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John Ivison: A wealth fund that isn't starting with excess wealth
If the goal is to fast-track major projects, the Canada Strong Fund probably shouldn't be presented as a safe-as-houses investment opportunity
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Canada has just established the Canada Strong Fund — this country’s first national sovereign wealth fund — despite being deeply in the red. In short, there is no surplus wealth to manage.
John Ivison: A wealth fund that isn't starting with excess wealth Back to video
Mark Carney said there will be good news in the spring fiscal update the government will deliver on Tuesday.
Are we to take it then, that the $65.4-billion deficit projected in the fall budget for the current fiscal year has evaporated and the new fund the prime minister announced on Monday will be financed from this windfall?
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Probably not. Carney was asked how the government can afford another $25 billion in seed funding when big deficits remain. He said the government is spending less, so it can invest more and Canadians will now have the chance, through their government and as individuals, to partake in investing in major projects.
The new fund — “the people’s fund” — will act as a “national savings and investment account,” he said.
The mechanics and the mandate remain vague, but the fund will operate at arm’s-length from government as a Crown corporation, investing alongside the private sector in “nation-building projects.”
“The people of Canada deserve a share,” alongside the private sector, Carney said.
The prime minister was asked how the new fund will differ from existing efforts to catalyze private-sector investment, such as the Canada Infrastructure Bank and the Canada Growth Fund.
The CIB, in particular, has proven to be such a disappointment since it was established in 2017 that in 2022 the House of Commons transport committee recommended it be abolished. It has been the constant recipient of criticism over lack of transparency, inefficiency and high costs.
Carney distinguished between the role of the CIB and the new fund.
He said the CIB provides debt, whereas the new fund will take equity stakes. “(With debt), you don’t get the returns from the underlying business (as you do) when the equity returns to the owners, which are substantial, if it’s well run,” he said.
That caveat should raise concerns for taxpayers.
What is the priority here? Is it wealth preservation, investment returns or strategic development support?
What is the priority here? Is it wealth preservation, investment returns or strategic development support?
If it is to build wealth for Canadians, as befits a “national savings and investment account” — the money should probably be invested in global stocks. The MSCI All Country World Index — a common benchmark for global equities — delivered a total return of over 21 per cent last year.
But if, as seems more likely, it is to fast-track major projects, it probably shouldn’t be presented as a safe-as-houses investment opportunity.
The returns are clearly not as guaranteed as the prime minister made them sound. The Alberta Heritage Savings Trust, that province’s sovereign wealth fund, lost billions during the Great Recession and during COVID. It has proven to be a major disappointment in terms of its growth.
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That is not to suggest the new fund will be a dud. After the wilderness years when Canada lost more than $1 trillion — “the largest exodus in Canadian history,” according to a new RBC report, this country is hot again.
The bank predicts that Canada could attract $1.8 trillion in new investment over the next decade, if such major projects as pipelines, LNG terminals and critical minerals development actually proceed.
There is the prospect, if not the assurance, of real sovereign wealth.
But we are in the salad days of this phenomenon and we have yet to see the colour of investors’ money.
Perhaps the most interesting aspect of Monday’s announcement was the chosen governance model.
Carney has again fallen back on his inclination to set up a new agency that will, presumably, be run by someone from the private sector, thereby reducing reliance on the federal bureaucracy.
He has done something similar in other priority areas with the Major Projects Office, Build Canada Homes and the Defence Investment Agency.
His clear belief is that in doing so, his chosen lieutenants — people who look like him and think like him — will be able to clear obstacles and fulfill his pledge “to build at speeds not seen in generations.”
As someone who operated at a senior level in the Department of Finance, Carney likely feels justified in his healthy disdain for the ability of the federal public service to complete anything on time or on budget.
It remains far too early to say whether he will succeed, but the head of the new Defence Investment Agency, former RBC executive Doug Guzman, was a witness at the House Defence Committee on Monday and said his agency is applying “a more commercial and outcome-focused approach” to buying new submarines, which “will be in the water years earlier than would previously have been the case.”
If that turns out to be the case, and the new sense of urgency is diffused through the new agencies, Canada may one day actually have surplus wealth to manage.
National Post jivison@criffel.ca
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