News
Responses to community fund critics02.09.2006
These letters are in response to: Brokers issue warning - Chronicle Herald
Dianne Kelderman, M.CED, M.Ed
President, Atlantic Economics
As a supporter of the provincial CEDIF program, I read with interest your article "Brokers Issue Warning". Given the title, I at first thought it must be something really big, and potentially catastrophic, such as another Enron, or pandemic, or worm to crash the finance world. I was disappointed to discover that it was a simply an over kill title, to obviously catch the readers interest, about a program that has been "doing good" in Nova Scotia. I don't argue with the content, as all sides of every program should be presented. But "issuing a warning"?
I am an investor in two CEDIFs in Nova Scotia, and will invest in others, so I do put my money where my mouth is. I proud of the NS government for having introduced this program to give us some options for investing in ourselves and keeping our money at home, invested in our own economies. Without this program, many more businesses and projects would be lining up at the government trough, and many community opportunities may be lost . I am sick and tired of the ultra conservative view that it is economically OK, and financially prudent to export $1.5 billion in RRSP money out of Atlantic Canada each and every year.
Yes, a CEDIF investment is risky, but what investment isn't? Even if you kept your money at home, under your mattress, there is the potential of fire or theft! Chris Payne is right in pointing out, that no investment is without risk and they sure don't "guarantee" an exact return on investment year after year. I have had significant losses from supposedly safe investments, with very reputable "investment brokers" in the past. At least if I lose my investment in a CEDIF, I know where my money went, and know that for a short while, it did some good in my community, for a local business. And of course, I got the investment tax credits upfront, so my loss will not be that great afterall. Every CEDIF offering, and selling agent, advised me to seek the advice of my finanical advisors. They made no promises.
Come on Nova Scotia! Don't be swayed by these scary titles! Talk to your financial advisors, talk to other informed community leaders and invest in Nova Scotia. Keep your hard earned dollars at home, at work, in your community, where it belongs!
Brian Watling
Fourth Generation Capital Corp., Windsor
I DON’T SEE it as a coincidence that, on the same day I made plans to attend young Ricky Barkhouse’s funeral, The Chronicle Herald ran a front-page business story in which Investment Dealers Association Atlantic region director David Beazley warned us all against investing in Nova Scotia. Ricky died last week in a dark Calgary parking lot in the city’s most recent brutal murder after having begrudgingly left his hometown Falmouth because he couldn’t get decent work in Nova Scotia.
We all know that there are too few jobs for our youth because of the pattern of out-migration of capital, something I have discussed with Beazley many times over many years. We both know why the out-migration happens. The banking system absorbs the savings of our citizens via the RRSP system, gathering close to $1 billion per year. These millions, virtually all of Nova Scotia’s individual investment capital, are shunted down the road to Toronto and beyond, never to be seen again.
The provincial Finance Department calculated in the 1990s that only two per cent of Nova Scotia’s capital returned to it in the form of investment in the Nova Scotia economy. The province recognized that this out-migration of capital crippled the job-creation capacity of the province and that it results directly in the out-migration of our talented young adults, people like young Ricky.
The province designed a fiscal policy counterweight to this dysfunctional capital flow pattern and called it a community economic development investment fund. The Investment Dealers Association, representing the firms who directed the out-migration of funds from Nova Scotia then, and now, vigorously resist granting community investment funds shelf space in their product inventories so that Nova Scotians could consider them in conjunction with the development of their investment strategies and risk management.
Beazley’s statements about risk are specious and meaningless but, from what I am hearing, they do manage to offend a lot of Nova Scotians. Unlike the risks that Ricky faced, investment risk is a quantifiable, measurable and manageable attribute of investment and may be measured and managed, in the case of community funds, as a class of investment asset available to Nova Scotians.
The IDA firms enjoy a monopoly on Nova Scotia capital formation channels through their control of financial consultant licensing and, by refusing to qualify community funds, they prohibit their consultants from earning a living in the manner which their licences imply, by providing unbiased investment advice on the merits of any investments, be they community funds or bank products.
Over the past 10 years, market domination and what appears to be restraint of trade by the IDA-affiliated firms have seemed to directly and deliberately frustrate the delivery of Nova Scotia government fiscal policy. This is an affront to the dignity of Nova Scotians and their government. Corporate citizens like Conrad Black and Ken Lay would give the IDA full marks, but the cavalier dismissal of Nova Scotia businesses as being below junk is a statement worthy of notice.
In a province already known worldwide for the Antigonish co-op movement, these funds that the IDA so disdainfully brushed off seem to have a significant share of market attention here and elsewhere. Hundreds of Nova Scotians are now directors of corporations spawned by the funds and many thousands of Nova Scotians are shareholders in them.
I have more than 20 years’ experience with Canadian markets and the due diligence and innate safety attributes of the funds far exceeds that which I have observed in the more conventional investment markets. Fund performance has been robust and, in fact, exceeds expectations for the asset class they are assigned to. References to risk are smoke and mirrors, obscuring the fact the IDA policy stands fair in the way of the execution of the province’s legitimate fiscal policy, developed to stimulate investment and job creation in Nova Scotia.
In the many news stories about the tragic end of Ricky Barkhouse, and especially in the interviews with his grieving father, it seems clear that failure to create jobs here is why Ricky is dead and his young family is without a father and husband. The Nova Scotia government has made the most progressive commitment in all of Canada to provincial investment and all of us with any ability to encourage investment in Nova Scotia and Nova Scotians - including community investment fund companies, banks, brokerages and especially the IDA - need to think seriously about Ricky and the thousands of talented and valuable young people we are sending away to an uncertain future.
Greg MacLeod
President, Sydport Investments
With reference to the statements by David Beazley of the Investment Dealers Association, I would like to take great exception. (The Chronicle Herald business section, Feb. 8, 2006.)
He is attacking an excellent program set up by the government of Nova Scotia to help local communities counteract the enormous drain of capital from Nova Scotia. These large investment companies take almost $1 billion out of Nova Scotia every year. Very little comes back. The community investment funds ask local people to invest in their own community to create jobs for local people. These are led by volunteers who receive no pay.
The community groups have raised a tiny amount of money compared to the amount taken out of Nova Scotia by the big national investment companies.
I am further shocked by his claim that local investment is risky. All investment is risky. However, I claim that local investment is less risky because the investor can see where the money goes. I personally know people who have lost hundreds of thousands of dollars in mutual funds over the last 10 years. Most investors do not know where their money goes when they invest in the big firms. We all know what happened to Enron and Nortel.
I claim that community investment funds have not had any significant losses.
The headquarters for most big funds are in Toronto, New York and so on. They invest on the stock market. They invest very little in Nova Scotia.
I suggest that Nova Scotia investors should aim to invest 10 per cent of their placements in Nova Scotia. I do not object if the big national companies take 90 per cent of the investment business. Most of us who work hard for local economic development do not object if the big companies take 90 per cent of the business. I don’t see why they should object if we, by a miracle, are able to capture 10 per cent of the business. Shame on the big national investment companies. They are a bit too greedy.
The question for investors who make their living in Nova Scotia is whether they have confidence in the future of their own community. If they have confidence in their own community they ought to invest locally, at least a reasonable percentage of their portfolio.
Sydport Investments is a community fund in Sydney that is seeking people to invest in Sydport, an industrial park focusing on marine industries. MacLeod was also founder of BCA Investment Co-operative, one of the first community funds in Nova Scotia.
Jeff Moore
Chief executive officer, Just Us! Fair Trade Investment Co-operative, Wolfville
I am writing in response to comments made by David Beazley of the Investment Dealers Association on community investment funds.
I would suggest there is more than a little self-interest in "raising a red flag" on the risk of such funds. In truth, investment brokers have little interest in the funds because they have little or nothing to gain from them.
Certainly, investors need to be cautious, but give people a little credit. If investors do not have confidence in a particular community fund or a particular enterprise, they are not likely to invest.
The community-fund program has, in fact, been a very good tool for the development of Just Us! Coffee Roasters Co-op. With the 30 per cent provincial tax credit and RRSP eligibility, it is such a concrete and innovative way of encouraging investments to stay in Nova Scotia and help grow Nova Scotia enterprises. Just Us! also pays all management fees and modest annual dividends.
Largely due to our community fund, we have been able to grow our business to more than $4 million in sales this year and employ more than 50 people in meaningful, full time and secure jobs.
This year we won a number of prestigious awards for ethics in business: The Presidents Award from Acadia University, the Nova Scotia Human Rights Award and the Maritime Better Business Bureau Award.
Of course, our central mission is to grow the market for Fair Trade products in Atlantic Canada, which not only provides jobs here but much needed opportunities in the Third World.
Overall, self-interest aside, I can’t imagine a much wiser or more worthy investment for Nova Scotians.
