Experience tells. Consider, for instance, the over thirty years of history behind the Caisse de dépôt et placement since its 1964 inception in the Quebec National Assembly with a raison d'etre to invest public sector pension assets in a fashion that would maximize financial earnings and attain a positive economic impact.
Today, it is estimated that around $3-4 billion is conveyed to Quebec business growth through the matrix of in-house subsidiaries of the Caisse Private Investment Group (see Pension Funds and Venture Investing), the bulk of which reaches new and developing SMEs. Impressively, the Caisse approaches this task with a finely-tuned, comprehensive and long-term strategy for deploying capital, actively-managing projects and providing value- adding programs and specialized professional expertise.
To start, Caisse subsidiaries are positioned at all points of the financing continuum, with roots in multiple capital markets, including SME term lending, venture financing, other private placements and small-cap public equity. As such, they are able to respond with craft and flexibility to business plans articulating diverse SME propensities and goals, including multi-stage growth and expansion into both domestic and export markets. Much of the related Caisse deal flow is handled by Capital CDPQ and Capital d'Amerique CDPQ, while a more specialized focus is applied to SMEs in emerging knowledge-based and technology-intensive industries by Capital Communications CDPQ and Sofinov. Other subsidiaries also engage in industry-specific investing, such as Sodémex (junior mining and exploration companies) and Services financiers CDPQ, (developing financial institutions, including mutual funds). To expedite SME progress in the global economy, Capital International CDPQ fosters co-investments, business and financial networks and strategic alliances abroad.
The Caisse often utilizes extensive research to target industries that anticipate Quebec economic development or to fill specific gaps identified in SME access to capital. Academics, industry analysts and scientists also serve in formal capacities to assist in continuous financial innovation and specialization. This emphasis on "smart" capital has led to new methods of ameliorating SME growth. For instance, the Caisse promotes more sophisticated Quebec entrepreneurship by use of eleven independent commercial development centres or incubators. Such entities, such as Montreal-based Inno-Centre Québec, render start-ups and early stage SMEs "investment ready", frequently by passing them through an intensive incubation process that gives them access to business mentors, development services, technical advice and training.
Several leading Quebec enterprises were born through Caisse sponsorship. One is Telesystem International Wireless, the export-oriented cellular telecommunications firm that originated in the rural region of Saguenay-Lac St- Jean and made the climb from start-up to blue chip. The advent of Accés Capital (see Pension Assets at the Grassroots,) suggests more Caisse finds are possible in communities across Quebec down the road.
Sources: Caisse de dépot, Brochures and 1997 Operations Report, 1998; CLMPC interviews
Though smaller and less developed, Canada's middle market appears to be moving along the same path as that in the United States. Because it is small, investment patterns are set by a modest number of large institutional investors, participating directly or through pools. This helps to explain why a small group of large public sector pension funds and/or their money management institutions have become so pivotal in the market, so quickly. Given a propensity for long time horizons, they are now well-situated to influence its future direction.
As mentioned previously, there is probably still space for more engagement by pension funds of all sizes through limited partnerships, especially in niche activity, such as mezzanine financing. Such partnerships are vital to the middle market for many reasons, not the least of them being facilitation of smaller dollar deals (e.g., below $50 million) not always preferred by the in-house programs of large investors.