Investment Saskatchewan
The Newest Commercial Crown
Janet Wightman
November 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
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GDP growth of 3% in 2004 projected 2.6% in 2005/2006
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VC activity up 37% in Western Canada
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$ 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
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LSVCC account for most VC backing
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Local funds typically do smaller deals (<$3-4 million)
Without public capital an equity financing gap exists.
A New Commercial Crown
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Created in September 2003 to:
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Independent private sector board mandated to make decisions at arms-length on:
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invest public capital to encourage economic activity and
separate decision making from political system
investments/divestments
management
investment management model
Challenge is to balance:
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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
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Full Range of investments
– Directly or
– Through sub-manager
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Direct Investments >$3 million
– Equal terms with partners
– 5-7 year hold period
– Prefer < 40% ownership
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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
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Board’s task was to determine best model for private sector management
between:
– Existing third party firm
– Create investment management company
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Open national competitive process involving >50 firms
– RFP process completed - no award of contract for variety of reasons
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Board is investigating creation of an employee owned IMC (e.g. Greystone):
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Better economics
Mind and management in Saskatchewan
Retention of expertise and existing investee relationships
Add to the investment management industry in SK
Outcome - unknown
Manufacturing
And Processing
7%
Adv. Tech, Biotech and Pharma
3%
Investees by Sector
Ag and
Ag Related
8%
Fertilizer
29%
Strong client base in diverse businesses
Other (Tourism/Culture,
Mining, Real Estate)
7%
Financial / Insurance
19%
Forestry and Related
27%
Direct Investments
Equity
Debt
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Beauval
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Minds Eye Entertainment Ltd..
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Big Sky Farms Inc.
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Pangaea Systems Inc.
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Bioriginal
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Premium Brands Inc.
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Centennial Food Partnership
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Saskatchewan Valley Potato Corporation
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Hypor
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SaskFerco Products Inc.
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Meadow Lake Pulp Limited Partnership
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Solido
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Meadow Lake OSB Limited Partnership
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Canadian Western Bank
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HARO Financial Corporation
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Great Western Brewing Co.
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Kitsaki/Zelensky Sawmill
Properties
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Various
Our contribution is unique to each business
Partnering Through Fund-of-funds
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Prairie Ventures Limited Partnership
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Local fund currently $18.25 million – fundraising mode
Foragen Technologies Limited Partnership
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National early stage Ag biotech – growing value & planning exits
Western Life Sciences Ventures Fund Limited Partnership
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Primaxis Technology Ventures Incorporated
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Western early stage life sciences – growing value & planning exits
National early stage advanced technologies – growing value & exits
WTC/PCF Outsource Contracts
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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
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Annual allocation of $50 million for new investments
– New capital generated from existing portfolio
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$459 million assets pooled from previous programs
– Each with different mandates (CIC III, SOCO, SEDCO)
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Strong cash-flow
– Mandate to be self-sustaining
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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
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Since 2000 committed $54 million to 4 funds
– levered additional $157 million in private sector funds
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In 2002 outsourced management of small portfolio
– valued at approximately $23 million
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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
35%+
VC
25%+
20%
16-18%
10-15%
Prime+
Private Equity
Mezz
Sub-Debt
Stretch
Sr. Debt
Early Stage
Later Stage
Critical Factors: Stage of Investment & Industry Sector
Risk profile drives return expectations
Overview Investment Saskatchewan
Commercial Crown
Capital for Investments
Client Focus
Focus on the Client
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Objective is to grow investee companies
– Over 5-7 year average hold period
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Active ownership contributes to growth of investee companies:
– On boards and owners committees
– With management teams in sharing expertise
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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
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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)
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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
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Commercial Crown corporation
– Independent private sector board with delegated authority
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Capital - $50 million annually for new investments
– Active partnerships and connections with other sources of capital
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Client Focused
– Growth objective
– Active ownership in the best interests of investee company
Saskatchewan is business friendly