Canada is getting a sovereign wealth fund. What we know so far

Canada is getting its first sovereign wealth fund, Prime Minister Mark Carney said on Monday, with an initial endowment of $25 billion.

A sovereign wealth fund is a state-owned investment fund, that allows a government to invest in projects and investment opportunities across the world.

Carney described it as “essentially a national savings and investment account.”

Several countries around the world, from China and Norway to Australia and Saudi Arabia, have similar state-owned investment funds.

The Canada Strong Fund will “invest alongside the private sector in nation-building projects,” Carney said.

“We will begin with an initial endowment of $25 billion. Over time, the fund will grow through asset recycling and reinvestment, creating even greater opportunities for future generations,” he said.

Conservative Leader Pierre Poilievre referred to the fund as a “slush fund.”

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“Some of the countries around the world, you will note, have sovereign wealth funds. You need to have wealth for those funds. Norway, Singapore and Saudi Arabia run big budget surpluses, which they accumulate and then put into their sovereign wealth funds,” he said.

“Carney has no surplus and therefore, no wealth to put in such a fund. He’s talking about a sovereign debt fund,” Poilievre added.

The creation of a national sovereign wealth fund is “largely” a good initiative for the country, said Saskatchewan Premier Scott Moe.

“We need to have that environment to attract that economic investment, that private sector investment into our energy industry, into our industrial industries like mining, gas, helium, lithium and so on, as well as our agricultural industries and manufacturing industries,” he said.

However, when asked if such a fund would have an impact on provincial budgets if the federal government pulls oil and gas revenue to the fund, he pointed to questions of “provincial autonomy.”

“The development of our natural resources are the purview and the jurisdiction of the provinces,” he said.

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The idea of a government-run investment fund isn’t new, not even in Canada.

Alberta, for example, has the Alberta Heritage Savings Trust Fund, which reinvests a portion of the province’s resource revenues, particularly from the oil and gas sector. Quebec has the Caisse de dépôt et placement du Québec (CDPQ).

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The Canada Pension Plan Investments is currently one of the largest institutional investors in the world, with over $780 billion in assets under its management globally.

“The really big question is how is this fundamentally different from what we’ve seen in the past?” said Jimmy Jean, chief economist at Desjardins.

“We’ve had a series of funds that haven’t really delivered, even though they were intended to do the exact same thing – get more investment and involve more private sector or major investors in major projects,” he added.

The Canada Infrastructure Bank, formed in 2017, was tasked with supporting infrastructure projects.

“We haven’t seen too much in terms of outcomes from that,” Jean said.

The plans for the fund will be included in the spring economic update on Tuesday, Carney’s office said.

The federal government said it will also establish a Canada Strong Fund transition office to “advance a targeted engagement with market participants and regulators,” the Prime Minister’s Office said.

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For private equity investors to choose Canada, the new sovereign wealth fund will need to guarantee targeted returns, said Concordia University economist Moshe Lander.

“Why would I want to invest my money in building some bridge in Canada when I can invest my money in some tech company in the U.S.? That’s where private capital is going to say ‘thanks, but no,’” he said.

The example of Alberta’s provincial fund would not be encouraging for many institutional investors, Lander added.

“They’ve (Alberta) massively mismanaged it. They use it as a rainy-day fund, rather than as some sort of generational fund. Any time something goes sideways in the province, which it inevitably does because it’s boom-and-bust cycle, they just go and grab the money,” he said.

Individual Canadians will be able to directly invest in the fund, Carney said, though it’s not yet clear how that proposal will work.

“If you have a little bit of extra money, we’ll make it easy for you to invest in the fund to help build Canada strong, for all,” he added.

Most of the major investment in big projects in Canada will still come from the private sector, he said, with the federal government providing support through loans, grants and other incentives.

The fund will be “professionally managed and operate as an arms-length, independent Crown corporation,” he said, adding that the government will be consulting over “specific aspects” of the fund.

Carney compared the fund to the building of the Canadian Pacific Railway in the 1870s, however, he said some things would be different.

“This time, we are building with Indigenous Peoples as full partners—ensuring meaningful Indigenous ownership and major economic benefits,” he said.

Some Indigenous groups, however, have expressed concern.

“At a minimum, there should be a clear policy standard: public funds must not be deployed in ways that infringe on Indigenous rights, title, or self-determination. Anything less signals that ‘sovereignty’ is conditional depending on who holds it,” said Gwii Lok’im Gibuu, co- director of the Skeena Watershed Coalition, in a statement.

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When asked where the money for the fund would come from given the size of the federal government’s deficit, Carney said there would be “good news” on that front during Tuesday’s spring economic statement.

The range of investments will be “very broad,” beyond just oil and gas, he said.

Managing oil revenue is a key aspect of Norway’s sovereign wealth fund, but Norway has a cap on how much of the fund’s spending comes from the oil sector. This is done to protect the broader Norwegian economy from the boom-and-bust cycles typically associated with the oil and gas sector.

This will be harder for Canada to do, given that resource revenue in Canada is not centralized, a report in the McGill Journal of Economics said earlier this month.

“The difference between Norway and Canada is Norway does not have provincial governments with nearly the power that we have in Canada,” Lander said.

“Any attempt to try and deal with the oil and gas industry at the federal level will instantaneously be met with pushback, of course, from Alberta, but also from Newfoundland and Labrador,” he added.

The federal government needs to ensure that Canadian investments are protected against the boom-and-bust of global oil shocks, said Sierra Club Canada.

“We’re awaiting more specifics, but we are concerned that the fund is effectively a way to misleadingly ‘re-brand’ public investment and backing for a west coast oil pipeline and new LNG projects: projects that have no business case as the world moves rapidly to renewable energy,” says Conor Curtis, director of communications at Sierra Club Canada, said.

The focus of the fund will be on investing within Canada, Carney said, as Canada takes “a lesson from other jurisdictions that had the foresight many decades ago to start sovereign wealth funds.”

“In some cases, they began with a domestic focus. Then outgrew the scale of the domestic focus,” he said, pointing to the state-owned private investment fund Temasek Holdings in Singapore.

When it was founded in 1974, Temasek made largely domestic investments in Singapore. Recently, however, it has broadened its scope with global investments.

The “uniqueness” of Canada’s sovereign wealth fund – as opposed to the ones that Nordic countries like Norway have – will be the ability of everyday Canadians to put money in the fund, Finance Minister Francois-Phillipe Champagne said.

“We’re looking at best practices to really set something which would be uniquely Canadian, inspired by best practices in the G7,” Champagne said, speaking to reporters shortly after Carney.

However, this could mean that many Canadians will be left out of the returns, some economists warn.

“In order just to actually allocate funds to allocate your money as an individual to an investment fund, you need to have spare cash lying around. And the reality is that not everyone has that spare cash lying around,” said Paul Calluzzo, associate professor at Queen’s University’s Smith School of Business and research fellow at the Institute for Sustainable Finance.

The silver lining for the government’s new fund might come in the form of the momentum around the Buy Canadian movement and surge of patriotism, Calluzzo added.

“It’s hard to think of a geopolitical time that’s more favorable to investing in Canadian infrastructure than right now,” he added.