Now that the Crocus Investment Fund is in its 11th year of operation, it should not be a surprise that the labour-sponsored venture capital fund is looking to divest some of its portfolio with about as much energy as it is looking for new companies in which to invest.

Indeed, at its annual general meeting to be held today shareholders will hear that the fund currently has more than $30 million in liquid capital to invest in Manitoba businesses. But they will also hear that some of the companies in Crocus's portfolio have matured to the point that, according to the fund's mandate of owning companies for five to seven years, it is time to sell some of them.

"We are now systematically beginning the process of divesting those mature businesses and creating additional liquidity to make investments in our existing portfolio or in new portfolio companies," Crocus president and CEO Sherman Kreiner said in an interview yesterday.

Although there is plenty of consternation about the continuing bear market in equity markets around the world, Crocus officials believe the results from the latest RRSP sales season bucked the national trend. Whereas gross sales were down dramatically for labour-sponsored venture capital funds across the country, Crocus produced $29 million in gross sales, a 20-per-cent increase over the previous year and net sales, taking into account redemption and reinvestments, of close to $10 million.

In addition to that new $10 million, the other $20 million-plus in new liquid capital comes from new institutional investors as well as divestitures that have already started, like the sale of Inner-Tec Securities announced this week that netted Crocus $7.25 million from a $2.75 million investment.

"Much more time and resources will be spent on divestiture work than was the case before," Kreiner said. "And it is a challenging thing to do in a down market. It is a buyer's market, not a seller's market. So the challenge is to not look for financial buyers, who need to buy at a discount, but strategic buyers who can pay premiums." James Umlah, the fund's chief investment officer, said that leg work is being done to identify sectors that would be in the process of consolidation, like, for instance, the security business, which led to the sale of Inner-Tec.

"There are a number of others that are being worked on," Umlah said.

The $10-million worth of Institutional investment came last December from Fonds de solidarité des travailleurs du Québec (F.T.Q.). Both Umlah and Kreiner were adamant the investment from the large Quebec labour-sponsored venture capital fund was a significant strategic investment for Crocus that they also believe will become a long-term investment. However, critics have raised an eyebrow or two at the rich 10-per-cent rate of return Crocus has promised the Fonds and an even higher rate of payment that might occur if the shares are not redeemed after 18 months.

Kreiner noted the 10-per-cent floor was a way to compensate the institutional investor for not being able to take advantage of the tax credits that Crocus's common shareowners enjoy. Umlah added there are always features built into all deals to provide a way out if one of the parties decided things are not working out.

"We have always acknowledged that these deals cut both ways," Umlah said.

Crocus may have more liquid capital available to invest than ever before, but its per unit net asset value continues to go down. This week it was at $12.25, a 5.75-per-cent decline from last year at this time. Jane Hawkins, Crocus's chief financial officer, noted labour-sponsored investment funds have declined on average by about 10.6 per cent over the course of the last year and the BMO Nesbitt Burns Small Cap Index declined by 17.6 per cent.

In addition to its systematic divestiture, efforts are continuing by Crocus officials to attract third party funds to Manitoba. Kreiner said Crocus is building the infrastructure to manage third party funds, but he said the process is crucial both for the development of the pool of venture capital in Manitoba and also as a way for Crocus to divest some of its current portfolio and ensure purchasers would continue operating the businesses in Manitoba.

martin.cash@freepress.mb.ca