Access to affordable capital resources is a key determinant of economic growth and the creation of jobs, wealth and income. Historically, it has been the function of government-regulated financial institutions and capital markets to supply this resource, along with attendant services, to industry. In a national economy, diverse financial structures and instruments channel savings to investment and capital formation. Hence, finance is frequently described as being an intermediary or facilitator.
Most institutional members of Canada's financial system — banks, trusts, insurance companies, credit unions and caisses populaires, and securities dealers — are as old and established as the country itself. A much newer member is the labour-sponsored investment fund. Born in Québec in 1983, relative youth may explain how little is actually known about this institution and its history; those influences that led to its rise; its very distinct socio-economic mandate and statutory frameworks; its investment standards, practices and programs; and, the role the institution occupies in the venture capital market.
This is nonetheless surprising since, today, the labour-sponsored fund is already a leading private equity institution in Canada. Its two largest representatives — the Fonds de solidarité des travailleurs du Québec (FTQ), inc., and the Working Ventures Canadian Fund, Inc. — are also the two largest venture capital institutions nationwide. With over $2 billion in assets, collectively, labour-sponsored funds manage approximately one-third of total venture capital and are responsible for close to 30 percent of the dollar value of total venture investments. In 1995, the funds attracted the savings of nearly 379,000 individual Canadians — a plurality of whom were unionized workers affiliated with sponsors.
These are just some of the facts about labour-sponsored funds uncovered in a 1994-95 research project investigating their role and performance in the Canadian economy. This work was undertaken by the Canadian Labour Market and Productivity Centre (CLMPC) on behalf of the business and labour members of its Task Force on Access to Capital. Set up in 1993, this body's agenda is to discuss and make recommendations concerning the issue of capital availability for high-value added investment.
The Role and Performance of Labour-sponsored Investment Funds in the Canadian Economy: An Institutional Profile was written to assist Task Force deliberations. The paper does not necessarily reflect, however, any consensus views of business and labour on this topic.
This research project was undertaken at a time when the profile of labour-sponsored funds was very high. They have inspired close scrutiny and divergent commentary. Attention has been focussed on associated tax preferences, and to a lesser extent, on the activity of the funds in capital markets. It is not the intention of this document to make a case for or against the use of the tax system in support of the funds (or for and against alternative uses of public dollars). Neither is it intended to look at the impact of the funds on the investment decisions of individual buyers. Rather the intention is to provide much-needed information that yields a multi-dimensional picture of this new and unusual financial institution. In general, CLMPC research has sought to collect and present data about the funds, touch on relevant concerns, point to strengths and weaknesses — where there is evidence — and, it is hoped, increase popular understanding.