LSIF group fires back at industry newcomer

(February 11, 2004) An association representing labour-sponsored investment funds (LSIFs) responds to criticisms from an industry newcomer, calling its criticisms “misleading.”

“The LSIF industry makes a significant contribution to Canada, and it is regrettable that a new entrant has decided to make such broad and critical generalizations, ultimately for their own gain,” says Dale Patterson, executive director of the Association of Labour-Sponsored Investment Funds.

On Monday IPM issued a press release criticizing the culture among other LSIFs, which it said placed too much emphasis on gathering funds from investors, while ignoring the interests of those investors.

“As a category, LSIFs have been very focused on raising capital, but have been unable to deliver good returns to shareholders,” said Julie Makepeace, managing director of IPM Funds.

“LSIFs have invested $4.7 billion in emerging Canadian companies since 1996, including $1.7 billion deployed to attractively valued companies during the downturn over the last three years,” says Patterson. “Canada’s smaller and medium-sized enterprises have benefited from this support, and we expect that the ultimate gains for LSIF shareholders will be much more attractive when the current round of investee companies matures.”

IPM did not question the valuable role LSIFs play in the Canadian venture capital market, but did argue in favour of closing funds after a single season, “allowing portfolio performance to develop undiluted and peak at precisely the time investors are looking to redeem.”

IPM also claimed that the size of many large LSIFs diminishes their capacity to conduct effective due diligence or “hands-on, added value” management, which the company says is vital to bringing small businesses to market.

“These points contradict best practices adopted by all of ALSIF’s members,” says John Richardson, chair of communications committee for ALSIF. “As an association working diligently to educate all of our constituents, advocate public policy matters and partner with policymakers, and ensure best management and corporate governance practices in our industry, we are concerned that short-term marketing tactics can be destructive to everybody involved with the labour-sponsored industry, including smaller Canadian companies and individual Canadian investors looking for solid information to make their investing decisions.”

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com