Big Quill has gone from producing 3,000 megatons of potassium sulfate per year to 50,000 megatons. Puff says the money will help make the extraction process more efficient, something that’s necessary when going up against tough global markets.

“You always hear statistical reports saying that U.S. manufacturers are so much more efficient than Canadian manufacturers, but they’ve had these injections of cash in their plants and equipment to make their products much more efficiently.”

ENLIGHTENED SELF-INTEREST

Okay. So LSIFs invest money in the province—which is all fine and good. But what’s in it for you?

How about a 35% tax break on your investment?

Yep. Between RRSP tax savings and federal and provincial tax savings, you can get tons of money back from your investment. For people in the highest tax bracket, that means a 5,000 dollar investment will only cost you $1,050. Even people in lower tax brackets ($25,000-$40,000) still receive substantial savings, costing you only $1,900 for a $5,000 investment.

Of course, there are some stipulations attached to these sorts of investments. You’re limited to spending $5,000 on LSIFs every year, and you must keep your money in your LSIF for at least eight years—or give your tax break back to the government. Kook says the eight year limit is essential to ensuring companies have enough time to use the investment to grow.

“We need to give that company time to grow their company. If we arrange 22 million dollars and get asked for it back, then I have to give the money to the company and say, ‘here’s 20 million dollars, but I may call for it tomorrow,’ so it doesn’t work,” he says.
Kook says government supports the project because it encourages provincial investment.

“We’ve generated 22 million dollars in tax savings that they would have otherwise paid to the government. The government supports the program because venture capital creates new jobs and pushes this province forward,” he says.

CROCUS CALAMITY

Of course, not everything has come up roses in the world of LSIFs. Last year’s high profile implosion of Manitoba’s Crocus Investment Fund led the investing world to cast a skeptical glance towards the world of Labour Sponsored Investment Funds.

However, Kook says the Crocus fund had a number of problems other LSIFs don’t have. He says a combination of poor management and record keeping and conflicting goals ultimately led to the fund’s demise.

“They had conflicting goals between whether they had a social mandate or whether they were there to make money for shareholders. In fact, they actually had a section in their document that they had to write out their social goals. We don’t have anything like that. They did deals a lot of times for social reasons, which you can’t do for shareholders,” he says.

Conversely, Kook says social good can come out of making good investments.

“Our goal is to make money for shareholders. If we’re making money for shareholders, that means these companies are doing very well in terms of jobs, provincial growth and an increased tax base. We lead with making money for shareholders, and all that good stuff follows.”

Want to know more about LSIFs that will put you’re your money to work in Saskatchewan? Travel to these websites for more information:
SASKWORKS VENTURE FUND
www.saskworks.com
GOLDEN OPPORTUNITIES FUND
www.goldenopportunties.ca
GOVERNMENT LSIF SITE— www.ir.gov.sk.ca (follow the Invest in Saskatchewan links)

Copyright Planet S Magazine
Published February 2, 2006