Who needs Anglos?
Fonds de Solidarité builds huge venture capital pool by targeting Francophones

It's RRSP time again. As usual, my wife- a francophone - will probably take advantage of one of the Quebec's most popular tax breaks: the Fonds de Solidarité FTQ - a labour sponsored venture capital fund. And I - a typical anglophone - won't.

"Your case is not unusual," said Guy Versailles, vice-president (marketing and communications) at the fund. "Our fund has traditionally been identified as a Francophone Quebec institution."

It's impossible to say precisely how many of the fund's customers are anglophones. But 98 per cent of the requests for information its marketing department receives are in French. Fund executives speculate that its clientele breaks down roughly the same way.

This is not unusual, since the fund - although it is heavily subsidized by all Quebec taxpayers - targets the vast majority of marketing and advertising dollars at francophones.

Fund officials would not say how large the disparity is, but there are indications that the gap is substantial. For example all of the fund's television media and creative advertising budgets - where advertisers typically spend the most money - is targeted at francophones.

What's more, although the fund does some radio and television advertising in English, the commercials are merely translations of the original French ads. No original ads are created for the English market.

The result is that anglophone advertising professionals - who would normally create ads targeting Quebec Anglos - are denied their share of the economic spin-offs of a having a taxpayer subsidized venture capital fund.

The Fonds de Solidarité FTQ acts like a typical RSP - with some important differences.
Fund investors get a 30 per cent credit - paid for equally by the federal and provincial governments --on top of their regular RSP tax deductions. The upshot is that those in the top tax bracket get a tax refund of close to 80 per cent of the money they invest.

With an advertising campaign that features no television, and uses translated ads as opposed to more-effective original content, it should come as no surprise that the fund's English language advertising has generated so few results. And as a result, the vast majority of those who benefit from those 80 per cent tax refunds are Francophones.

Fund officials - while conceding that they could do more -- deny that it's just the lack advertising that's at fault, claiming that they have not received adequate coverage from the English media. "I once asked an Anglophone journalist why they don't cover us," a fund PR official told me last year. ""Because you are French money," the journalist apparently replied. It's a story fund officials love to repeat, because I heard it again from a second official - one year later -- while conducting the interviews for this column.

But Francophones have invested a ton of money in the fund, which now has close to $4 billion in assets. This represents a stunning 40 per cent of all the venture capital invested in Quebec, and 20 per cent of the Canadian total. In fact, some in the fund have suggested a go-slow approach to marketing, since the money is being accumulated faster than it is being invested. But Versailles denies this is a problem. "Having more money enables us to invest in bigger projects. You have to remember that relative to other financial institutions, we are still very small."

The tax breaks that fund investors get come at a price. Unlike other funds, capital appreciation is only a part of Fonds de Solidarité FTQ's mandate. In addition, the fund is required to invest in companies that create or maintain jobs.

The fund's focus on job creation, means that about 70 per cent of its money is invested in labour intensive old economy companies, and only 30 per cent in new economy sectors such as biotechnology, telecommunications and the Internet. This has an adverse effect on its return, which has averaged less-than-spectacular 7.2 per cent for the past ten years.

While fund insiders pay lip service to building its Anglo customer base, for this to happen, it will require leadership at the top. Unfortunately, all of the fund's directors, as well as its ten top managers are francophones. Until fund management starts to be more representative of the taxpayers who subsidize it, it is unlikely to grow far beyond its original base.

 

E-mail can be sent to Diekmeyer at: peter@peterdiekmeyer.com

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