Since many new companies fail or at least flounder in their first few years of business, there is a greater likelihood that an LSIF investor will experience a loss.
First there's the federal government, that hands out a credit worth 15% to an LSIF investor.
In Ontario, for example, an LSIF that also qualifies as a Research Oriented Investment Fund would generate another 20% in tax credits, making for a whopping 35% in total.
The end result is that someone who puts $5,000 in an LSIF gets an extra $15,000 in foreign content room.
Besides facing higher risks, LSIF investors can also expect to pay higher management fees.
But clearly the ups and downs of venture investing (for it is, after all, venture capital that an LSIF provides) are not for the faint-of-heart.
Stubbs suggests that, in order to maintain equilibrium, LSIF holdings should be kept to around 5 to 10% of a total portfolio.
After consideration of the Ontario Ministry of Finance's announcement, the board of directors of the Fund has determined that the planned elimination of the Ontario provincial tax credit for investors in LSIFs
and the existing uncertainty about the implementation of the same will materially impact upon the Fund's ability to raise additional capital and operate based on its current business model and that it is inadvisable in such circumstances to attempt to raise additional capital and continue operations as currently conducted.
And so every November, December typically in the Canadian capital markets, you have LSIFs
running around like drunken sailors with their wallets open saying, "I've got to spend this money before year-end.