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Report on Business A first for Canada: An Indigenous-focused fund that projects 8-per-cent returns

David and Natasha Sharpe, of Bridging Finance Inc. are photographed in the company's downtown Toronto offices on April 11 2019. Bridging Finance provided financing for the purchase of the MV Sivulliq, a shrimp trawler.

Fred Lum/The Globe and Mail

A new fund dedicated to financing Indigenous economic development offers Canadians the rare opportunity to invest in on-reserve projects through a private asset manager.

Launched this month, the Indigenous Impact Fund is the first of its kind. Run by Bridging Finance Inc., a Toronto-based money manager that specializes in debt investments and manages $1.3-billion, the fund is the brainchild of an Indigenous chief executive. The company projects 8-per-cent annual returns.

David Sharpe, the chief executive of Bridging Finance, is a status Indian and a member of the Mohawks of the Bay of Quinte. After growing up on and off his reserve, he has spent the past two decades in the investment industry. “I feel as comfortable in a sweat lodge as I do in a boardroom on Bay Street,” Mr. Sharpe said in an interview with The Globe and Mail.

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Mr. Sharpe runs Bridging Finance with his wife, Natasha Sharpe, who is the company’s chief investment officer and was formerly the chief credit officer for Sun Life Financial. Ms. Sharpe also spent more than a decade assessing credit risk at Bank of Montreal, including for Indigenous projects.

Their fund is launching at a time when Indigenous development opportunities are becoming more common, with many communities debating investing in large Canadian infrastructure projects. In March, a First Nations-led group said it is putting together a bid to buy a 51-per-cent stake in Ottawa’s Trans Mountain oil pipeline. Last week, a group representing 20 elected First Nation councils said it is looking to buy a 22.5-per-cent stake in TransCanada Corp.'s Coastal GasLink pipeline project in British Columbia.

The projects that the Impact Fund will help develop are smaller in scale − yet are necessary for everyday life. Examples of developments Bridging Finance have participated in over the past five years include a grocery store and a pharmacy, and the new fund will pursue the same types of opportunities.

Despite reconciliation efforts, the development of economic essentials on reserves remains muted. “It’s very difficult to do on-reserve lending in a traditional format," Ms. Sharpe said. When financing the construction of a retail plaza, for instance, the land is often used as collateral. “With on-reserve lending, you can’t do that, which makes it extremely challenging for economic development." These rules are written into the Indian Act.

Technically speaking, the federal government can provide Indigenous communities with upfront capital for these projects, or offer other financing solutions. But that’s proven to be more of a theoretical exercise. “If you wait for the federal government," Ms. Sharpe said, “you’ll be waiting a very, very long time."

In the private sector, large Canadian banks do look to participate in these projects, but they have their own credit-quality rules that limit when they can be involved. Banks tend to shun early stage developments, particularly construction projects, because there is no cash flow being generated from the asset.

The Impact Fund, then, is designed to provide a bridge to the banks − hence the company name Bridging Finance. It will provide early stage funding, and then effectively sell the loan to a major bank.

In fact, the company is often asked by the banks to get deals up and running. “Most of our referrals of business come from a bank who say, ‘I like this deal, I want to do this deal, but I can’t do it for, say, two to three quarters,' " Ms. Sharpe said. Bridging Finance is able to act much quicker than a bank, sometimes securing a deal in 30 days. “We can do what they cannot.”

Two completed projects illustrate the types of opportunities the Impact Fund will pursue. In 2014, Mr. Sharpe visited the chief and council of the Elsipogtog First Nation, who live on a small reserve north of Moncton, and learned that the community had no grocery store or pharmacy. Bridging Finance funded the development of a Loblaw’s and a Pharmasave, which now employ roughly 50 people.

The company has also financed an Inuit collective’s effort to buy a $23-million icebreaker that was used to fish shrimp in the North Sea. The vessel was being sold in Norway, and the deal had to close in 30 days, creating logistical hurdles.

Although the fund’s projected 8-per-cent return looks juicy, its anticipated payout is a reflection of the inherent project risks. In finance, a higher yield is generally a result of higher risk.

Bridging Finance relies on its credit roots to assess the risk potential, and the company looks to finance projects that will be attractive to banks once they are generating cash. That way, it isn’t lending money to individual projects for extended periods of time − the company will be “taken out" by bigger financial institutions. “We’ve never had a loss, nor a default, on First Nations lending,” Mr. Sharpe said.

As an extra safety measure, the fund is only available to accredited investors, and for individuals that means having at least $1-million in investable assets. This is a common feature of private funds.

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Until recently, pitching Canadians on such an investment would have been difficult. “A lot of people read about First Nations and Indigenous people, and many people haven’t been on a reserve," Mr. Sharpe said. “There’s a natural fear of the unknown." Lately, however, smaller pension plans and high-net-worth investors have shown more interest in ethical investing.

And with a pipeline of deals worth between $400-million and $500-million, Bridging Finance sees the potential for other asset managers to enter this arena and meet the rising demand.

“This is not charity," Mr. Sharpe said. "This is a strong business.”

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