There are people at work in New Brunswick today who will benefit for years to come from the Q1 Labs sale to IBM, and they’re not just the Fredericton-based employees of the security software provider.
They’re teachers, nurses, office workers and the like employed by the New Brunswick government.
Their pension fund, managed by the New Brunswick Investment Management Corp., or NBIMC, had the foresight to invest in security software company Q1 Labs, which sold out to IBM yesterday for an undisclosed sum. That investment created employment and R&D benefits in the region and is now returning money to the pension fund, no doubt at a healthy return.
“We were involved in the initial round of financing that took place in early 2003 to assist the company in the initial commercialization of their technology, and have also participated in each additional round of investment through time as the company grew,’’ CEO John Sinclair said in an email yesterday. He declined to reveal anything further about the investment or its returns.
Sadly, it’s an opportunity forbidden in other parts of Atlantic Canada.
The NBIMC manages the pensions of provincial civil servants, and it is unique in Atlantic Canada because it is the only public-sector pension plan in the region that invests in alternative investments, such as venture capital. At first blush, you’d think the NBIMC was taking unusual risk with its clients’ retirement fund. Actually, it’s following standard operating practice in most of the developed world. In Canada, for example, there are only three provinces whose government employee pension programs don’t have a small VC component – Nova Scotia, P.E.I. and Newfoundland and Labrador. Just this week, the Ontario Municipal Employees Retirement System announced a $180 million VC fund.
The argument against VC investments by pension funds, of course, is risk. The thinking is that pension funds only invest in the most stable of instruments, like blue chip stocks and government bonds. Sounds good, but how’s that working out for us? Well, Nova Scotian taxpayers had to pay $536 million two years ago to cover losses in the province’s allegedly risk-averse employee pension plan. Meanwhile, all pension funds are feeling bruised right now by the selloff on stock markets, but the NBIMC fund will be able to balance its stock market challenges with a healthy return from its Q1 Labs investment.
Diversification tends to reduce risk, and NBIMC is reducing its risk with its successful Atlantic Opportunities Private Equity Fund. What’s more, it’s investing in innovative companies that benefit society with new products, employment and exports.
Note the word “Atlantic”. The fund’s mandate is to invest in companies in ``New Brunswick and Atlantic Canada.’’ The good news is the benefits of this progressive policy are spreading to other parts of the region.