Prime Minister Mark Carney launched Canada’s first sovereign wealth fund this week, pitching the idea as a “people’s fund” for national projects at a time when Canadian sovereignty is under siege from its neighbour to the south. By enabling average Canadians to invest directly in the national economy, Carney says the fund represents a sharp break from the country’s past when wealthy robber barons profiteered from large infrastructure projects.
“For the first time in our history, every Canadian will hold a direct stake in what’s built,” he said April 27 in launching the fund, which will be known as the Canada Strong Fund. “We will make it easy for individual Canadians to invest in the fund and therefore own a small piece of nation-building projects and share in their returns.”
The idea of a sovereign wealth fund to invest public funds for the public interest is not new, even in Canada. The Heritage Savings Trust Fund operates on this basis in Alberta. The Caisse de dépôt – a public pension fund manager – operates with an economic development mandate in Quebec. Around the world, many governments have established national wealth funds, sometimes investing enormous surplus revenues from their oil and gas assets.
The distinguishing feature of the new Canadian fund is its individual investment mandate. The government is promising to create a retail product to support the fund, which it says will be widely available to average investors.
Green investors beware
On paper, the product sounds like it could be a hit, harkening back to the Canada Savings Bonds that were enormously popular with individual Canadians in the 1960s and 1970s as a way of earning decent returns while supporting the national interest.
The government said projects will be selected from the government’s Major Projects Office and other national-interest projects. The list will likely include port expansions, electric grid improvements, clean-energy facilities and public transit projects, which will have broad support. But the list could also include a whole host of controversial fossil fuel ventures, including liquefied natural gas terminals, pipelines and carbon capture projects, limiting the fund’s appeal.
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Tim Nash, president of Good Investing, a consulting firm that works with individual investors to create sustainable investment plans, says there won’t be much demand for the fund from green investors, who will be put off by its fossil fuel investments. But it could be very popular among investors who are concerned about Canada’s independence and want to support the country’s long-term development and economic security.
“The exciting thing for me is that Mark Carney talked explicitly about a retail offering, which to me is phenomenal,” Nash says. “I think this is targeted at a wider swath of Canadians who are really interested in Canadian sovereignty.”
A door to more?
According to the government’s spring economic statement released yesterday, the product will be easy to purchase, hold and transact, and will provide investors with protection for their initial capital. The fund will be an independent Crown corporation, professionally managed and operating on an arm’s-length basis from the federal government, investing in national projects on a fully commercial basis.
This is good politics, this is good economics. Across the board, we need a retail offering. I think there’s going to be a lot of energy around this.
– Tim Nash, president, Good Investing
Initial seed capital for the fund will come from a three-year, $25-billion commitment from the federal government. Carney said he expects the fund to grow over time as investments are sold and capital is reinvested.
Nash says he hopes the fund will inspire other retail investment products with government support. An investment product based on the Canada Growth Fund – similar to the Canada Strong Fund but with a clearer cleantech focus – would be very attractive to green and conventional investors, he says. Similarly, he says a Canada green bond widely available to individual investors would have strong demand.
Many questions remain
The background materials provided by the government are light on details, and a consultation is now proposed to iron out the many remaining questions. It’s not clear how the investment product will be structured, or whether it will be available through bank branches, financial advisors or directly from the government. It’s also not known how the principal investment guarantee will work or how much access investors will have to their funds given the long-term nature of the underlying investments.
Nash also says a top question is whether the fund will be eligible for tax-advantaged accounts, such as registered retirement savings plans. He calls this an absolute necessity to avoid the modest returns from the fund being depleted by income taxes.
If the government can get the basics right, however, Nash says, it could be very popular and replicated across other government programs to help bolster private investment. He says investment offerings in public programs could help to create popular support for them by giving people a direct stake in their success.
“This is good politics, this is good economics,” he says. “Across the board, we need a retail offering. I think there’s going to be a lot of energy around this.”
Eugene Ellmen writes on sustainable business and finance. He is a former executive director of the Canadian Social Investment Organization (now the Responsible Investment Association).
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