GrowthWorks abandons efforts to buy Crocus

A court ruling that leaves his proposal to take over what’s left of the Crocus Investment Fund “dead in the water” has not deterred David Levi from entering the Manitoba market.

The CEO of Vancouver-based labour-sponsored fund GrowthWorks Capital says he has begun the process of launching a new fund, which could be available to investors in Manitoba as early as this coming RRSP season.

“It’s uncertain if we’ll be able to complete all the steps in time for this year. We believe the market needs a second fund. There’s definitely room for two funds in the province,” he says.

Doug Brown, general counsel for the Manitoba Securities Commission, says if GrowthWorks’ application to file a prospectus is sufficiently thorough, the entire process could be approved “in a matter of weeks.”

Levi says his product will be distinct from the ENSIS Growth Fund, which has had the labour-sponsored space in Manitoba to itself for the last two RRSP seasons.

“We tend to be earlier-stage, equity-based investors. We’re a little different than what ENSIS does, which is latter-stage and more debt-oriented,” he says.

In a written decision, Court of Queen’s Bench Justice Deborah McCawley denied the request of the Manitoba Federation of Labour to have a special meeting of Crocus shareholders to evaluate a proposal from GrowthWorks. She also rejected a proposal to prevent Deloitte, Crocus’s receiver, from disposing of any of the fund’s assets, worth more than $1 million.

“The motion of the MFL is dismissed in its entirety,” she wrote.

Levi says with Crocus shareholders unable to vote on a GrowthWorks offer to take over what’s left of the failed fund, the only chance of picking up the Crocus assets is if Russ Holmes, the Deloitte partner handling the Crocus receivership, calls him.

“The only alternative in this case is if the receiver decides at the end to sell off the remaining assets as a block and contacts us. But we’re not holding our breath,” he says.

GrowthWorks is the third-largest LSIF in the country. It manages nearly $900 million in assets and has operations in British Columbia, Saskatchewan, Ontario and three of the four Atlantic provinces.

Levi says he’s optimistic GrowthWorks’ new fund will be able to overcome any stigma created in the market by the spectacular collapse of Crocus in late 2004 and early 2005.

“I think Manitobans understand that what happened to Crocus is unique to its own circumstances. Investors will look at our rates of return and base their decisions on that,” he says.

Levi says it may take his new fund a couple of years to generate the kind of investment activity that Crocus and ENSIS enjoyed earlier in the decade. Last year, ENSIS raised just $6.2 million, down from $10 million and $15 million the two previous years. There were several years where the province’s LSIF sector raised more than $50 million, including about $20 million from ENSIS.

Holmes says he continues to sell off the failed funds assets. Roughly 30 per cent of Crocus’s portfolio still has to be divested, a process that could last into 2010, he says.

Outspoken Crocus shareholder Bernie Bellan says the shareholders’ options for any return on their investment now reside with the receiver and their $200-million class-action lawsuit. He says he thinks the more than 33,000 investors will receive around $5 per share once all the Crocus assets have been sold off.

“That’s nothing to crow about, but we have to be realistic about what we can expect,” he says.

Crocus, once a focal point of venture capital activity in Manitoba, was placed into receivership in June 2005, six months after it voluntarily stopped trading its shares. It has since been the subject of a scathing report from the provincial auditor general and $60 million worth of write-downs.

(12/13/06)