Connect with us

Investment

Despite recent failures in the oil sector, not all government investment is bad – CBC.ca

Published

 on


This column is an opinion from Sara Hastings-Simon, an assistant professor in the School of Public Policy at the University of Calgary. For more information about CBC’s Opinion section, please see the FAQ.

With a string of high profile, troubled public investments in the oil sector, from the “bitumen boondoggle” to oil-by-rail and Keystone XL, there is a temptation to generalize to a view that all government investments are bad.

At the same time there is a big push for investment in carbon capture and storage, with requests for future government capital in the tens of billions of dollars.

If the only lesson taken from the failures is the risk in government involvement, then it will be all too easy to see mistakes repeated again. Instead, it is critical to get clarity on what government’s role is, what differentiates good public investments from those that become boondoggles, and how to approach government investment to maximize outcomes and avoid costly mistakes. 

The theory of government intervention

Even neoclassical economic theory concedes there are “market failures,” or gaps where things go wrong in markets and government intervention is required.

For example, private companies will under-invest in research and development because they only get a portion of the benefits of the resulting innovation, since other companies can copy the unpatentable innovation and reap the benefits without having to make the investment up front. There may also be challenges around the development of infrastructure to deploy new technologies at scale – the “chicken and egg” issue for electric vehicles and charging infrastructure. 

Other schools of thought see an even larger role for government in enabling innovation and economic growth, including direct support for radical technical innovations that solve a clearly defined problem.

Governments can’t stay out of markets because markets are not naturally occurring, rather they are created and shaped by the choices governments make through laws and regulations. 

The role of government in the private sector isn’t just a theory. It can be seen repeatedly through history.

U.S. President Joe Biden signs his first executive orders, including an order to rescind the permit for the Keystone XL pipeline. Governments should be wary of investments in projects with policy risks in other jurisdictions, says Sara Hastings-Simon. (Evan Vucci/The Associated Press)

In Alberta, one of the clearest examples of government’s role is in the development of the in-situ extraction technology for the oilsands, where critical investments in the development of a facility and in testing were 100 per cent government funded. Similarly in the fossil energy sector, the shale gas revolution can be traced back to over 25 years of U.S. government programs and funding.

Critical government funding for technology development and deployment can be found behind everything from agriculture to the smartphone or computer you are reading this story on.

However, the cliches about public investment – “governments shouldn’t be in the business of business” and “governments shouldn’t pick winners” – in fact hold kernels of truth in how to invest wisely.

Don’t be in the business of business

Government funding shouldn’t take the place of private capital, doing so – at best – just contributes profits to a private project. Instead, governments should look to do things the private sector can’t. For example, dividing up the risk in a project and assigning it to the entity – government or private sector – that can best manage it and enable investment and economic development that wouldn’t happen otherwise.

The key is to ensure the right risks go to the right player.

Governments are well placed to manage or hedge policy risk in their jurisdiction because they directly control future policy changes, making it natural to take actions like monetizing future increases in carbon pricing today. They can also better hedge overall price risks in an economy-wide market, for example where low electricity prices might challenge individual generators but benefit the economy as a whole. 

On the flipside, governments have little control over policy risks in other jurisdictions, such as the decision of the U.S. government on a pipeline permit. Similarly, the risk of cost overruns for project construction that is managed in the private sector is outside of government control, as is the case with the Sturgeon refinery. 

The appropriate division of risks should be matched with a fair sharing of rewards to avoid creating windfalls with public money.

As the oil-by-rail case illustrates, details matter when government decides to make a foray into the private sector. Deals need to be structured to limit the overall downside risk, says Sara Hastings-Simon. (CBC)

The Alberta Electric System Operator’s renewable energy procurement process successfully kept any market upside with the government that took the market risk, while leaving the construction management and associated upside with the developers. Ensuring the potential upside is fairly distributed can also help keep government out of the role of business – if companies truly need government support, they will be more willing to give up some upside in exchange. 

Don’t pick winners

Many of the recent investments that have run into trouble are cases where governments did directly pick a “winner” by supporting a specific company, project, or approach, outside of a transparent, competitive process to find the best solution to a clearly defined problem. 

Politicians can avoid this trap by sticking to defining a clear goal or mission direction that government supports. Framing the challenge to the market in terms of desired end goals then allows the private sector to respond with a broad range of options across technologies and approaches, rather than government presupposing the outcome. 

Those within the government bureaucracy responsible for evaluating and comparing options should be insulated from politics and supported by external experts that can provide technical advice. 

Learn from business

There are some lessons governments can apply from the private sector. Two important ones are in structuring deals to limit the overall downside risk – as the oil-by-rail case illustrates, the contracting details matter – and being willing to walk away and accept some losses. Just as no private investor has a 100 per cent success rate, government investments must be judged on a portfolio basis where big wins should more than cover losses.

The recent string of issues with Alberta government investments calls public investments into question, but rather than generalizing around government investments writ large, each case holds key lessons on how to ensure future public investments benefit the public.

As stewards of the public purse charged with ensuring a healthy economy, governments must ensure they are playing the right role based on what they have to offer, define clear goals that are pursued with transparent metrics that are fair to the public for their investment, and set up systems and structures to keep the politics out of investment decisions.


Do you have a strong opinion that could add insight, illuminate an issue in the news, or change how people think about an issue? We want to hear from you. Here’s how to pitch to us.

Adblock test (Why?)



Source link

Continue Reading

Investment

Montreal investment fund sued over use of founder's great-great-grandfather's name – Montreal Gazette

Published

 on


The Holt Xchange, which invests in early stage financial technology startups, is being sued by Credit Suisse for trademark violation.

Article content

Brendan Holt Dunn said he wanted to invoke the legacy of his great-great-grandfather, pioneering Quebec industrialist Sir Herbert Holt, in the name of his Montreal-based venture capital fund.

Advertisement

Article content

Now, he may have to go to court to keep the name.

His fund, the Holt Xchange, which invests in early stage financial technology startups, is being sued by international bank Credit Suisse for trademark violation.

In a statement of claim filed last year with Federal Court in Edmonton, Credit Suisse subsidiary CSFB HOLT said it owns the right to use the brand “HOLT” when offering financial goods and services in Canada and that the branding and offerings of the Montreal venture capital fund — known as the Holt Accelerator when the lawsuit was filed — is too similar.

Article content

The bank, which is seeking at least $100,000 in damages, argues that similarity “will cause confusion amongst Canadian consumers” and reduce the value and reputation of its trademark.

Advertisement

Article content

Dunn said he doesn’t think there’s a risk of confusion.

“We’re in different areas, the financial sector as a whole is very broad,” he said, adding that he’d never heard of Credit Suisse’s HOLT brand before being sued.

“I think what they’re worried about is that our name, our family’s name is better known than them in Canada,” he said in an interview last week. “There is absolutely no overlap.”

Article content

Elisabeth Laett, managing partner at the Holt Xchange, said the decision to use the Holt family name when the fund launched in 2018 was a reference to the history of Montreal’s financial sector and the fund’s ambitions to help make Quebec a hub for a new generation of financial technology companies.

“We were the financial hub of Canada, in Montreal, at one point,” she said.

Advertisement

Article content

When Herbert Holt died in 1941, he was described as the richest man in Canada. A railway engineer who helped build the Canadian Pacific Railway, he was knighted for his work planning railways in France during the First World War. He later consolidated several power companies in the Montreal area — which would eventually be expropriated to create Hydro-Québec — and was president of the Royal Bank of Canada from 1908 to 1934.

Article content

Holt was also a controversial figure in Montreal at a time when many French-speaking Quebecers resented the city’s English-speaking business elite.

In court filings, the Holt Xchange maintains the Holt name has been used by generations of family members when offering financial goods and services in Canada. It has also filed a counter claim seeking to have Credit Suisse’s HOLT trademark struck down.

Advertisement

Article content

Credit Suisse’s HOLT brand comes from the name of a United States-based financial consulting firm acquired by the bank in 2002 and is an acronym based on the letters of the last names of consulting company’s founders. The bank, which filed an application to register the “HOLT” trademark in Canada in 2006, sells software used to value companies, as well as offering consulting services and investment products, under the HOLT name.

Whether consumers would interpret “Holt” in the name of the Montreal venture capital fund as a reference to the Holt family is one of the issues being disputed in court filings.

Teresa Scassa, the Canada Research Chair in information law and policy at the University of Ottawa’s law faculty said the courts look at several factors when evaluating the possibility of confusion in trademark cases “including how long each name or mark has been in use, and how similar the goods and services are, and the way in which they’re marketed or sold.”

Advertisement

Article content

While the Trademarks Act allows people to use their own names as trade names, she said that defence has “been interpreted fairly narrowly,”

“For example, someone named McDonald is not prevented from using their name in business and if they open a burger stand, they’re not prevented from using their name in their family business to sell burgers, but they can’t just call it McDonald’s,” she said. Instead they have to make it clear it’s a different business.

Credit Suisse spokesman Jonathan Schwarzberg declined to comment on the case, saying the bank can’t say anything publicly beyond what’s in court filings. No trial date has been set.

Dunn said the fund entered into negotiations with Credit Suisse after the lawsuit was filed and changed its name from Holt Fintech Accelerator to the Holt Xchange in the spring, a move he said he thought would satisfy the bank.

Advertisement

Article content

He noted there are other companies using the name Holt.

“I don’t understand it,” he said. “It’s insulting and we’re obviously feeling like we’re being bullied. We’re a very successful family, but no family in the world can go up against a financial institution.”

Laett said the Montreal fund has built an international brand around its name, attracting interest from startups from around the world. “We’ve received roughly 3,000 applications to be part of Holt,” she said. “There is a tremendous momentum.”

Dunn said he’s not open to dropping “Holt” from the company’s name.

“It is my personal name and my family’s name and our family’s history and reputation in Canada,” he said.

Advertisement

Comments

Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.

Adblock test (Why?)



Source link

Continue Reading

Investment

Canada Sets Plan to Merge Investment Regulators Into One Agency – Bloomberg

Published

 on


Canada’s securities regulators plan to merge two industry groups that oversee financial advisers into a single organization, a move intended to address years of complaints about the overlapping roles and higher costs of the groups.

Provincial regulators published Tuesday a framework for how to combine the Investment Industry Regulatory Organization of Canada, which regulates investment advisory firms that sell a broad range of securities, with the Mutual Fund Dealers Association of Canada, which oversees firms that sell funds.

Adblock test (Why?)



Source link

Continue Reading

Investment

Carlyle to Invest in Abrigo at $1 Billion-Plus Valuation – Bloomberg

Published

 on


Abrigo, an Accel-KKR-backed software provider for financial institutions, has secured an investment from private equity firm Carlyle Group Inc.

The Austin, Texas-based company is valued at more than $1 billion after the investment, according to people with knowledge of the matter who asked not to be identified discussing private information.

Adblock test (Why?)



Source link

Continue Reading

Trending