For the first time in more than a year, there’s reason for optimism for shareholders in GrowthWorks Canadian Fund, sponsored by Vancouver-based GrowthWorks Capital Ltd.
The beleaguered labour-sponsored venture capital fund, which froze its assets in the fall of 2011 amid a cash crunch caused by falling markets for initial public offerings and mergers and acquisitions, had its redemption management plan rejected by regulators in late November.
GrowthWorks had hoped to enable unitholders to redeem funds twice per year up to $20 million annually and avoid a run on redemptions, which it would not have been able to handle.
What the intervening 14 months did, however, was give the market time to recover and improve the fund’s chances of realizing on some of its investments.
David Levi, president of GrowthWorks, says although he was disappointed in the regulator’s decision, the fund’s management team has decided to open it up to take redemption requests. Don’t expect a free-for-all, however.
“Our board will provide 30 or 40 days notice to shareholders in advance of a (redemption) opportunity. The shareholders are essentially in the same place without a (redemption management plan) and without a specific target for annual redemptions but there’s an expectation that as money becomes available, investors will be able to redeem on a pro-rata basis,” he says.
The British Columbia Securities Commission, the lead regulator on the GrowthWorks file, informed the fund of its decision to reject the redemption management plan on Nov. 29. The next day, it said GrowthWorks responded that it did not want to withdraw its application for the requested relief.
“To grant the requested relief, I must consider that to do so would not be prejudicial to the public interest. I have not come to that conclusion,” Peter Brady, director of corporate finance at the BCSC, wrote in his decision.
The fund has approximately $220 million in assets and $37 million in debt for a net asset value of slightly more than $180 million, Levi says.
In addition to paying off shareholders, GrowthWorks also has a pair of significant cheques to write. First, it owes the Working Opportunities Fund, a related entity, $11 million before the end of December. The larger payable of $24 million to $25 million is to Roseway Capital, a venture capital investment fund, due in May, 2013.
Up until June of 2011, Levi said GrowthWorks was liquidating companies at a rate of $40 million to $50 million per year. Beginning that summer, the market dried up and has only recently started to come around.
GrowthWorks has been able to realize between $2 million and $4 million on a number of small sales within the portfolio during the latter part of 2012, Levi says.
As the manager of the fund, GrowthWorks Capital, has done its share by not collecting its management fees, he says.
Last year, that worked out to about $2.5 million. Levi expects that money, however, will eventually be paid out for the services rendered.
“As the manager, we expect that the fund will be successful in its liquidity plan. We are here to support the fund and we realize it has a short-term liquidity issue,” he says.
The fund has about 30 active companies in its portfolio. Levi says a number of them are doing well and have annual revenues in excess of $40 million.
“Our expectation is we’ll continue to grow the portfolio until we’re offered valuations that are appropriate to the success of the company. We need better markets in IPO and (mergers and acquisitions),” he says.
A number of its companies are in “very active” discussions with potential purchasers and he expects he’ll be able to make some announcements in the coming months.
It’s far too early to predict when the fund might be able to pay off its final shareholder, Levi says, but he’s in no rush.
“We will continue to sell companies. There is increased interest by the shareholders to see the companies sold sooner but I don’t think any of them want us to sell companies at a significant discount to their real value,” he says.