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Quebec's Solidarity Fund succeeds while other labour funds struggle

Strategy yields steady, not showy, returns

MONTREAL -- The outlook for labour-sponsored funds is gloomy, but the performance of Quebec's Solidarity Fund QFL is a rare bright spot.

Most funds have been battered by poor returns, rising net redemptions, the phasing out of the 15-per-cent tax rebate in Ontario by 2009 and the lingering impact of the financial scandal at Winnipeg-based Crocus Investment Fund.

In marked contrast, Solidarity racked up record results for fiscal 2006.

The Montreal-based fund -- a creation of the powerful Quebec Federation of Labour -- posted this week a 6-per-cent overall return for the year ended May 31, compared with 5 per cent a year earlier.

Since its inception 23 years ago, Solidarity has turned in a respectable 5-per-cent average annual return, far outperforming most of the other labour-sponsored funds in the country.

Profit in fiscal 2006 was a record $366-million, up from $271-million in 2005.

Net assets reached $6.6-billion, up from $5.9-billion.

And the key management expense ratio fell to 1.7 per cent from 1.8 per cent. That compares with an average MER on labour-sponsored funds of 4.6 per cent, which is way above the 2.6-per-cent average in the equity fund sector.

Yvon Bolduc, the fund's new president and chief executive officer, says Solidarity stands out from the pack for a number of reasons, not least its size and a diversified portfolio that isn't limited to high-risk, venture capital (VC) investments.

"We offer patient capital and stick with companies through difficult periods," he said

Obviously, the Quebec government's continued commitment to the 15-per-cent tax rebate, in addition to another 15 per cent from Ottawa, is a crucial factor in Solidarity's favour.

But the fund has made a point over the years of practising a conservative investment strategy to ensure solid -- if unspectacular -- returns to its small investors and the attainment of a critical mass, said Mr. Bolduc, who was a Solidarity vice-president before he took over the top job in February.

Unlike many other labour-sponsored funds, Solidarity doesn't focus exclusively on providing venture capital for risky startups or limit itself to one sector. At the same time, the fund is big and stable enough to invest in its share of startups, Mr. Bolduc said.

Promoting job creation and economic development in the province remain central to Solidarity's mission statement, he added.

And -- in contrast to the rivalries between labour-sponsored and private VC funds that have developed over the years in other provinces -- Solidarity encourages private VC investments by itself investing in private funds, he said.

"We're in partnership with the private funds, we even help establish them," Mr. Bolduc said.

Earlier this year, Solidarity took a $20-million stake in Garage Technology Ventures Canada LP, a seed and early stage VC fund. Among other investors in the new, Montreal-based fund are the Caisse de dépôt et placement du Québec and FIER Partners LP, a software capital firm.

Garage Canada -- an independent fund -- said it hopes to benefit from a networking and knowledge-sharing relationship with Garage Technology Ventures in Palo Alto, Calif.

Rudy Luukko, investment funds editor with the independent analysis firm Morningstar Canada, says Solidarity has benefited from the fact that it only has one other rival in the province -- the much smaller Fondaction CSN.

"Unlike Ontario, where there have been a multitude of labour funds which have been poor performers or outright failures, Solidarity has been able to achieve a critical mass.

"It's also been able to deliver modestly positive investment returns and positioned itself successfully in the marketplace," he said.

© 2007 The Globe and Mail. All rights reserved.

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