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GrowthWorks moves on mutual funds

TORONTO -- David Levi has tweaked his shopping list.

In recent years, he has snapped up struggling labour-sponsored investment funds and built GrowthWorks Capital Ltd. to become the biggest retail venture capital player outside of Quebec.

With his proposed $2.2-million all-cash deal to buy Mavrix Funds Management Inc. MVX-T to take it private, he now has his sights on others in the domestic mutual fund industry.

"We are engaged in discussions with other players, but a lot of them are very preliminary," says the 54-year-old chief executive officer of Vancouver-based GrowthWorks.

"The intention is to keep the Mavrix name, and certainly we want to keep the whole team together," Mr. Levi said. "But one of our strategies is to have managers with different investment styles."

Mavrix, a growth-oriented manager, specializes in resource and small-company stocks. "We would be very open to adding managers with a value style, and specialty managers in areas like real-estate trusts," he said.

The notion of getting into the mutual fund business began a couple of years ago when he approached Mavrix CEO Malvin Spooner - among others - but there was no interest until the last couple of months.

"We saw the decline in the market, and stood back for a while," Mr. Levi said during a visit to his downtown Toronto office. "As stock portfolios declined, the value of companies declined too."

GrowthWorks is offering 25 cents per share for Mavrix, which went public in 2004 at $3.75 a share. A special committee of Mavrix's board of directors said the deal is "fair" to shareholders after getting an opinion from GMP Securities LP. The transaction is set to close June 30 once it gets the necessary approvals.

Mavrix shareholders are expected to meet June 24 with the deal requiring the nod of two-thirds of voters. Officers and directors of Mavrix, who own 57 per cent of the shares, have agreed to tender.

The combined companies will have $1.1-billion in assets, including about $275-million from Mavrix. "There is a lot of synergies within the two organizations through sales and the back office," Mr. Levi said.

The acquisition of Mavrix is an obvious step given that GrowthWorks deals with the same investment advisers and financial planners, and regulatory environment, to sell its venture capital funds, he said.

Mr. Levi began his career as an investment adviser in the 1981 with brokerage C.M. Oliver Inc., and was senior vice-president of broker services when he left a decade later. As chairman of Vancouver City Savings Credit union in the 1980s, it was his idea to start Ethical Growth, a socially responsible mutual fund.

After a short stint with brokerage Global Securities Corp., he set up B.C.'s Working Opportunity Fund in 1992 after he was approached by clients in the labour movement to start the venture capital fund.

Investors are typically attracted to labour-sponsored investment funds because they receive federal and provincial tax credits for taking on more risk in putting money into early-stage companies.

GrowthWorks was then created to run venture capital money not only for the B.C. labour fund, but also for pensions funds and high net-worth individuals. And it became the vehicle for expansion across Canada.

The company has acquired several Ontario venture capital funds because they've have had a tougher time raising money after the province decided to reduce its 15-per-cent tax credit starting in the 2011 RRSP season, and phase it out by 2013. Advisers are reluctant to put their clients in a dying program, Mr. Levi said.

But he figures Ontario will have to change its mind, warning that "there will be no venture capital in the province" because of the sharp decline in retail and institutional sources of these monies.

Ontario's venture capital shortage is also due to pension funds becoming reluctant to invest because their portfolios have taken a big hit in the stock-market collapse, he said. Their asset-allocation mix is now out of whack, and the portfolios are now overweight in private equity.

Asked whether GrowthWorks, which is owned by employees and a company owned by several labour unions, might go public down the road, Mr. Levi was non-committal. "We'll wait and see," he said. "We've never said 'yes,' and we've never said 'never.' "

FUNDS REPORTER

***

Acquisitions

Working Ventures Canadian Fund in 2002.

Canadian Alliance Ventures Inc. in 2005.

Canadian Science and Technology Fund Inc. in 2005.

Workers Investment Fund Inc. in 2005.

First Ontario Fund in 2006.

ENSIS Growth Fund in 2007.

BC Medical Innovations Fund in 2007.

Canadian Medical Discoveries Fund in 2009

Note: Workers Investment Fund was merged into the GrowthWorks Atlantic Fund. BC Medical Innovations Fund was merged into the Working Opportunities Fund.

All other funds were merged into GrowthWorks Canadian Fund [formerly Working Ventures Canadian Fund]. Canadian Medical Discoveries was merged in this fund last Friday.

© 2007 The Globe and Mail. All rights reserved.

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