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The best and worst of retail venture funds

swon@globeandmail.com

WHAT ARE WE LOOKING FOR?

A scorecard for retail venture funds in this bear market.

These investments - commonly known as labour-sponsored venture capital funds - have been marketed on juicy tax credits.

This week, redemptions from VenGrowth I and Vengrowth II funds were halted because they are being wound down due to difficulties selling private companies or taking them public in this market.

Unitholders, who have held the funds for the minimum eight years, can now only get back their money through an annual distribution from the proceeds of the sale of companies.

TODAY'S SEARCH

We checked the year-to-date returns for the funds for the first 11 months to screen the best and worst 15 performers. We excluded other versions of the fund, and looked at annual returns to see how they fared in the 2001-2002 bear market.

WHAT DID WE TURN UP?

A mixed bag this year with a few high few high fliers, and others bleeding red ink.

Covington Venture Fund IV - New Millennium Balance Fund, which is closed to new investors, sits on top of the heap with a stellar 39.4-per-cent return.

That's because it was invested in a zero-coupon bond that has matured to full value, while about 40 per cent has been in traditional venture capital companies. The fund got a nice boost from software maker PlateSpin Ltd., which was bought last March by Novell Inc. for $205-million (U.S.). "We owned about 25 to 30 per cent of PlateSpin in different Covington funds," said Scott Clark, managing director of Covington Capital.

Covington Strategic Capital Fund, which focuses on the software industry and No. 2 this year, posted a robust 27.4-per-cent return. It also got a lift from other firms like financial software provider Cyence International Inc., which agreed this week to be bought by Davis + Henderson Income Fund.

The valuations of private companies in a venture capital portfolio typically gets vetted by a third party like Ernst & Young in Covington's case.

Some investors may take comfort in publicly traded companies - the focus of Horizons Advantaged Equity Fund. However, the fund has plunged 36 per cent.

The biggest holdings of this fund - sold by JovFunds Management Inc. - include names like Manulife, EnCana, Toronto-Dominion Bank, Canadian National Railway and Goldcorp. For a fund with only 4 per cent invested in private companies, it has a stunning 9-per-cent management expense ratio (MER). Why so?

Said JovFunds executive Jacques Ippersiel: "There are onerous reporting requirements."

Retail Venture Capital funds to Nov 30, 2008
(as of Nov '08)Latest(as of Nov. 30)% return
Fund name Assets ($-mil)MERYTD % return20072006200520042003200220012000
Top 15
Covington Venture Fund IV-New Mille13.04.2839.45.34.00.40.1-0.8-0.30.0
Covington Strategic Capital Fund I3.4127.49.5-0.96.0
Working Opportunity Cl A GIC Sh Srs0.116.3
VentureLink Brighter Future I41.26.6210.711.4
GrowthWorks Atlantic Commerc 4061.29.8-1.60.3
SaskWorks Resources14.95.529.219.6
SaskWorks Venture Fund Inc.92.25.039.013.02.7-1.10.12.1-0.8
Working Opport Commercialization 051.93.477.81.06.4
Working Opp Commercialization 072.65.5
GrowthWorks Atlantic Commerc 4070.93.90.3
B.E.S.T. Total Return Fund Inc.8.76.062.5-1.522.3-9.8-2.2
Covington Venture Fund VI-Ven Prtn20.37.372.4-7.7-4.70.3-3.50.3
Covington Venture Fund V-New Gen19.77.361.1-11.0-4.1-2.31.3-2.5-0.1
VentureLink Balanced40.76.980.89.6
Covington Venture Fund Inc. Sr I71.15.01-0.16.2-8.6
Bottom 15
Axis Investment Funds Inc. Ser. I4.66.78-55.0-18.5-13.0-6.0-5.62.0
Front Street Energy Gwth Fund Ser-I7.19-40.2-13.57.929.425.118.1
B.E.S.T. Discoveries I27.15.72-39.320.325.2-19.69.0-18.9-10.1-27.118.6
VenGrowth Invst Fund Inc. Cl A SrE38.34.17-36.0-9.66.1-3.9-10.5-2.9-16.5-25.529.2
Horizons Advantaged Equity Sr-I1.68.89-35.85.0
Dynamic Venture Opport Series I39.03.99-28.5-6.521.74.0-3.312.7-7.2-9.811.7
Advantage Growth-25.8-14.2-15.8-3.60.0
Return on Innovation I74.47.41-24.6-0.73.96.31.2-2.1
Lawrence Enterprise I6.40-24.68.2-13.9-9.4-5.41.62.6
VenGrowth II Investment Fund Inc.273.24.79-23.2-12.6-2.4-4.0-5.1-8.3-4.9-0.2
Canadian Medical Discoveries Ser I115.85.69-21.3-19.8-10.7-11.0-9.73.0-14.4-12.325.1
Advantage Venture8.20-21.18.4-5.9-8.80.00.0
British Columbia Discovery-19.313.9-4.0-0.9-6.5
VenGrowth III Invst Fd Inc.Cl-A SrA14.09.99-18.0-1.23.0-5.6
Advantage Life Science7.27-16.9-2.2-3.232.861.034.6-19.6
BMO Nesbitt Burns Cdn Small Cap Index -49.7 2.0 16.6 19.7 14.1 42.7 -0.9 3.4 7.3
NASDAQ composite ($ Cdn) -27.5 -6.9 9.5 -1.8 1.1 22.7 -32.1 -16.2 -36.9
S&P/TSX composite index -33.0 7.2 14.5 21.9 12.5 24.3 -14.0 -13.9 6.2

SOURCE: GLOBEFUND, FUND COMPANIES

© 2007 The Globe and Mail. All rights reserved.

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