Investment Saskatchewan The Newest Commercial Crown Janet Wightman November 15, 2005
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Transcript of Investment Saskatchewan The Newest Commercial Crown Janet Wightman November 15, 2005
Investment SaskatchewanThe Newest Commercial Crown
Janet WightmanNovember 15, 2005
Investment Saskatchewan
• Commercial Crown operating at arms-length from Gov’t.
• Capital available for investments in SK businesses
• Client focus by adding value to investee company
3 C’s
Overview Investment Saskatchewan
Commercial Crown
Capital for Investments
Client-Focus
The Gap
• GDP growth of 3% in 2004 projected 2.6% in 2005/2006• VC activity up 37% in Western Canada• $ 28 million disbursed to 17 SK companies
• 21% increase• 2.9% of deals in Canada• 1.6% of total Canadian VC dollars invested in SK • Focus on life sciences and traditional sectors
• LSVCC account for most VC backing• Local funds typically do smaller deals (<$3-4 million)
Without public capital an equity financing gap exists.
A New Commercial Crown
• Created in September 2003 to:• invest public capital to encourage economic activity and • separate decision making from political system
• Independent private sector board mandated to make decisions at arms-length on: • investments/divestments• management• investment management model
• Challenge is to balance:• commercial operations and return• shareholder expectations on public policy
Unique in its governance structure
Mandate
• Invest public capital in SK businesses on commercial terms
• Leverage investments in order to encourage private sector investments
• Achieve return commensurate with risk on new investments
• Maximize return on existing portfolio
• Seek private sector management of portfolio
Focused Operating Mandate
New Investments• Full Range of investments
– Directly or– Through sub-manager
• Direct Investments >$3 million– Equal terms with partners– 5-7 year hold period – Prefer < 40% ownership
• Channel other Investments through sub-managers:– Small or specialty niche investments– PFM, Westcap, Primaxis, Foragen, Western Life Sciences, PVF
Covers full spectrum of capital needs
Evolution - A New Model• Board’s task was to determine best model for private sector management
between:– Existing third party firm– Create investment management company
• Open national competitive process involving >50 firms– RFP process completed - no award of contract for variety of reasons
• Board is investigating creation of an employee owned IMC (e.g. Greystone):– Better economics– Mind and management in Saskatchewan– Retention of expertise and existing investee relationships– Add to the investment management industry in SK
Outcome - unknown
Investees by SectorAdv. Tech, Biotech and Pharma3% Other (Tourism/Culture,
Mining, Real Estate)7%
Financial / Insurance19%
Forestry and Related27%
Fertilizer29%
Ag and Ag Related8%
ManufacturingAnd Processing7%
Strong client base in diverse businesses
Direct Investments • Beauval
• Big Sky Farms Inc.
• Bioriginal
• Centennial Food Partnership
• Hypor
• Meadow Lake Pulp Limited Partnership
• Meadow Lake OSB Limited Partnership
• Canadian Western Bank
• Great Western Brewing Co.
• Various
Equity
Debt
Properties
• Minds Eye Entertainment Ltd..
• Pangaea Systems Inc.
• Premium Brands Inc.
• Saskatchewan Valley Potato Corporation
• SaskFerco Products Inc.
• Solido
• HARO Financial Corporation
• Kitsaki/Zelensky Sawmill
Our contribution is unique to each business
Partnering Through Fund-of-funds• Prairie Ventures Limited Partnership
– Local fund currently $18.25 million – fundraising mode
• Foragen Technologies Limited Partnership– National early stage Ag biotech – growing value & planning exits
Western Life Sciences Ventures Fund Limited Partnership– Western early stage life sciences – growing value & planning exits
• Primaxis Technology Ventures Incorporated– National early stage advanced technologies – growing value & exits
• WTC/PCF Outsource Contracts– Small investments (< $3 million)- original book $20 m – now <$10 m – Primarily economic development driven investments– Mandate to maximize returns & liquidate as appropriate
Complements private sector investment capacity
Overview Investment Saskatchewan
Commercial Crown
Capital for Investments
Client-Focus
Available Capital
• Annual allocation of $50 million for new investments – New capital generated from existing portfolio
• $459 million assets pooled from previous programs– Each with different mandates (CIC III, SOCO, SEDCO)
• Strong cash-flow– Mandate to be self-sustaining
• No dependency on appropriation from shareholder– Except if additional capital required for large investment
Existing portfolio throws off capital for new investments
2004 Financials
• Financials– $ 459 million portfolio reduced from $600 million
– $ 19.3 net income ($7m budget)
– $ 42 million dividend to shareholder (0 budget)
– $ 125 million cash
Strong portfolio performance
Historic Results
• Since 1999 invested $93.7 million in 8 new projects – levered $284 million of private sector capital
• Since 2000 committed $54 million to 4 funds– levered additional $157 million in private sector funds
• In 2002 outsourced management of small portfolio– valued at approximately $23 million
• Forecast Returns – weighted average 3% IRR– not commercial rates of return
Portfolio Diversification
• Restricted geographically therefore diversification is achieved through:• all sectors (forestry, agribusiness, advanced technology, IT,
environmental technology, resource extraction & energy)• alll stages (early stage, start-up, expansion, mbo’s, turnarounds,
succession)• all financing instruments (equity, common & preferred, sub-debt,
mezz etc.)
Portfolio management through diversification
Risk / Return Continuum
VC Private Equity Mezz Sub-Debt Stretch Sr. Debt
35%+ 25%+ 20% 16-18% 10-15% Prime+
Critical Factors: Stage of Investment & Industry Sector
Early Stage Later Stage
Risk profile drives return expectations
Overview Investment Saskatchewan
Commercial Crown
Capital for Investments
Client Focus
Focus on the Client
• Objective is to grow investee companies– Over 5-7 year average hold period
• Active ownership contributes to growth of investee companies:– On boards and owners committees– With management teams in sharing expertise
• External Board appointees chosen for skills/domain expertise• Strong network of strategic and joint venture partners• Work in the best interests of investee companies• In distress - workout for best return for shareholders
Clients access resources which might otherwise be unavailable
Differentiators
• Strong knowledge of local market and business environments• Experienced, professional management• Best-in-class governance framework
– Policies & investment guidelines– Due diligence, monitoring and reporting protocols– Quarterly valuation reviews and annual re-valuation (CVCA/EVCA standards)
• Patient partner with long-term view• Risk adjusted return expectations – no one size fits all• Commercial terms and flexible to “tailor-fit” (e.g. puts/calls, buy-backs, etc.)
“Investment Saskatchewan will make decisions about future investment opportunities independent of the government” (Premier L. Calvert, September 2003)
Key Points to Remember
• Commercial Crown corporation– Independent private sector board with delegated authority
• Capital - $50 million annually for new investments– Active partnerships and connections with other sources of capital
• Client Focused – Growth objective
– Active ownership in the best interests of investee company
Saskatchewan is business friendly