VICTORIA — Premier John Horgan’s agenda for Tuesday focused on the $500 million strategic investment fund promised in the NDP election platform.
Jobs Minister Ravi Kahlon tabled the enabling legislation for the InBC Investment Corp. first thing in the morning. Validators from the business and investment community were on tap to endorse the government’s good intentions. The premier was bursting with pride at the rollout of another plank in his Stronger B.C. program.
But as is often the case with John Horgan’s attempts to put the COVID-19 pandemic behind him, the third wave won’t let him go. Almost every question in the followup media conference dealt with loose ends that the premier himself has left dangling: his failed promise to provide paid sick leave for B.C. workers and the still unanswered questions about his restrictions on non-essential travel.
When Horgan finally got a question about InBC, he almost hugged the reporter. “This is an exciting day for British Columbia,” he gushed. “A step into another world and a step out of the pandemic.” He wishes.
The fund, as noted, was announced Sept. 17, on the eve of Horgan’s snap election call. Despite the seven-month lead time, the fund arrived on the legislative agenda only half made up.
The news release vowed that the investments would be guided by a triple-bottom-line mandate, aiming to: 1) Establish B.C. as a globally competitive low-carbon jurisdiction. 2) Promote values that make life better for people in B.C. including job creation, advancing reconciliation with Indigenous Peoples, promoting diversity and inclusion. And 3) achieve a financial return on investment.”
The legislation incorporates only the double-bottom-line mandate set out in the confidential briefing notes for the jobs minister: “1) Investments will aim to achieve a commercial rate of return. And 2) will also be configured to achieve certain specified policy aims. (Defined elsewhere as supporting “the social, economic and environmental policy objectives of the government.”)
The switch from a “commercial” rate of return on investments to a plain old “financial return” of any kind is significant, given plans to provide InBC with half-a-billion-dollars in financing over three years. The revised investment strategy is said to be a “patient” one, meaning a target of five per cent returns, not the 15 to 20 per cent sought by some of the more risky investment funds.
But InBC investments won’t lack for risks according to the service plan: Risks to returns, to the timing of investments and those associated with transforming the organization from its predecessor, the B.C. Immigrant Investor Fund, and changing it into a strategic investment fund with a new and expanded mandate.
“Venture capital is a high-risk asset class that does not afford guaranteed returns,” warns the service plan. “Negative returns may occur in the early years when the investments are being made. Timing and distribution of returns is difficult to predict.”
Nor does the enabling legislation provide much guidance as to how those risks are to be managed and minimized.
The key player will be the chief investment officer (CIO) whose independence is guaranteed in law. “No person other than the CIO or an external fund manager retained by the corporation may make an investment decision. For certainty (they) are not subject to direction from the government, the (jobs) minister, the board or a director, the chief executive officer (administrative) or any other public officer.”
Will the CIO and an outside fund manager really have sole control over the disposition of half-a-billion-dollars in public financing to high-risk ventures? Apparently. Although the government claims investment will be guided by principles laid down in cabinet regulations and board policies, both still to come.
The chief investment officer’s role is said to be modelled on other public sector investment funds such as the B.C. Investment Management Corp., which manages the assets of provincial pension funds. BCIMC managers routinely top the scale in The Vancouver Sun’s annual survey of public sector salaries. The 2020 survey reported investment management CEO Gordon Fyfe was paid $3 million a year.
The New Democrats hastened to say that the InBC CIO won’t be in that league on the pay scale. Still, the province will have to offer premium pay and other incentives to attract someone qualified to manage such a sizable fund within a complex mandate.
The government is budgeting a hefty bill for salaries and benefits at InBC, starting at $1.5 million in the current year and growing to $4 million in Year 3. The New Democrats also plan to lose money. The service plan has InBC going from a $4 million surplus last year to a cumulative $16 million in losses this year and the next two. Now there’s a target government can hit.
Plus, there’s a question mark over the projected total debt of $53 million at the end of the three years: “Forecasted amounts do not include the additional debt required to fund new investments. At this time, the timing and amount of investments is unknown and so forecasting the debt is also not possible. Additional debt will be required in the future” — another keepable promise — “and the amount required and interest rate at that time will impact the future financial results.”
So, another “exciting day for B.C.” as the premier would have it. But some may find it easy to curb their enthusiasm until the New Democrats fill in the blanks about InBC operations.
