A new investment fund backed by financial heavyweights is looking to spur the development of emerging banking, insurance and investment technology in Canada.
The yet-to-be-named fund is a joint effort of the Caisse de dépôt et placement du Québec and Desjardins Group. The two Quebec firms will invest $50-million in the Canadian fintech sector and artificial intelligence applied to finance in the coming years, and as much as $25-million will also be sought from other institutional investors to support the Montreal-based investment fund.
The move adds to the growing pool of capital being dedicated to research, develop and invest in fintech in Canada – all part of an effort to make the country's financial sector more competitive and efficient. The fund will make investments of as much as $2-million in each new business but also aims to foster information sharing with disruptive startups in need of customers and data to test their platforms.
"The idea of this federated fund is also to provide access to the data of those [financial institutions] that will be participating in the fund," said Pierre Miron, chief operations and IT officer at Caisse. He added that this is to "speed up the development of the solution, for sure while respecting the confidentiality and the security of the information." Investors in the new fund may also have an interest in partnering with the businesses directly and would not be precluded from making co-investment deals.
The plan echoes last year's formation of Portag3 Ventures, a fintech fund backed with capital from another prominent Montreal name, Desmarais. Portag3 was based on a hybrid investment model that combined venture-capital support and a corporate-investment platform with some of the largest firms controlled by the Desmarais family, including Power Financial Corp., asset manager IGM Financial Inc. and insurer Great-West Lifeco Inc.
Banks and insurance companies have been tightening their ties to the tech scene by building out internal departments, trekking to Silicon Valley and building information-sharing partnerships with startups in an effort to improve their footing in an evolving – and increasingly digital – landscape.
Among pension funds, the Caisse has emerged, along with others such as the Ontario Municipal Employees Retirement System (OMERS), as a significant backer of new technology businesses in Canada – particularly in its home market. But the investments planned for this fund will be all new.
The new fund plans to make equity investments in experienced entrepreneurs who have developed sought-after products but have pliable business models. It will target a broad range of both consumer-facing and back-office financial needs, such as payments, data analysis, security and client acquisition and retention.
"The idea of this fund is to facilitate the development of specific solutions by giving access through the fund to these developers," Mr. Miron said.
The Caisse said other institutional investors and financial firms have already expressed interest in joining before the first closing of about $75-million, which is expected by the end of the year. A leader to manage the fund has yet to be chosen, but Mr. Miron expects to see all the money allocated to investments within five years.