Yikes! Federal Budget Revives Support for Toxic Labour-Sponsored Funds

It was a shock to see the recent Canadian Federal Budget measure to restore the 15% tax credit to encourage retail investors to buy into a proven loser investment vehicle, Labour-Sponsored Venture Capital Corporation funds. I, like almost every other investor in these toxic funds, lost a lot of money in their first incarnation during the tech boom years. The pleasure of a one-time tax credit is sooner or later replaced by the grinding regret of declining asset value and often extreme difficulty in redeeming the investment to limit losses.

I said it four years ago when I slammed labour unions in Labour-Sponsored Rip-off for aiding and abetting such LSVCCs, and I'll say it again: stay away, don't consider for a second investing your money in them.

Look at the track record of one such surviving company, Covington, whose latest annual report tells a sorry numbers tale:

(click on image to enlarge)

Note how the benchmark average, the Retail Venture Capital Index that measures all Ontario-based LSVCCs, has a negative compound 10-year return (which understates the poor performance since it no doubt excludes all the worst loser funds that have disappeared along the way).

Even people in the investment industry mince no words about LSVCCs, viz the Investment Executive article linked-to at the top, where Ian Russell, president and CEO of the Investment Industry Association of Canada is quoted: "All our research shows these funds are ineffective in raising capital for successful small businesses, so that's a disappointment," Russell says. "The labour-sponsored venture capital funds were a disaster in the past." They did no good for investors or small business. What is the government thinking, anyhow?