In the News...

Tracy Tjaden

Competitors tee off on Liberals after hand-picked Altura Growth Fund suffers RRSP shortfall

B.C.'s newest labour-sponsored fund raised a mere $3 million by the end of the recent RRSP season, sparking criticism of the BC Liberals' efforts to introduce competition to an industry monopoly.

While the provincial government said it stands behind Altura Growth Fund, investment insiders say the Liberals erred in picking the relatively small Altura to boost labour-sponsored fund offerings.

Critics add B.C.'s emerging technology companies will pay the price for Altura's lacklustre performance.

"From the entrepreneurs point of view, they were disappointed because they thought they would have another capital pool," said Livia Mahler, a partner with Greenstone Venture Partners.

Labour-sponsored venture capital funds offer B.C. investors federal and provincial tax credits worth up to 30 per cent of the amount invested. In turn, the funds invest in small and medium-sized companies in the province.

The province reduced the allowable investment limit for tax credits for the Working Opportunity Fund, previously B.C.'s only labour-sponsored fund, to $55 million this year from $80 million.

Altura, a spinoff from a Manitoba labour-sponsored fund, was allowed to raise $25 million but came up with $3.1 million. The untapped difference leaves a $22-million drop in cash available to local venture companies.

David Levi, CEO of GrowthWorks Capital Ltd., which manages WOF, said Altura's poor showing shows investors didn't see the fund as a viable alternative.

"They tried an experiment. It didn't quite work out. It was entirely foreseeable," Levi said. "This is a clear statement that people didn't believe this would provide a good opportunity for investors."

Mahler agreed a larger fund may have been able to better compete with the well-established WOF.

"Larger funds have more staying power and are more capable of sustaining companies over the long term and offering multiple rounds," she said.

Yet it will take any new player time to build support in B.C., she added.

"They were coming in from out of town to go against a very entrenched player," Mahler said. "It's a function of the bad RRSP season and being the new kid on the block."

That's also how government and Altura officials explain the results.

Jane MacCarthy, director of communications for the Ministry of Competition, Science and Enterprise, which oversees the labour-sponsored venture capital program, said the government is standing behind Altura and isn't concerned with the company's results.

"Government recognizes if you go through a transition from monopoly to competition, it will take time," she said. "The government is satisfied with Altura's initial performance."

Altura vice-president Ken Bicknell said the overall market malaise this year and being the new fund presented significant challenges. "The capital markets are in a prolonged down cycle and the entire investment community is affected by that," he said from Winnipeg.

"And WOF has had a monopoly for 11 years. That's a formidable competitor."

Altura executive vice-president Andrew Scott, one of the fund's few senior staff in Vancouver, said the team is committed to taking the fund forward to become an established player in the local market.

Levi said the BC Liberals made a mistake by choosing a small Manitoba fund to introduce competition to the market. It should have picked an established Ontario labour-sponsored venture capital fund with deeper pockets, he said.

"They chose a smaller regional player from Manitoba rather than a well-resourced fund that might have been able to compete with us better," Levi said. "They and the government must have been very disappointed."

Levi said WOF didn't advertise or hold public meetings with dealers when it learned its cap would drop to $55 million. It raised that amount, but Levi said it could have again hit the $80-million mark with the usual marketing efforts.

He would like to see the province remove the cap entirely and allow labour-sponsored funds to compete openly in B.C., as they do in Ontario.

"We feel we are being held back by managed competition," he said.

Bicknell said removing the cap in B.C. is a bad idea because it would allow the well-entrenched WOF to dominate the market and sideline smaller players trying to break in.

Altura was dealt another blow at the end of March, when the B.C. Securities Commission revoked an earlier approval to allow mutual fund sales people to sell its shares.

"They feel the fund is too small," Bicknell said, adding that mutual fund sales representatives sold a quarter of Altura's shares this season.

Altura has some heavy-hitters on its side. Michael Phelps, former chairman and CEO of Westcoast Energy Inc. and now chairman of the advisory board with Duke Energy Gas Transmission Canada, is chair of the fund's board of directors.