Montreal fund manager launches first-of-its kind Indigenous reconciliation fund

Canadian investors will soon have a new way to support Indigenous economic reconciliation.

Montreal-based fixed-income money manager AlphaFixe Capital Inc. is launching a new type of investment fund that will buy bonds from corporate and government issuers with stronger reconciliation performance relative to their peers. That could include issuers with higher Indigenous equity, labour or board representation, as an example.

The company has spent nearly three years developing what it considers to be a first-of-its-kind investment product. Alongside an Indigenous advisory committee, it co-created a new kind of scoring methodology to rank issuers. The system is conceptually similar to the process long employed by sustainability-focused investors to assess environmental, social and governance performance.

“It is very imperfect to use quantitative methods to deal with something that is as qualitative as economic reconciliation, but it is a starting point for us,” said Sébastien Rhéaume, co-founder and chief investment officer at AlphaFixe. “The key challenge is that we need to have metrics that we can measure.”

For corporate issuers, their reconciliation score is calculated using nine criteria. Some examples include Indigenous representation on the company’s board of directors and in its workforce, whether the company has been accredited by the Canadian Council for Indigenous Business and the status of any grievances involving Indigenous peoples.

For public issuers, such as provincial governments, the scoring system is more complex. It incorporates 40 different factors, including the level of housing, health care, food and water security for Indigenous communities in the region, and whether the province has established procurement programs or partnerships with Indigenous-owned businesses and firms.

“These tools allow us to rank issuers by industry so we know who are the leaders and who are the laggards,” Mr. Rhéaume said. “The idea is that we can sit down with all these issuers and put pressure on them so that they understand that they need to play a role and that we, as a buyer of their bonds, expect them to play that role.”

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The fund will also directly finance investments that benefit Indigenous peoples, such as specialized bonds from Bank of Montreal, Royal Bank of Canada and the First Nations Finance Authority that raise funds for Indigenous business and communities.

To ensure the development process was in keeping with a “nothing about us without us” philosophy, AlphaFixe assembled a six-member Indigenous advisory committee about a year ago to work with its team and provide ongoing advice and guidance to the fund after it launches.

“They were building a pretty lovely ecosystem of Indigenous-led expertise,” said Amanda Calla, director of Indigenous relations at Sun Life Financial Inc. and a member of the committee. Her ancestral name, as part of the Squamish Nation, is Tséķwiya.

“It was a collective effort to bring the fund to life. Together, we developed indicators, methodology and evaluation considerations that bring Indigenous community priorities into alignment,” she said.

Ms. Calla said she challenged the company to consider scoring methodologies that use weighting categories, such as community well-being or Indigenous environmental stewardship objectives.

The fund is effectively a proof of concept that AlphaFixe hopes will be replicated across the investment industry, just as ESG funds have proliferated in recent years. Mr. Rhéaume said he would like to see the Indigenous advisory committee become an independent entity in the near future to act as a resource for other money managers looking to launch reconciliation funds.

Ms. Calla also said she would like to see the model become more broadly adopted.

“The idea here is to build an ecosystem of Indigenous-led expertise to support the fund and its ongoing, traditional objectives, but also to bring reconciliation scores forward as a priority for capital markets,” she said.

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A benefit of launching a fixed-income reconciliation fund as opposed to an equity fund, Mr. Rhéaume said, is investors do not need to sacrifice performance for a positive social impact.

“Sometimes we get a question about ‘how much is this going to cost us?’ We’ve been able to demonstrate through our green bond fund that when you’re doing impact investing through fixed income, you do not leave any money on the table,” he said.

AlphaFixe launched their green bond fund in 2017 and Mr. Rhéaume said it has since performed as well as the company’s other funds. In terms of how big the reconciliation fund could get, he said their green bond fund currently has about $2.5-billion in assets under management and “there is no reason why this cannot be as successful.”

Sunlife will be the first to add the AlphaFixe ESG&I Bond Fund to its group retirement platform.

“We are starting with Sunlife, but I think once this is announced, our phone is going to start to ring and others are going to ask if they can onboard this strategy,” Mr. Rhéaume said.

“The answer is going to be absolutely.”