Thank you, sir.
Mr. Chairman, committee members, thank you.
I am Ken Bicknell, as mentioned. I'm also here as a committee member of the Association of Labour Sponsored Investment Funds, and I'm proud to be a Manitoban since birth.
I'd like to ask you to change your thought process from the very important child care and wellness issues we've heard about, which are interesting to me--I'm a father of four, as well--but I'd like you to think about capital requirements for growth-focused small- and medium-sized enterprises. I'd specifically like to speak to three topics: the importance of retail venture capital in economies such as Manitoba's, the current market conditions affecting liquidity, and recommendations to restore the flow of venture capital.
When we look at provinces like Manitoba, it's very important to have retail venture capital. Statistics on venture capital in Canada suggest that significant amounts of venture capital come from foreign and institutional sources. These statistics do not hold when we look specifically at a province such as Manitoba.
Analysis indicates that the primary source of venture capital in Manitoba is in fact retail venture capital. As evidence, Thompson Macdonald reported that Manitoba received about one-half of 1% of $886 million invested in the first half of this year; this equates to about $4.4 million. Our own fund, ENSIS Growth Fund, in fact invested $4.3 million during that same period. In Manitoba, venture capital is only retail venture capital.
An equally troubling determination from the same statistic is that Manitoba is significantly underserved with regard to this type of capital. Manitoba represents approximately 3% of national GDP, and as such should attract similar percentage weightings of flows of capital to support that economic activity. Interestingly, at one-half of 1% of venture capital, we're severely underserved.
What are some of the market conditions that affect this? Manitoba's a small market with regard to institution and foreign players--they will not come here--so it's reliant upon our local economy. The retail venture capital marketplace, as you've heard from my colleagues in other centres, has been under stress because of alternative, more attractive tax-enhanced products such as oil and gas flow-throughs. The demise of our local competitor, the Crocus Investment Fund, has had an impact on inflows, and our industry's returns based on other inputs like the tech sector meltdown.
Market research supports our observations. Interestingly, 4% of Manitobans have participated in the LSIF asset class, though 32% of Manitobans indicated in a Probe Research study we funded that they would invest in retail venture capital under the right circumstances. In support of lower-risk venture capital, 45% agreed that it's a good idea to loan money rather than invest in equity. The Crocus story continues to be a drag, with 31% of Manitobans suggesting they're less likely to invest in retail venture capital than they were two years ago.
We also undertook to study the Investment Dealers Association investment advisers, and to find out their interest in our asset class. They indicated that Manitoba's significant move to increase the annual investment limit by individuals to $12,000 was significant, but without the incremental additional federal government share of the 30% tax credit, there was not enough risk mitigation with only a 15% tax credit. Their lack of interest was, again, due in part to the availability of oil and gas flow-through LPs that provide a 44% tax enhancement, a two-year hold period, and no limits on investment.
Again, when I look at this and we ask what should be done or what could be done, we are looking to make three significant recommendations: reduce the hold period on LSIFs to five years, as the B.C. provincial VCC program has done, and it's been very successful at raising capital; increase the annual investment limits, as my colleagues have proposed, to at least the RRSP limit so that we can attract the investment advisory community, so that we can attract higher net worth individuals who will not look at a $5,000 investment; and remove the restrictions on retail venture capital in providing subordinate debt investments, which significantly lower the risk while they are still venture capital investments.
As a new initiative, we would propose the creation of professionally managed technology and life science-focused investment funds that accrue the same attributes, investment limits, tax benefits, and hold periods as oil and gas flow-through LPs.
With the above-noted market-driven changes, we believe that retail venture capital could again regain liquidity and support the investment community.
Thank you.