It was against the backdrop of the economic crisis that, on June 23, 1983, Bill 192 was adopted by the National Assembly, creating the Fonds de solidarité FTQ. This young forty-year-old still has all his raison d’être today with all these meetings calling on Quebec companies.
Forty years ago, the North American economy was in its worst recession since the Great Depression of the 1930s. Interest rates were peaking in the 18-20% range. In Quebec, the regional economies were badly shaken by the sudden closures of mining camps, and the manufacturing sector suffered from the dictatorship of the big banks, which were too quick to “pull the plog”. Jobs were being lost by the tens of thousands. Undercapitalized, SMEs were literally crumbling under the weight of debt.
This law 192 came to concretize a project announced in April 1982, the FTQ then proposing the establishment of an investment fund with the mandate to safeguard and create jobs within the framework of a mission concentrated around Quebec SMEs. . The chosen formula consisted of pooling workers’ savings, making venture capital from retirement capital, and spreading the risks. Without neglecting obtaining a return. With, in support, a contribution from the governments in the form of a tax credit which has since benefited, and by far, the middle class. In the process, we also aimed to offer workers a vehicle to encourage them to build up retirement capital.
The FTQ was then directed by Louis Laberge and its general secretary, Fernand Daoust. They convinced the Prime Minister at the time, René Lévesque, and his Minister of Finance, Jacques Parizeau. Today, 40 years later, the Fund has, as of November 30, 2022, 753,125 shareholders and net assets of 17.8 billion.
Main leverage in venture capital
The “Louis Laberge patent” is now positioned as the main venture capital lever for SMEs according to an approach that can be described as localist, that of the institutional investor thinking globally and acting locally. This institution, which, according to its denigrators, fuels an eternal confusion between union interests and capitalism, has become the finest challenge met by the union world and that of finance, and one of the finest achievements of the Quebec model. It has no equivalent in the other provinces also open to labour-sponsored funds.
Although the Solidarity Fund was born out of urgency, over the years it has become a major lever of the Quebec economy and a major investor in patient capital in the regional economy, thus helping to increase Quebec’s control over Quebec jobs. This regional scope translates into better quality, better paid jobs, with partner companies proportionally more present in less favored regions, had analyzed the KPMG firm.
The Fund has remained relevant ever since. This relevance was fully demonstrated during crises such as that of 2008 and, more recently, during the pandemic, which required access to a reservoir of patient capital and support to ensure a resumption of activities.
The Fund, with its ability to be counter-cyclical, was particularly active in corporate finance during the 2008 financial crisis and the ensuing Great Recession. As banking institutions turned off the credit tap, for many, even for large companies, the Fund then served either as a donor or as a catalyst from which their financing could be carried out.
“People who come to see us are looking for a long-term partner, who is not looking for immediate returns. In the event of a hard blow, the Solidarity Fund will be more patient. It will even reinvest, if necessary, before throwing in the towel”, summed up Raymond Bachand, CEO of the Fund from 1997 to 2001. And in cases of recovery and recovery, “general rule, we have the same requirements than other institutions in terms of return on investment. But in the recovery operations, we will accept a compromise in this chapter if we can preserve jobs”.
This strategic role of the institution in the financing chain will be called upon more than ever today, as entrepreneurship and business start-ups come out of their pandemic hibernation, as companies are engaged in the energy transition and as a very large number of them have to deal with a glaring lack of new workers that can hamper the creation of medium-sized businesses and pose a problem of retention of head offices. Thanks to its size, the Fund has the capacity to be an impact investor and to tackle the difficult generational transfer head-on, at a time when a major wave of business sales is ready to break. And, if necessary, to add to the arsenal of companies having to dodge an unsolicited takeover maneuver.
On the decarbonization front, it has the leadership and scale to influence, raise awareness and sustain increased momentum. The Fund finds itself at the center of the various stakeholders and has a proximity to the boards of directors that few investors benefit from.
Oh yes. As of November 30, 2022, the stock’s compound annual return was -4.4% over one year, 4.9% over three years, 6.3% over five years, 7% over ten years. Not to mention the 30% purchase tax credit.