Is Canada the new Delaware?

As regulatory uncertainty looms in the US, several Canadian provinces are working to make themselves attractive jurisdictions for private equity and venture funds. From building up their alternative investment infrastructure to seeding government-backed funds of funds ready to invest in local managers, these provinces are doing everything they can to welcome managers with open arms.

Nova Scotia has built up its fund administration and financial services infrastructure as part of its efforts to make the city of Halifax into a financial centre, says Stephen Lund, president and CEO of Nova Scotia Business Inc, the province’s private sector-led business development agency. Currently the province is working on bringing due diligence, IT, accounting and other outsourced services experts to the region, so that all the amenities are there for fund managers who choose to settle down in Nova Scotia.

“Canada has the strongest banking system in the world and we’ve got very good regulatory regimes here,” Lund points out. “We also know there’s a bit of a flight from some places, particularly London and some European cities. We know we’re sitting in a good spot. We’re close enough to the US and we’re close enough to Europe, and the way we do business is pretty close to the way they do business in New York, so we’re easily accepted by US and European companies.”

John Weincek, head of US fund administration for Mourant, says that some of the Canadian provinces are reforming their corporate and entity laws, like Delaware and Nevada did years ago, to try to make them more corporation and investor friendly.

“Within the last year, we have witnessed a number of offshore funds being registered in the Canadian provinces for the same reasons you would use any other non-US jurisdiction,” Weincek says. “An example being, you have different investors with different characteristics, for whom there is no particular reason to bring them into the US. People choose jurisdictions basically for stable tax and legal systems, and that’s a little bit up in the air right now with what might be going on with the new administration.”

Other provinces are focusing on deploying public dollars into the venture or private equity space, as part of an effort to combat the country’s flagging deal volume and fundraising numbers, says Richard Rémillard, an executive director at Canada's Venture Capital and Private Equity Association. Alberta has raised C$100 million ($92 million; €63 million) for a fund of funds which will invest in local fund managers and managers who are interested in establishing themselves in Alberta, and Québec has announced a C$700 million fund of funds called the Teralys Capital Fund, seeded by the Québec government with additional funding from the Caisse de dépot and the Solidarity Fund QFL.

Local managers can also take advantage of opportunities to manage government funds in several provinces. Québec has also launched three tech start-up funds and has put out a request for proposals for managers for those funds. Alberta too has put out an RFP for a similar C$100 million fund. On the Federal level, the Business Development Bank received a C$75 million increase in its capital allocation this year, and selected two fund managers to manage it. Then over the summer the BDC got C$90 million for a fund of funds, and then another C$200 million for its own direct investing.