I have a few investments in royalty funds.  Basically these are, in essence, a flavor of an investment capitalist firm.  They seek out fledgling companies with good potential, reasonable risk and provide capital to get going or grow and expand.

A key difference is the investment is linked to a royalty agreement.  Basically a percentage of revenue or profit or both, usually for the life of the company although they can be for a fixed term or tied to return of capital plus a reasonable rate of return.  This sort of guarantees the fund ongoing income (assuming the companies invested in keep operating).

This can result in a very effective “income” investment.  I don’t really do it for capital gains but rather the constant stream of relatively low risk return (assuming the fund is making good investment choices).

Other Common Royalty Models

Governments often use royalty models to recover the cost of resource removal from their territories.  For example oil companies pay the jurisdiction where the oil is been taken from a percentage of their revenue or profit or both.  This is to compensate the owners of the oil,  that is the people of the country or region it’s being extracted from.

By virtue of living there they derive some benefit (or their government does).  In some cases only citizens (people born to the oil laden lands) receive direct payment of the royalties from their government (Saudi Arabia and Kuwait are examples of this).

Alberta’s Royalty Review

The current NDP government of Alberta made an election promise to conduct a review of the royalty rates being charged in the Province.  There was much innuendo during the election about how the people of the province were getting ripped off by big oil.  Not sure if the current price of oil had anything to do with it but the oil sands royalty structure is not changing. (What a surprise?)