LOS ANGELES TIMES - Sunday, September 26, 1999

Canadian Labor Provides Stake for Tent Firms, Others
By Janet Wilson, Time Staff Writer

Capital: More entrepreneurs north of the border are being funded by unions. And not everyone is happy about it.

Repentigny, Canada - Bernard Grandchamp is the proud owner of the largest tent in all Quebec - an enormous 40,000 square feet of space when assembled, far larger than the 16,000-square-foot warehouse in this industrial park at Montreal's edge, where the tent lies packed and ready between rental gigs at corporate banquets and weddings. The big tent is proof positive of the rapid expansion of his Location Grandchamp party rental business. Fittingly, Grandchamp means "big field" in French. But when he approached area banks for a $500,000 loan last year, they folded him down fast. "Banks want something solid," said Grandchamp, 34. "They want to lend to you on buildings … not tents."

Grandchamp, like small and medium-0sized entrepreneurs everywhere, needed venture capital from a deep-pocket investor willing to take a risk. He quickly got it from the oldest of Canada's labor-sponsored pension funds, the Fonds de Solidarite de Traveilluers du Quebec, or Solidarity Fund of Quebec Workers. In short, he got his money from the unions. Now he is planning to expand to warm, wealthy Southern California in time for the millenium, where he figures he can make a killing on New Year's Eve 2000 party tent rentals.

Born of severe recession in the early 1980s, when thousands of industrial jobs were being lost daily, Canada's labor-backed investment funds have since been backed by politicians across a wide spectrum, from conservative Brian Mulroney to Quebec to the liberal Jean Cretian.

The idea - which served as a model for a fund newly established by three major U.S. unions - is to educate and provide a reasonable rate of return for working-class investors, and guarantee the creation of jobs.

On dreaded federal tax day, Canadians receive a whopping 30% to 70% tax break on $5,000 worth of income realized from labor funds, thanks to provincial and federal law. This has helped lure about $4.2 billion to labor-sponsored funds - roughly half of the $8.5 billion in national venture capital.

In Quebec alone, Solidarity officials say their fund, by far the largest, with holdings of nearly $3 billion from 380,000 shareholders, has invested in 1,100 companies and saved or created 72,000 jobs. They partly owned the Montreal Expos, an investment made when the baseball team was being wooed to move to the United States.

Solidarity has kept its fees low in part because shares are sold by volunteers, mostly union shop stewards, eliminating salesmen's salaries and commissions. Some unions have paycheck deduction programs. Workers contribute their own money, separate from pension contributions.
In exchange for $500,000, Grandchamp sold a piece of his company to a regional branch of Solidarity Fund. He has nearly doubled his staff from 42 to 70, and sales have shot skyward.
Grandchamp now plans to expand to San Diego, which he describes as "very rich and very clean. There is money there, lots of money." After a recent trip, he also learned there are "zero tents available for Dec. 31 there. And I've got them right here in my warehouse."

Private-sector money managers who can't offer the same tax breaks resent the labor funds.

Some funds are controversial for another reason. Called "rent-a-union" funds, they pay a fee to a union to use its name, the do business as they please.

In response to the pretenders, five of the biggest funds backed by union members' money have formed an alliance. Workers who invest in them also can report firsthand about problems they see within the company.

But the concept of labor investment funds is being tried by some U.S. unions. The Heartland Fund was established recently in Pittsburgh with the backing of the international steelworker, electrical and textile union to create jobs, albeit without tax credits.

And a White House "new markets" initiative making its way through Congress has latched on to the tax credit idea for funds that specialize in inner-city and other local economic development, with no labor link.

"It is using this idea of tax credit, which is very similar to the labor-sponsored funds in Canada," said Tessa Hebb, a Canadian economic consultant.

But some Canadians figure it will be a long time before labor-sponsored funds penetrate the free-wheeling U.S. free markets.

"I doubt that your government would give the incentives offered by the Canadian government," MacKenzie said. "Big money talks in your country … not small investors."