THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Wednesday, March 25, 2026
The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 4:18 p.m. [ET] to examine and report on access to credit and capital markets for small- and medium-sized enterprises as the basis for growth and improved productivity in the Canadian economy.
Senator Clément Gignac (Chair) in the chair.
[Translation]
The Chair: Honourable senators, I am Clément Gignac, senator from Quebec and chair of the Standing Senate Committee on Banking, Commerce and the Economy.
I wish to welcome those joining us today on sencanada.ca.
Before we continue, I would ask my colleagues to introduce themselves.
Senator Pupatello: Sandra Pupatello, Ontario.
[English]
Senator Fridhandler: Daryl Fridhandler, Alberta.
[Translation]
Senator Henkel: Danièle Henkel from Quebec.
Senator Ringuette: Pierrette Ringuette from New Brunswick.
[English]
Senator Yussuff: Hassan Yussuff, Ontario.
Senator McBean: Marnie McBean, Ontario.
Senator C. Deacon: Colin Deacon, Nova Scotia.
Senator Wallin: Pamela Wallin, Saskatchewan.
Senator Martin: Yonah Martin, British Columbia.
[Translation]
The Chair: Honourable senators, this is our sixth meeting on our special study on access to credit and capital markets for small- and medium-sized enterprises as the basis for growth and increased productivity in the Canadian economy.
I would like to welcome our witness today, Dany Pelletier, Executive Vice President, Private Equity and Impact Investing, Fonds de solidarité FTQ.
I welcome you and invite you to provide opening remarks of approximately five minutes, which will be followed by a question-and-answer session.
Dany Pelletier, Executive Vice President, Private Equity and Impact Investing, Fonds de solidarité FTQ: Thank you, Mr. Chair and members of the committee. Thank you very much for the invitation and the opportunity to speak to you today. It is a privilege for the Fonds de solidarité FTQ to be able to contribute to your work.
First, allow me to briefly introduce the Fonds de solidarité FTQ. The fund was created by the FTQ in 1983 at a time of great economic upheaval. We are proud of the social roots that this movement has left us. They continue to be a source of inspiration and a driver of engagement today. That said, the fund is now a financial institution with its own governance, management teams and fiduciary responsibilities to its shareholders.
At present, the Fonds de solidarité FTQ manages net assets of more than $23 billion. It has 816,000 shareholders, or close to one in six workers in Quebec, mostly from the middle class. On an annual basis, we invest more than $1.8 billion in the Quebec economy. Our portfolio includes close to 4,300 partner companies, both direct and indirect, in all economic sectors and in all regions of Quebec.
At the heart of our model is the fundamental principle of channelling Quebecers’ retirement savings into Quebec’s small‑ and medium-sized enterprises. In other words, we turn long-term savings into patient capital for the real economy.
Our mandate is clear: to invest unsecured capital in Quebec’s SMEs. That means accepting levels of risk that other financial actors are not always able or willing to take on, while also assisting businesses over the long term.
Today, the Fonds de solidarité FTQ is an essential player in Quebec’s financial ecosystem. Since its inception, it has made it its mission to fill a number of gaps in the market. Very often, our mere presence in a transaction allows it to happen.
These gaps include investment in the regions and communities, increased risk-taking, particularly in the seed and start-up phases, support for government economic directions, investment in smaller businesses, as well as ongoing support for so-called traditional economic sectors, which remain essential to the vitality of many communities.
This ability to take action is based on a tiered structure designed to cover all of Quebec. I’d like to draw your attention to a central element of this model: the FTQ Regional Solidarity Fund. From Rouyn to Gaspé to Chibougamau, our teams are present throughout Quebec. These are not mere satellites of the fund, but real decision-making centres with their own autonomy and investment committees. This approach embodies a founding idea of the fund, which is to give economic power back to the regions.
In addition, there are the Fonds locaux de solidarité FTQ, which are present in almost every RCM in Quebec. They offer equity stakes of up to $100,000, in close partnership with local economic development organizations, which we support and train. Together, these tools allow us to support SMEs of all sizes, from the start-up to the growth and transmission phases.
The Fonds de solidarité FTQ also receives a tax credit for its shareholders. This instrument has two public policy objectives: to stimulate retirement savings in order to promote a decent retirement for workers, and to direct those savings to Quebec’s SMEs in order to support economic development. In this regard, the leverage effect is remarkable. For every dollar invested by the Government of Canada through the tax credit, the fund invests more than $11.53 in the Quebec economy. It is an outstanding social and economic return that we are very proud of.
I won’t have time to go into all the economic issues we are currently facing, but I would like to mention two that I think are particularly important.
First, business succession will be a major issue for the Quebec economy in the coming years. A second challenge will be the protection of regional headquarters and the reduction of associated risks for the economic vitality of our regions, particularly given the high level of foreign funds.
Of course, I would be pleased to answer your questions on these issues or on any other aspect of the work of the Fonds de solidarité FTQ that you wish to discuss.
Thank you for your attention.
The Chair: Thank you, Mr. Pelletier.
Colleagues, we have about an hour set aside for this session. Let’s aim for five minutes for each speaker, including the answer.
[English]
Senator Fridhandler: Thank you for your presentation and congratulations on all the good work you appear to be doing. I would like to understand your legal structure a bit better. You mentioned regional solidarity funds, and you have your main fund. Can you explain the inbound flow of capital, and then does it flow into subsidiaries? Are you a corporation? Are you a trust? I know civil law might dictate something different than common law elsewhere, but maybe give me a little further detail on your legal structure if you could.
[Translation]
Mr. Pelletier: First, Quebecers save through their RRSPs and invest in the Fonds de solidarité FTQ. With our corporate partners, we invest directly in companies. We are governed by the Act to establish the Fonds de solidarité des travailleurs et des travailleuses du Québec, a provincial act. That means that our money is channelled — and Quebecers’ savings are channelled — and then we invest directly in partner companies or in investment funds.
Local funds are subsidiaries of the Fonds de solidarité FTQ in which we invest, and these regional funds invest in businesses in the regions of Quebec through our 17 regional funds.
You have to understand that we make large investments. Our investments in companies start at $5 million, while regional funds invest up to $5 million.
The complementarity of these levers owing to regional proximity is important. Regional funds can fully understand regional dynamics, close to entrepreneurs. In the case of larger companies, depending on how we are structured internally, we operate by sectoral expertise. I have teams in different sectors of the economy that complement the investments of the regional funds. That’s really what sets us apart. That is also the case with local funds: They are subsidiaries of the fund. They invest even smaller amounts, in smaller companies. So we take action throughout the funding system, from very small regional businesses to medium-sized businesses.
To recap, there are local funds with regional RCMs for smaller businesses; there are regional funds, that is, 17 funds that invest amounts of up to $5 million within regional proximity; and when higher amounts are needed, we get involved in those investments and can invest in larger regional companies, but with our sectoral expertise.
[English]
Senator Fridhandler: The reason I’m asking is I’m just wondering how this model could be used in other provinces or promoted more on a national level.
The money that comes into the main fund, there is mention that it’s retirement savings. So does it come into a registered retirement savings plan, an RRSP, first, and then from the RRSP it is directed and there is — presuming federal legislation in the RRSP administration allows that to happen. Is there a matching or a sidecar, parallel provincial credit or incentive to make these investments from your RRSPs as well?
[Translation]
Mr. Pelletier: Thank you for the question.
Quebecers who want to invest in the Fonds de solidarité FTQ do so through an RRSP, and that RRSP is also enhanced by an additional 15% provincial tax credit and a 15% federal tax credit.
Moreover, a key feature of this model is the savers’ long investment period, which allows us to play our role. Our role is really to be a long-term investor. That money is typically entrusted to us until the saver retires, at which point we return the money to the saver.
Does that answer the question better?
[English]
Senator Martin: Wow. Thank you so much for your testimony. I feel like this is something we need across the country. My first question is this: Have you had conversations with other provinces attempting to do what you have done in Quebec? Or is this already in other provinces in the way you’re describing? I’m impressed by the fact that you have the levels and that the investment is throughout Quebec. I’m taking you on your word, but that’s very impressive.
[Translation]
Mr. Pelletier: Thank you for the question and the comment.
We are indeed proud of the structure that has been created over time. You have to understand that this model combines the ability to raise capital, and equally importantly, to deploy capital in a way that respects our role as a trustee in order to provide a return to our savers, which is important to us.
What is interesting about this model is that it channels Quebec’s economy within the province itself, instead of Quebec’s economy being invested everywhere else in the world and in financial instruments that we have no control over. So we take that money and put it to work for companies, and for the long term as well. There are companies in our portfolio that we have had for 10 or 15 years. That’s also a strength.
Another thing to remember is that yields are not the only important thing. I also mentioned additional risk taking. We combine yields, societal yields and making an impact.
Let me give you a concrete example. When the time comes to transfer a business from one generation to the next, we don’t sell to the highest bidder, to an American, for instance. We make sure we put together a Quebec transaction to ensure that the business remains in Quebec. I’m not saying that there are no transactions with foreigners. If we encourage business succession in Quebec though, we ensure the sustainability of those businesses over time. In some regions, a medium-sized business is the lifeblood of the local economy.
You asked if there were discussions with outside stakeholders. Of course, we are in contact with various stakeholders [Technical difficulties] quite unique in Canada, and I would even say around the world as well.
[English]
Senator Martin: I was very curious about the economic challenges you mentioned. You talked about the business succession and protection of regional headquarters. This is an issue across Canada. I’m curious about how you’re handling those challenges, because I think that can inform what will happen in Canada. You mentioned already the business succession. So what about the second challenge, the protection of regional headquarters?
[Translation]
Mr. Pelletier: Thank you for the question.
Let me give some statistics on regional funds by way of example. More than half of their current transactions are business transfers or takeovers, that is, business terminations. In concrete terms, over the past few years, we have built what we call a network. For an entrepreneur, there is a big human element in selling a business. So the human element must be addressed. We need to address the human, financial and strategic aspects of the business.
It’s important for us to encourage entrepreneurs to talk to us and to plan. We have statistics showing that only four out of ten entrepreneurs have a succession plan in place. More than six in ten entrepreneurs think it will only take one to three years, although the process is much longer.
We really encourage our entrepreneurs to talk to each other through our network. With the École d’entrepreneurship de Beauce, we created a movement to train transferors on how a buyout transaction works and to train the new owners. What is a buyout transaction? So we train people, we have internal support teams to look at these succession issues. We’ve also trained members of the boards of directors of our partner companies to address the subject of business transfers. So we addressed this issue within the boards of directors themselves to properly plan the business transfer.
The Chair: Thank you.
Senator Henkel: Welcome, Mr. Pelletier. Thank you for your answers. Indeed, this model is quite exceptional for our businesses.
I would like to come back to the famous provincial tax credit of 15% and the federal credit of 15%. I believe it was adopted in a few other provinces, but was eventually dropped.
First of all, do you know why this process or example was dropped in the other provinces? Second, taking into account the current geopolitical context — the uncertainties, tariffs and everything that can destabilize our businesses, especially our SMEs — how can you help or at least try to ensure that this model is applied across Canada?
Mr. Pelletier: Thank you for the question.
The first point is that, yes, there have been attempts to establish funds outside Quebec. The concept was there, but the general formula that we manage well wasn’t used at the time. That’s why the ability to raise capital with suitable fees is important. You have to be able to raise capital, I would say, at reduced costs as much as possible. That’s one aspect.
Second, you need good expertise. I don’t have all the details of those funds. I can only speak to the success of our model. We need to have good expertise on investment teams.
Another important aspect — and I mentioned it earlier — is the duration of the investment. An investor who invests in the Fonds de solidarité FTQ is there for the long term. They can withdraw, they can get out upon retirement. Before the person retires though, there are some fairly strict conditions, given the additional tax credit. That’s important for us. An investor like us, who invests in private companies, is not like a liquid market. You have to be there for the long term. Typically, our investments are for seven to ten years. That’s our challenge. If we have the capital for just seven years, then we are taking on risk because of calls for capital. That is important.
In addition, a volatile financial environment like the one we’ve been in for a number of years — particularly with COVID-19, supply chains and what’s happening in the United States — can cause panic attacks. In that scenario, we would be exposed to risk.
The key is not only the ability to raise capital at a low cost but also the ability to be there for the long term as investors. That’s the key. That’s very important.
Senator Henkel: Thank you very much.
In 2024, Canada introduced employee ownership trusts as a business transfer tool. Does your organization currently use that kind of tool in its business takeover operations? Moreover, given the significant wave of business transfers expected in the coming years, do you have the financial and operational capacity today to provide support for increased use of those collective models?
Mr. Pelletier: Thank you for the question. There are two aspects.
The tax aspect of transferring businesses must be taken into consideration. I don’t have a specific recommendation to make on that, however, there’s one important element that I’d like to share. We consult our businesses on various topics. We’ll be holding consultations shortly to get their impression on the agreement being negotiated. During the consultations we held on the challenges they face in transferring a business, the tax aspect was often brought up.
Regarding our ability to support businesses during those transfers, we’ve made this a very clear priority. Our teams are very aware of this reality. The important thing for us is planning these business transfers. Recent transfers were successful, because we were able to establish proper succession plans, often for a three- to four-year horizon. When we can do that, we find a successor.
I’d like to add one more thing. Business succession is not just the Fonds de solidarité FTQ. It’s an ecosystem that needs to be created. At the very heart of this ecosystem are the current entrepreneurs. They also have to help us ensure a successful business transfer. As I often say, sometimes it means having a little less money in a transaction, but reminding everyone this company was built in Quebec, and we want it to stay in Quebec. Some entrepreneurs have made that choice. They made a good choice for themselves, for the region, and for their employees. That’s fantastic—
The Chair: Thank you, Mr. Pelletier. I apologize for cutting you off.
[English]
Senator Yussuff: Thank you for being here and sharing your success with the Fonds de solidarité FTQ. You are being a bit modest in regard to the other funds that were created at the same time as the FTQ which did not succeed with the same degree of enthusiasm. Our study is about how to get access to the credit market for SMEs in your jurisdiction. One of the things that the fund has been unique about is this regional character and the development in the region. Could you share some thoughts as to how you go about this, but more importantly, how the success story is built based on the community in which you are serving that capital market?
[Translation]
Mr. Pelletier: Thank you for the question.
First of all, the winning formula for us is decentralizing the decision-making authority in terms of investments in the regions. These regional funds are managed by truly autonomous boards of directors at the decision-making level. They can invest up to $5 million. That’s important, because when everything is centralized, you lose touch with what’s going on in the regions. When it comes to small businesses in particular, a transaction isn’t just financial, it’s also human. You have to know the entrepreneur.
I’m from Matane. I’ve been to Abitibi. In those areas, our regional investment managers often hang out with business owners in arenas and around baseball diamonds. They know each other. They’re close. Knowing the entrepreneur well helps us make good investment choices and support those entrepreneurs. That’s key.
The other key element is when an entrepreneur needs help in any sector — I’ll use the forestry sector as an example — I have a team that knows everything about the forestry sector. There’s a sectoral expertise on other players in the sector. That’s where the Fonds de solidarité FTQ can really help entrepreneurs. It’s a combination of decentralizing the decision-making process and transferring it to the local and regional level, and offering our teams’ support at the sectoral level.
Also, when a company’s growing, we work with the regional funds and often use them to co-invest in that company. As an example, five years ago, a regional business in Abitibi needed $5 million. If it grows to the point of needing $50 million today, we’re there to support it as well.
[English]
Senator Yussuff: Maybe you can also elaborate a little bit on how it relates to the workers who are the contributors to the FTQ fund within the region?
[Translation]
Mr. Pelletier: What’s really interesting in this regard is that the workers — every Quebecker, actually, but we’ll talk about the workers — who invest in the Fonds de solidarité FTQ end up having a sense of belonging to the company. Some entrepreneurs have asked the Fonds de solidarité FTQ to invest in their company so their workers could contribute to the fund. In the end, they don’t have to contribute to the fund and we don’t need to invest. There’s no link there. However, they saw the importance of having their employees being shareholders in the Fonds de solidarité FTQ and, indirectly, investors in their company.
[English]
Senator Varone: Thank you, Mr. Pelletier, for being here. When I was doing my research, I was quite enamoured with the success of your company. The more I got into it — I’m quite familiar with the double bottom line a lot of companies deploy, which is a financial return with a sustainability return, but you have gone one step further. In one of your preambles, it says, “. . . we believe that financial returns must be coupled with societal returns.” Then you went out and further delineated three targets and the financial bottom lines. So you actually have a four-level measurement yardstick, one being, obviously, the financial, the other being your development of sustainable assets, the third being increasing your shareholder network and the fourth, the impacts that you measure with respect to that shareholder network.
Can all of them grow at the same time, or do you see that one cannibalizes the other and you need to reset or rejig those priorities? Or do you think that you have found something that is actually workable that truly motivates your companies and your shareholders and those who invest with you to all grow together within those same goals? So, the question is this: Does one eat into the other, and you need to stand there to be the director general, so to speak, of how you impact these four targets that you have outlined?
[Translation]
Mr. Pelletier: Thank you for the question.
Honestly, I would say that’s the beauty of the Fonds de solidarité FTQ. We have a sustainable development asset target of $12 billion. That said, we want 100,000 additional investors with lower incomes. We also want to create value beyond funding. All of this may seem somewhat contradictory, but our teams are the Fonds de solidarité FTQ’s DNA.
Let me give you the tangible example I sometimes give. Obviously, some businesses don’t always do so well for various reasons. Lord knows with everything going on right now economically, it can happen. Every time someone asks me what the priority is in this situation, I always say it’s the entrepreneur, the workers and preserving the business’s economic fabric. Some people work for a year or even a year and a half to put a business back on its feet. Of course financial return is important, but what we’re offering is unsecured capital. At no time — pardon the expression — do we pull the plug on a company. We don’t do that. We’re here to help businesses.
Striking that balance is fundamental. Our investors are asking for a reasonable return. They get a tax credit, but they also expect a societal rate of return. They expect us to do a transaction in a small village, because a specific business is the heartbeat of the village.
In fact, my first transaction for the Fonds de solidarité FTQ 10 years ago was in the forestry sector. It was $5 million for 22 jobs in a sawmill that was the heartbeat of the village. We managed to restart the plant and even made a return, while keeping 22 jobs in that village.
In short, we’ve been doing this for 40 years balancing the opposing forces. We’re passionate about what we do. That’s why I’ve been at the Fonds de solidarité FTQ for so long.
I’ll end with this. When we ask people why they work at the Fonds de solidarité FTQ, the answer is unanimous. It’s the fund’s mission that appeals to them, even more in an economy like the one we have today, where we wonder whether our allies are still our allies. That’s when local savings for the local business take all their meaning, more than 10 years ago.
[English]
Senator Varone: I compliment you on your direction and the work that you have done. Thank you.
Senator C. Deacon: Thank you, Mr. Pelletier, for your comments so far. I’m a big fan of Canadians not sending all their money to Toronto to decide where it is invested, and this is a model that — I’ve got two Torontonians beside me.
Anyway, I really commend you because I have experience in the industry. I was involved in a labour-sponsored fund in the early and mid-1990s. I saw in the later 1990s how hard redemptions were to manage and how redemptions, in many ways, undercut the ability to do follow-on investments. Investments, sometimes, were needed.
Can you speak a bit about how you have managed redemptions as an issue as your investors require funds for retirement or other reasons? How have you managed that issue?
[Translation]
Mr. Pelletier: Since we were talking about that, one of the key aspects of the Fonds de solidarité FTQ is that for most of our investors, contributions are deducted at the source. That’s important. This means the investment in the Fonds de solidarité FTQ, with the tax credit, allows smaller investors to put money aside for their retirement. That’s one aspect.
The other important aspect is that we meet our investors’ expectations, as much as possible. They get a reasonable return, one that isn’t very volatile and is stable over time. This makes them feel more secure about saving and the fact that, year after year, practically every semester, they get a return on that money rather than stock market volatility.
Another important aspect is we have local representatives talking to their colleagues and raising awareness about investing in their own retirement as well. That’s been our main message for 40 years now.
[English]
Senator C. Deacon: Just so I can understand, you are saying that your redemption levels are very low due to the strategies you employ, and so it doesn’t prove to be an issue?
[Translation]
Mr. Pelletier: Obviously, our model is mature in terms of buybacks. They’re done on a regular basis and we maintain a balance.
Based on the capital raised and the current buybacks, we plan rigorous investments over a five-year horizon. In our portfolio, 65% to 70% of capital is invested in the Quebec economy. That’s our strategy. Of course, we also have cash set aside for buybacks.
[English]
Senator C. Deacon: Thank you. We worked hard to get Bill C-208 passed a number of years ago to allow for intergenerational transfers using the lifetime capital gains tax exemption to be allowed in Canada. Are you seeing any other needs in terms of managing the upcoming wave of redemptions that you will be seeing that could be helpful in your organization’s involvement?
Lastly — and I may do this on the second round — but to think about your work with incubators and accelerators in Quebec because your province — as many provinces — has some good ones.
[Translation]
Mr. Pelletier: I’m not sure I understand the question.
Of course, we also invest in venture capital. That’s an ecosystem we work in.
From a tax perspective, I prioritize business transfers and successions.
I’m not sure if I answered your question, but that’s how I understood it.
[English]
Senator Wallin: Thank you. My questions are following up on how transferable this model is to other places or contexts. I have a quick question to start: How important do you think your company’s idea of being in Quebec, with the language and cultural connection and Quebec Inc., obviously, that has been around — is it unique to Quebec?
[Translation]
Mr. Pelletier: In fact, thanks to its incorporating legislation, the Fonds de solidarité FTQ ensures investment commitments are in Quebec. However, nothing prevents other provinces from creating a Fonds de solidarité FTQs that could then invest in those provinces according to the model that’s been in place for the past 40 years.
[English]
Senator Wallin: My question was whether your model was able to be developed and function the way it does because of the uniqueness of the Quebec economy, society, language and culture.
[Translation]
Mr. Pelletier: Thank you for the question.
I don’t think there’s any reason why it couldn’t work outside of Quebec if we apply the same basic conditions that have been applied for some 40 years. It’s very clear to me that an FTQ Solidarity Fund in another province could work.
[English]
Senator Wallin: You’ve talked about not only your very disciplined approach to return on investment, or ROI, but your social objectives as well. So just let me ask for an example to see what you mean. If there is a small Quebec company that makes a small component of a machine in Alberta that is used to take oil out of the ground, as long as that initial company is based in Quebec, you’re fine with that?
[Translation]
Mr. Pelletier: Thank you for the question.
Absolutely. For us, it’s really about the head office and the employees. It is also important to understand the Quebec company might have subsidiaries outside the province and make acquisitions elsewhere. That’s not an issue. Such a business is clearly eligible in Quebec. I would add that we’ve also met with partner companies from the East and West. In the current context, we could help Canadian partner companies, so yes, it is important.
[English]
Senator Wallin: There are a lot of federal funds on access right now, as the Prime Minister has announced he wants to try to create a domestic defence industry, for example. Would you access those funds? Would you partner with them, provided the company was going to be based in Quebec? What is your relationship with access to federal funds?
[Translation]
Mr. Pelletier: Thank you for the question.
Obviously, we work in partnership with the other players in the entire ecosystem, namely BDC and EDC. If a Quebec company is expanding in a certain sector, we’ll be complementary to those investments. We would make that complementary investment through the company, and we do that regularly.
[English]
Senator Wallin: Thank you.
[Translation]
Senator Loffreda: Thank you for joining us today, Mr. Pelletier.
The Fonds de solidarité FTQ is often cited as a leader in patient capital for SMEs. What do you see as the main persistent gaps in the Canadian financing ecosystem, especially for companies who want to grow and scale up? You have a lot of experience in that.
What do you think is the most important change we should make to the Canadian SME financing system to actually improve productivity and competitiveness? Those are the two major flaws in the current Canadian economic system.
Mr. Pelletier: Thank you for the question.
We’re fortunate in Quebec to have an ecosystem of players whose mission is to invest in the province. We’re fortunate to have that.
There are system-level improvements that could be made in terms of productivity, for example. Uncertainty is one of the challenges SMEs face, and it’s important. That uncertainty is fundamental. Also, they often don’t have the internal resources to implement productivity systems. Artificial intelligence comes to mind, for example. It takes local support. They also need expertise in this capacity to help them integrate productivity levels or AI.
I’ll give a tangible example. We recently consulted some of our portfolio companies on the integration of AI in their businesses and the risks they see in that. We’re in the process of setting up strategic support for next year to help entrepreneurs integrate AI in their operations. That’s very important for us. Of course, there are the financial and support aspects, and making sure these people are successful.
The challenge is that productivity is very broad. Where do I start? What choices should I make? That’s the main challenge. I’ll end by saying it has to be done with real expertise. That’s very important. That’s what we’re trying to bring in our network. In fact, we’ve held business-to-business sessions so that entrepreneurs can share their best practices in this regard.
Senator Loffreda: Thank you for that. We could talk about productivity for a very long time.
I have a general question. Based on your experience, what tangible measures could the federal government put in place to further encourage private capital and improve SME growth? Our study is on access to capital for SMEs and businesses. Are we missing something?
Mr. Pelletier: We talked about the regions, for example. I think we need a model that focuses on that. The challenge is often linking the authorized funds to the regions. We need to find a way to decentralize these programs and transfer them to the regions. The capital’s there, but how do SMEs access it? Programs are often complex. Entrepreneurs don’t have a lot of time on their hand to figure it out, especially when everything’s moving at the same time. Access to capital needs to be as streamlined as possible to get it to where it’s needed.
I would add you also need sector expertise and knowledge. To ensure the money is useful to the entrepreneur, things need to be simple and the entrepreneur needs expertise. I think that’s important.
I wasn’t as specific as you would’ve liked. Based on my 20 years working with entrepreneurs, I think those are really the key elements. People often tell me programs are fine, but they do not have the time or resources to take those steps.
The Chair: Thank you, Mr. Pelletier.
Senator Ringuette: Thank you, Mr. Pelletier. That’s very interesting.
I want to make sure I understand the 15% provincial and federal tax credit. When people contribute to an RRSP, they don’t pay tax on their contribution. So at what point does the 15% federal and provincial tax credit incentive kick in?
Mr. Pelletier: Thank you for the question.
As soon as they contribute to the Fonds de solidarité FTQ, they receive an additional 15% tax credit at the federal level and another 15% at the provincial level. It’s when they make their contribution, when they file their income tax return, and it can also be deducted at the source.
Senator Ringuette: Annually or later on?
Mr. Pelletier: During each investment period.
Here’s an example. Someone invests $2,000 in the Fonds de solidarité FTQ. When they make that investment, they receive this additional tax credit and they see it on their tax return. Every year, they’ll benefit from this tax credit.
Senator Ringuette: Every year?
Mr. Pelletier: Every time they invest.
Senator Ringuette: Every time they invest, okay.
Mr. Pelletier: Exactly.
Senator Ringuette: Really, if they invest $1,000 in a year, the actual cost is $700, because there’s a 15% tax credit from one entity and a 15% credit from the other?
Mr. Pelletier: Minus the RRSP basic credit as well.
Senator Ringuette: For a contributor, what’s the average return on investment over a five-year period?
Mr. Pelletier: I didn’t hear the question. Sorry.
Senator Ringuette: In terms of the return on investment over a period of, say, five or ten years, I don’t know. What do you use to calculate it?
Mr. Pelletier: Let’s take a hypothetical example. The contributor is 50 years old. Each year, he has contributed $2,000. He will withdraw his money at age 65. His return is really our annual return.
We evaluate our assets every six months. It’s a share that he owns. Every six months, he can see the share price, what it’s worth.
The return in recent years—
Senator Ringuette: What’s your average for your investments?
Mr. Pelletier: The return is 7%. So the return excluding the tax credit was 7%.
Senator Ringuette: You said 7%?
Mr. Pelletier: Yes.
Senator Ringuette: Wow.
The Chair: About 6.7% based on your official figures, which I saw at the end of December, Mr. Pelletier. We’re close to 7%.
Mr. Pelletier: Exactly.
The Chair: So, 6.7% for ten years. Excuse me, Mr. Pelletier, 7.3% for ten years, 6.7% for five years. That’s the fund’s return.
For the person holding an interest, the return is obviously much higher. It didn’t cost that person $1,000. It cost $700. Furthermore, it depends on whether the person does it through a retirement savings plan. In fact, it’s even better. The return, Mr. Pelletier, my question . . . I’ll let you finish.
Senator Ringuette: I’m pleasantly surprised by what you have going in terms of annual income, tax credits and also the end of the investment at the retirement stage.
Last question. Do you have a general fund that you distribute to the regions, or do you have a central fund and regional funds for workers in the regions? I would like this to be clear.
Mr. Pelletier: Thank you for the question.
The $23 billion is in one fund, the Fonds de solidarité FTQ. This money is invested and capitalized on a regular basis in regional funds, which can invest in the different regions.
Senator Ringuette: Where do the regional funds come from? From the $23 billion?
Mr. Pelletier: Exactly. The $23 billion can be channelled into regional funds for investment in these regional funds. The fund, which is based in Montreal, also invests directly in companies. So, these are the two components.
Senator Ringuette: Thank you.
The Chair: Thank you.
Senator McBean: Thank you, Mr. Pelletier.
[English]
It might not surprise you that all my questions have been mostly taken, but I had a question similar to Senator Loffreda’s about what the gap was in the SMEs for accessing capital and credit. It had me thinking about your expertise in welcoming SMEs to receive capital and credit, your patient capital.
Could you tell us what advice you’re giving to SMEs that they need to be adjusting their presentations to you that makes them viable candidates for the investment that you give them? What makes them a viable choice for the FTQ?
[Translation]
Mr. Pelletier: Thank you for the question. There are a number of aspects to the question. I’ll try to keep my answer brief.
Our regional fund investment teams work with these companies. Our transactions often entail a two-year or three-year relationship with the entrepreneur involving exchanges of information and discussions. Sometimes, we may not accept an investment for a company. However, we’ll give the company feedback. For example, their financial systems may not be adequate. We’ll suggest, for example, that they find a finance director to support the team.
Sometimes, we’ll invest anyway. We aren’t looking for the perfect case. In investment, there’s no such thing as the perfect case. We’re really looking for complementary teams. We do several different types of cases in different sectors. In our view, a good investment case absolutely must include the entrepreneur’s game plan. We need to assess whether that game plan is realistic, how we can support it and how we can help make it happen.
Our industry expertise means that we’re able to fully understand the sectors where we want to invest. We have a support team that can help the entrepreneur with certain aspects, such as the corporate governance or productivity aspects. We can offer the entrepreneur a number of different types of support.
The bottom line is that we like to invest and reinvest in a company.
In conclusion, I would like to point out that we have been a player in the forestry sector for over 30 years. We’ve been investing in the forestry sector for 30 years. This sector has gone through its cycles. However, we’re here through thick and thin. We know how to invest, we know the sector and we’re patient over the long term. The entrepreneurs recognize this too.
The same goes for the agri-food sector. This morning, I was with my team. An entrepreneur chose to work with us because he recognizes our expertise. He knows that we have one of the best agri-food teams in Quebec. He wants to join forces with us.
Investing in a company involves money, of course. However, it also involves a network, expertise and complementarity. Entrepreneurs often live in isolation. They can confide in us when we’re able to maintain a good relationship in this area. That’s the secret of long-term success.
The Chair: Thank you.
[English]
Senator Pupatello: Thank you for your discussion this evening. Can you describe the collection of tax credits that are available with an investment? You mentioned RRSPs earlier, so someone might take their RRSP, for which they would receive their own tax receipt. They would place them with you, and that would be subject to an additional 15% Quebec tax credit and an additional 15% national tax credit, and then, depending on your investment and what you do with it, they are subject to a potential dividend or return on a regular basis with that one investment. Is that how that works?
[Translation]
Mr. Pelletier: Thank you for the question.
We really have the investor component, which means the Quebec citizen, the worker in the company, the people who contribute to and invest in the Fonds de solidarité FTQ. This person receives their tax credit as a shareholder of the Fonds de solidarité FTQ. We invest these funds in companies with the entrepreneurs to help the companies grow. Then, at the end of that period, when the investor retires, they recover their investments and returns from the Fonds de solidarité FTQ. That’s how it works.
The $1.8 billion that we invest every year in the Quebec economy — of course, we also have investments — comes at the end of the disinvestment period. We have money coming back as well. This money is put back into the Quebec economy, where it can be used by investors. That’s really how the model works. It involves investors and investments in companies.
[English]
Senator Pupatello: Is there a guarantee with this fund? For example, if we head into a trade war that lasts many years, and there is a difficulty with the companies you’re investing in, are you guaranteed or backed by the Quebec government or the federal government?
[Translation]
Mr. Pelletier: Thank you for the question.
There isn’t any guarantee from anyone. As a fiduciary, our main role is to have a diversified portfolio in different sectors. Every year — our year ends on May 31 — I present to my board of directors our investment targets for the coming years in the different sectors of the economy. Every six months, we look at the distribution of the portfolio to see whether we’re too heavily weighted in any sector in order to make the portfolio as resilient as possible.
Indeed, we don’t know what the future holds. However, we were hit by COVID-19, which disrupted the market and supply chains and which also affected the forestry sector. I’m quite proud of the portfolio built up over the past few years. My main role as a fiduciary is to ensure a return and capital when they retire. This is crucial for us and for our teams as well. They want a reasonable return. My role as a fiduciary is to provide this through investment diversity.
I would like to add one more thing. This unique model democratizes private investments for our investors. Taxpayers can access private investments through the Fonds de solidarité FTQ as well.
[English]
Senator Pupatello: Can you go over your corporate structure again and give more detail about the governance of it? You mentioned a board of directors, for example. Who selects that? What structure are you? Are you considered a non-profit or for‑profit structure?
[Translation]
Mr. Pelletier: Our mission is to provide our investors with access to returns. We have a board of directors. We have an annual meeting every year in October. We have members of the board of directors. We have a chair of the board of directors. We have independent members. We have people representing the FTQ on our board of directors. It’s really a governance totally dedicated to the Fonds de solidarité FTQ.
I’m also part of an executive team, with Janie Béïque as president. On the executive committee, of course, our role is to act as a fiduciary for our investors. We hold annual meetings with the boards of directors.
With regard to investments, I’ll give you an example. For each investment, my teams prepare the documents required to ensure that our investments are approved by the investment committees, the sector investment committees or the board of directors, depending on the size of the investment. Once these investments have been approved, my teams and I monitor them on a regular and periodic basis.
[English]
Senator Pupatello: Who are your members? If you’re a corporation or a private company, who are your members?
[Translation]
Mr. Pelletier: Thank you for the question.
Our Fonds de solidarité FTQ shareholders number 810,000.
The Chair: Your comments have sparked a great deal of interest. I have a question and other senators would also like to ask a question. Does your schedule leave you time to stay another 15 minutes?
Mr. Pelletier: No problem.
The Chair: Before we continue, fellow colleagues, let us know whether you have any questions. Our clerk will take notes. We have a number of senators who would like to ask questions.
In your opening remarks, you quoted some figures that caught my attention. For every dollar invested by the Government of Canada through the tax credit, the fund invests $11.53 in the Quebec economy. Can you explain how you generate this type of leverage?
Mr. Pelletier: Through the length of the holding period for our investors. This helps us to roll this money over a number of times during the period. Given that the period is long, through thick and thin, we invest $1.8 billion a year in the economy. We also disinvest considerable amounts to balance the total. The length of the holding period helps us to come up with this figure.
The Chair: As you know, I’m more familiar with the Fonds de solidarité FTQ. For my colleagues around the table, could you explain the withdrawal policy? Workers contribute, lose their job and face financial difficulties. Can they withdraw their money before age 65? Could you take a minute or two to explain the withdrawal policies?
Mr. Pelletier: Yes, certainly. Thank you for the question.
I spoke earlier about the need for longevity to ensure the strength of the Fonds de solidarité FTQ. However, under certain more difficult circumstances, such as job loss, we accept that people may withdraw their investments from the Fonds de solidarité FTQ. These circumstances must remain exceptional in order to preserve the sustainability and investment capacity of the Fonds de solidarité FTQ. It was really set up to avoid jeopardizing the long-term survival of the Fonds de solidarité FTQ.
The Chair: Thank you for generously agreeing to stay with us. I already have six other senators who will ask you questions.
Colleagues, can we limit the questions to two or three minutes each, if you don’t mind?
[English]
Senator Fridhandler: I would like to understand who is eligible to invest in this fund. You say workers, and at one point you said low-income earners. It is not just open to any resident of Quebec, so is it just people who are actually working and can take it off their pay, or can retirees invest, or can business owners invest? How open is it? Could people outside Quebec invest without taking tax credits?
[Translation]
Mr. Pelletier: Thank you for the question.
The people who can invest in the Fonds de solidarité FTQ are the citizens of Quebec.
The Chair: If I may, they don’t need to be workers or in business. Anyone can invest in the Fonds de solidarité FTQ, as long as they live in Quebec. Is that right?
Mr. Pelletier: Yes. Exactly.
[English]
Senator Fridhandler: An adult resident of Quebec, presumably.
The Chair: If you want to have access to the credit, you obviously have to be a resident of Quebec.
Senator Fridhandler: So individual residents — companies can’t invest. People outside of Quebec can’t invest. It is just restricted to Quebecers.
The Chair: Okay.
Senator Fridhandler: Is it anybody or only unionized workers?
[Translation]
Senator Loffreda: Mr. Pelletier, thank you for joining us and for giving us more time, considering the high level of interest around the table.
As you know, I worked in the financial sector for 35 years. I worked extensively with the Fonds de solidarité FTQ. I’m quite proud of your results. I can say that 6.7% is a great rate of return. This explains the strong interest in your organization.
As Senator Pupatello said, with the trade war going on with the United States, we’re hearing President Trump say:
[English]
— “Canada is taking advantage of us.”
[Translation]
In my career, especially during my years in capital markets, I often saw a number of our growing companies acquired by American companies. We can’t compete with these companies on the capital front.
When it comes to Canadian ownership, how can we better structure funding and models? We have certain models that entrepreneurs aren’t familiar with, such as employee ownership trusts, or EOTs. These models are designed to preserve Canadian ownership and to strengthen our economic sovereignty. Obviously, we’ll never be able to compete with the United States on the capital front.
In this type of case, what more can we do, with the help of certain models, to keep these companies in Quebec and Canada?
Mr. Pelletier: Thank you for the question.
In the coming years, the key will indeed lie in ensuring the greatest possible success in keeping companies in Quebec. In my opinion, the first key is to have a responsible and highly proactive ecosystem to address the situation.
The planning of a business transfer is an important key. We need to start with this planning. Once again, in Quebec, we’re quite fortunate to have the current ecosystem and to carry out many successful transactions in this area.
However, one aspect that remains a challenge is finding a way to match and successfully compete with certain American funds against the many multiples paid in the market. We’ll need to think about this, I believe.
As you know, I’ve done a few transactions over the years. Sometimes, we couldn’t complete a transaction because of the returns expected from certain players in the Canadian or Quebec market. I understand that they have return targets. However, we need to be able to provide access to capital in these transactions. This could help to improve the success rate in Quebec and Canada.
This is where the Fonds de solidarité FTQ stands out. As I said earlier, the financial return matters, but so does the societal return. By our nature, we can stretch a bit further in transactions than others are able to. We’re constantly working on this.
The Semaine du repreneuriat will be taking place soon. We’ll have a front row seat.
The Chair: Thank you, Mr. Pelletier. If you have any further comments on that, you can send them to us in writing. When we see the multiples paid south of the border, it becomes difficult to keep our businesses here. This is a concern for the committee.
[English]
Senator Varone: Mr. Pelletier, you touched on how you deal with failure, but my question is a derivative of what Senator Loffreda asked. How do you manage success? When you invest in a Quebec company with Quebec employees and, organically, they grow, they become not just provincial but national in scope and international, where the employees no longer are just in Quebec but across Canada, maybe internationally. Do you have a mechanism where they are too big and you invoke a divestiture of some sort, or do they move along, or do you follow their growth and continue to invest?
[Translation]
Mr. Pelletier: That’s a very relevant question. I would say that we have some success stories in our portfolio. We had medium-sized companies that became industry leaders across Canada and the Americas. We are still partners with one such company. For us, what matters is having the capacity to reinvest. With $23 billion in assets, we have a really significant investment capacity to support these businesses.
We will even be there for large business. In fact, the role of the Fonds de solidarité FTQ is to create the flagship companies of 2030-2035 and support them throughout their journey. Afterwards, it may become a happy problem because that company will have to be transferred to the next generation. That’s when we’ll discuss how to ensure the long-term viability of our flagship companies in Quebec. The answer to that is clear. We are happy to partner with successful companies and continue to support them.
[English]
Senator Varone: Thank you.
[Translation]
Senator Henkel: Mr. Pelletier, my question for you has two objectives. The first is to increase the number of female entrepreneurs or businesses owned by women, particularly in Quebec. So the objective is to increase that number, which is far from optimal. We must also break down the financial sector’s systemic biases against women when they dare to start a business or when they ask for more funding for their growth.
The benefits and positive mission of your organization are well established. However, I’d like to know if you have put in place any verifiable mechanisms that will specifically help flag such biases should they occur. What tools do you use to avoid those biases? You know as well as I do that access to financing, particularly for women-owned and minority-owned businesses, is extremely complex. If we factor in the regions and the company size, even if there is interest in technology start-ups, they are not yet able to secure those funds.
Thank you, Mr. Pelletier.
Mr. Pelletier: Thank you for the question. I really appreciate it.
This winter, we launched the Mouvement Repreneuriat au féminin — an initiative designed to encourage business buyouts by women and to adapt support programs and tools from a gender perspective — with partners, specifically to analyze this aspect of business succession by women, which is a major challenge for us.
I would say that the first concrete example for our organization is having Janie Béïque as president. In an organization, there is nothing better than having a female president at the helm to raise awareness among all our teams.
In addition, to come back to the issue of biases, on my team, at the vice-president level, we have nearly equal representation. So there are women around me, as well. I can assure you that they regularly remind me of this issue.
In any case, having two daughters, I am personally very aware of this, as well.
I was on a team today with a group that I started to discuss how to attract more women into finance and investment, including within my teams. I shared the vision of a Fonds de solidarité FTQ that would become the best place for women to have a career in investing. These individuals did a remarkable job analyzing the findings and provided very clear recommendations.
We’ve had the goal of having 40% women serving as directors within our companies for a number of years now, and to appoint them to boards of directors as external members. We’ve reached that target.
Given our role as an impact investor and our societal responsibility, this is an issue that is very close to our hearts. This applies not only to our teams, but also to our investment committees. Often, we have a number of recommendations to make to entrepreneurs when we see that their management team is composed largely of men. This needs to change. That issue is being addressed. We are very aware of this.
With the mix of people we have around the table, I think we have the ingredients to avoid these biases.
Senator Henkel: Thank you.
Senator Ringuette: I have two quick questions for you, Mr. Pelletier.
You have mentioned several times the expert services you offer to SMEs. Are there any costs associated with these expert services?
Mr. Pelletier: Thank you for the question.
Our support teams do not charge the companies. That’s important to us.
I am very proud of this team. When we conduct client surveys to see if the support has had a positive impact on their business, the feedback is fantastic. We have survey results that exceed what I could have imagined at the outset. That’s all thanks to the support team.
Why are we getting good results? Because we focus on concrete solutions. We’re trying to simplify the entrepreneur’s work with really concrete solutions tailored specifically to the company’s needs.
Senator Ringuette: Twelve years ago, the federal government introduced the tax-free savings account, or TFSA, which is tax-free for investments. Through the TFSA, it is possible to purchase shares in mutual funds or companies. Have you looked into adding the TFSA to your assets?
Mr. Pelletier: We launched the FlexiFonds some time ago. This makes it possible to transfer money from the RRSP — when it’s time to make a withdrawal or a redemption — to put it in a TFSA. This can also be used by someone who wants to save in the FlexiFonds through their TFSA. In that case, a percentage of the FlexiFonds portfolios are also owned by the Fonds de solidarité FTQ and play a role in Quebec’s economy, absolutely.
Senator Ringuette: Yes, that’s right. Thank you.
[English]
Senator C. Deacon: I just want to dig a little bit more into the redemption criteria. It sounds like, if people lose their job — it sounds like a “till death us do part” kind of investment where once you’re in, you’re in. If you lose your job, you can redeem shares.
I didn’t get an answer last time on this question: What are the conditions that allow investors to redeem their shares?
[Translation]
Mr. Pelletier: Thank you for the question.
Yes, one of the conditions is job loss, so being in a critical financial situation. These are really conditions related to an investor’s vulnerability that make it possible for them to redeem their savings. I’ll reiterate that this requires exceptional circumstances. We are, of course, open to it.
The risk, if we were to broadly allow investors to redeem our shares, would be massive redemptions, which could jeopardize the fund’s sustainability. It’s an important balance for our ability to invest in the economy, but also for our ability to support businesses, as a private investment portfolio is not a liquid portfolio.
[English]
Senator C. Deacon: Thank you for the clarity. You are in this until you die, basically, unless you lose your job, as an investor?
[Translation]
Mr. Pelletier: Not until death, but until retirement.
[English]
Senator C. Deacon: I think it is an important element. It was part of why there was a lot of trouble in the 1990s with these funds, and so I think for us to actually assess this investment vehicle, we need to understand what conditions you have in place. I think that is a very important condition that you have in place. If you could make sure that the clerk is provided with that information in a fulsome manner, I would be appreciative.
The other is just understanding the difference — you invest in debt and equity — and the management fees that you charge. If that could be provided to the clerk, given that we are tight on time, I think.
The Chair: Good idea.
[Translation]
For the benefit of colleagues who are less familiar with the Fonds de solidarité FTQ, there is a cap of $5,000 on the tax credit. You can invest more, but for the 15% tax credit, there is a $5,000 cap.
Correct me if I’m wrong, Mr. Pelletier. There is a bit of an explanation needed. Anyone can invest, whether they are employed or not, but ultimately, there will be a maximum credit of $1,500 per year. You can invest $100,000 if you want — correct me if I’m wrong — you can invest a lot, but your credit cap will never exceed $1,500 a year. Can you send us some details about that? Otherwise, the Fonds de solidarité FTQ would likely have $300 billion in assets instead of $28 billion, and the Quebec government would likely have a much larger budget deficit if this cap didn’t exist.
Mr. Pelletier, thank you very much for your generosity. As you can see, there is a lot of interest in the Fonds de solidarité FTQ formula. Other experts who have testified here have talked about the ecosystem for accessing capital in Quebec, and the Fonds de solidarité FTQ has often been mentioned. I want to thank you on behalf of my colleagues. We also extend our greeting to your president, Ms. Béïque, whom I know. Rest assured that we will take note of your testimony. You also raised the fact that, at a certain level, there are still takeovers by the Americans or others, but in that case, there is the valuation you are willing to pay for. We’re interested in all of that.
Thank you.
Mr. Pelletier: Thank you very much. Have a good evening.
The Chair: Colleagues, we will now proceed in camera.
(The committee continued in camera.)