Crocus 1999

Since its establishment in 1993, the Canadian province of Manitoba's Crocus Fund has grown from nothing to its present $130 million in assets. Set up under Manitoba's Employee Ownership Fund Corporation Act, Crocus has raised that sum from 22,500 working Manitobans in Canadian-style IRA contributions - an average of less than $6000 each. Every dime of that money is earmarked for reinvestment in the Province of Manitoba. Prior to Crocus, Manitoba was afflicted by the impact of an increasingly concentrated banking system and mutual funds industry channeling ordinary people's savings to the money centers and today's hot investment target - which was far more likely to be Japan's "bubble" market or to Indonesia or Malaysia, than job-creating investment in Manitoba. Crocus, which is sponsored by the Manitoba Federation of Labor, now accounts for about two-thirds of all venture capital in the province of Manitoba. Half of its investments lead to employee ownership. Think about it for a minute. The Manitoba Federation of Labor develops a capital strategy that emphasizes employee ownership. Twenty-two thousand working Manitobans put their IRA money in the fund that guarantees to reinvest in their communities and their friends and neighbors' jobs. In less than a decade, that fund has $130 million in assets in a province with a population of 1 million - less than the population of Greater Cleveland.

Goals and accomplishments: After 7 years, Crocus accounts for two thirds of the venture capital in Manitoba. Its goals, however, are distinctly different from those of other venture capitalists. They are:
      retaining capital in Manitoba
      providing capital for business continuity and expansion
      retaining and creating jobs
      encouraging employee ownership and employee participation
      ensuring competitive rate of return for investors.

Its job impact has been impressive. Its $46 million in placements to date- now valued at $64 million -have saved 300 jobs, created more than 2000 new jobs, and maintained another 2500. "Each $20,000 invested creates one new Manitoba job - a job creation record which is unparalleled in the venture capital industry," Kreiner told the Crocus shareholders' 1999 annual meeting. Moreover, "we structure our investments so that the wealth they create is not only shared with you but also with the employees who have helped to create it. One quarter of all employees in our investee companies are owners in their companies through broad-based employee ownership plans. An equal number of additional employees will become owners by the time we exit from these investments."

Crocus is committed to "high road" jobs. "The Fund's commitment to jobs extends beyond job quantity to job quality," Kreiner continued at the shareholder meeting. "We believe that the most important determinant of a quality service or a quality product is a quality job, one which provides good wages and benefits, career advancement opportunities, empowerment through participation and financial security through ownership." Through its investment policies, Crocus supports benchmark high-road companies "which outperform their industries and put pressure on competitors to raise standards."

Despite making economic development, job retention, improved wages and benefits, and employee ownership part of its investment strategy, Crocus has outperformed other Canadian labor-sponsored funds, although a number of them operate on standard venture capital principles. Moreover, with its tax advantage amortized over the eight year holding period, Crocus has beaten the Toronto Stock Exchange index; its rates of return are 19.9%, 21.5%, and 16.7% over a one, three, and five year period, respectively. So it has been a rewarding experience for Crocus's shareholders.

"There's got to be something wrong in this picture," Owners at Work readers might protest. "How can a fund that screens for a variety of socially responsible corporate practices beat the averages?"

"Bad corporate practices are not necessarily good for shareholders," Logue answered. "Consider 'Chainsaw Al' and Sunbeam. Before you equate predatory practices with profits, check out where Sunbeam's stock ended up."

"Besides, Crocus is not alone. The Domini index of socially responsible investments in the US has regularly matched or beaten broader stock indices. Furthermore, Crocus screens for employee participation and encourages employee ownership; we know that combination boosts productivity. Crocus provides organizational development services to the companies it invests in as well to increase employee participation."

"Moreover, I suspect that Crocus' social screening process - which includes a good environmental record, good labor relations, and good health and safety - serves as a good surrogate measure for top management's leadership ability."

"Where will Crocus be in ten years?" Owners at Work asked Kreiner. "I expect the fund to level off at about $250 million before then," Kreiner responded, "as redemptions after the eight year holding period begin to offset our annual inflow. But I expect us to undertake a variety of new initiatives, including sectoral funds, as we move up and down the capital stream."

The first sectoral fund -- the Manitoba Science and Technology fund -- is currently being launched. It will start with $12 million in initial capital for investment in information technology and emerging science companies seeking equity for research and development, commercialization, product development, market entry, production and marketing. Kreiner expects other sectoral funds to follow, including one targeted to economic development in Manitoba's large Indian community.

Given the fund's outstanding financial performance to date, Kreiner thinks that it can provide fund management services for provincial pension funds. "And why not launch wealth management services with social screens for pension funds?" Kreiner asks. "Their constituencies are very sensitive to socially responsible investment, and this need is not being met in Canada. Maybe there's a market for a Domini-type index fund in Canada too."
Accepting the 1999 Ohio Employee Ownership Achievement Award, Crocus Fund CEO Sherman Kreiner explained why the fund exists: "

In creating the Crocus Fund, the Manitoba Federation of Labour, now joined by our business community and our provincial government, said that it was time to stop hoping for that good job for ourselves or for our children, only to come up empty-handed day after day and week after week. Our message is that our economic future requires us to take control of our own financial institutions to use our own financial resources for our own benefit."

"People who invest in the Crocus Fund are committing our community to a path through which we will own our own economy. We are investing our savings for our own benefit. We are supporting our entrepreneurs and helping them grow their businesses. We are competing through long-term investments in people as well as hard assets and by creating quality jobs for empowered workers motivated by a financial stake in their own company."

"Fund investments in more than two dozen small and medium sized Manitoba businesses will create employee ownership opportunities for more than half of those companies' employees. For companies transitioning to employee ownership, the Fund provides a critical ingredient often missing - patient equity capital which helps employee-owned firms avoid over-leveraging and fuels job growth."

"We foster employee ownership for a number of reasons - to maintain local ownership, to assure that business decisions are made locally, to assure that employees share in the wealth which they help to create, to transfer ownership from one generation to the next, and to improve business outcomes. We recognize that sustained performance outcomes require more than ownership alone, but ownership combined with participative management."