Carney announces sovereign wealth fund ahead of spring economic update

OTTAWA — Prime Minister Mark Carney announced the creation of a sovereign wealth fund one day ahead of his government’s spring fiscal update, with an initial endowment of $25 billion.

“We’re proud to announce a new pillar of our plan, the Canada Strong Fund — Canada’s first national sovereign wealth fund,” said Carney, during a press conference in Ottawa on Monday.

“This will be a Government of Canada fund, but more importantly, it will be a people’s fund,” he added. “It will be your fund.”

Carney did not provide details on how he plans to initially finance the fund which is designed to give Canadians an investment stake in domestic major projects, alongside private sector investors. The fund will operate as a Crown corporation.

The prime minister said more details will be provided in the spring economic update, which will be tabled on Tuesday.

Speaking to reporters in Montreal, Finance Minister François-Philippe Champagne pointed to Canada’s ability to borrow at competitive rates, when asked how the initial endowment in the fund will be financed.

“We will invest $25 billion as seed capital in the fund,” said Champagne. “As you know, Canada, because we’re one of the very few countries in the world, I would say there’s only two countries in the G7 which have a AAA credit rating, Canada can borrow on the international market at some of the lowest rates that you can see.”

Champagne said his government will consult with stakeholders and financial industries in the coming months to develop the structure and best practices of the fund, noting it will be at arm’s length from the government.

When asked how this fund will operate differently from the Canada Infrastructure Bank, Carney said the sovereign fund will provide returns instead of debt.

“When you lend money, you hope to get it paid back, and then you move on, that’s what the Canada Infrastructure Bank does,” said Carney.

“You don’t get the returns that the underlying business or project gets, the equity returns, the returns to the owner, which…run substantially higher than the returns for debt,” he added.

Other jurisdictions have sovereign wealth funds which have proven successful, including in Norway and Singapore. However, Norway’s fund was established in 1990 with government revenue surpluses from its oil and gas sector.

Carney said his government is taking lessons from those countries that had the foresight decades ago to start funds that benefited from their resources. Carney said the fund may start out with a domestic focus, but could grow to global investments.

The prime minister has spent the past year travelling to other countries to attract capital investment in Canada. The federal government recently announced Canada will host an investment summit in September, which includes invitations to some of the world’s largest investors to Toronto.

Bank of Nova Scotia economist Derek Holt said the “devil will be very much in the details.”

“In principle, I like anything that may lean toward policy emphasis upon saving and investment to motivate higher future productivity and living standards versus too many years of propping up here-today-gone-tomorrow spending,” he said, in a note.

“I’ve long advocated this policy pivot from high shares of the economy going toward household spending, current government spending and housing investment,” said Holt.

Tim Sargent, head of domestic policy for the Macdonald-Laurier Institute think tank, said it’s unlikely that the new fund will be a win for taxpayers.

Canada would have been better off to use the $25 billion to reduce its debt, Sargent said, instead of launching a sovereign wealth fund.

“Countries with large sovereign wealth funds are generally large oil producers — Norway, Abu Dhabi, Kuwait that instead of having large government debt, are in the enviable position of being able to accumulate assets,” he said, in an emailed statement. “This is not the case for Canada, with its large public debt.”

Sargent also noted that governments are not as good as the private sector at choosing projects, largely because politicians’ investment decisions are influenced by emotion and short-term expediency. He cited the Port of Churchill and the high-speed rail projects as examples.

“A better approach would be to work harder to provide regulatory certainty for all projects — not just those chosen by government — and let the private sector do what it does best, assess projects based on rational, sentiment-free analysis,” he said.

National Post, with files from Simon Tuck

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