Ottawa plans to grow its new sovereign wealth fund through a combination of buy-in from retail investors and efforts to reallocate money tied up in airports and other federal assets. On Monday, Prime Minister Mark Carney announced a new $25-billion sovereign wealth fund, which will focus on investing in companies and infrastructure projects that are part of the government's major projects agenda.
The spring economic update on Tuesday offered few additional details about how the fund will work in practice. However, it did state that the government will look to grow the pool of capital beyond the initial $25-billion in seed funding by allowing Canadians to invest in the fund and by optimizing existing federal assets. According to a government official, Ottawa is exploring ways to generate money from existing assets, such as airports, that can be recycled into the Canada Strong Fund for reinvestment. The Globe and Mail is not identifying the official as they were not authorized to speak publicly.
Fiscal Update Highlights
The update also included funding for labor, sports, and cuts to the Canada Pension Plan. In the fall budget, the government said it was exploring ways to increase private investment in Canada's airports, which could include negotiating lease extensions with airport authorities, enabling development on airport lands, and examining airport lease formulas. It also said it would consider options for the privatization of airports. Tuesday's economic update reiterated that Ottawa is looking at alternative models of ownership for airports and said it would introduce legislation to ensure it can obtain the information necessary for a comprehensive evaluation of airport reforms.
The official said that airports are one of a range of federal assets that could be optimized to provide additional capital to the Canada Strong Fund. Asset optimization will help address two complementary priorities: unlocking the full value of existing federal assets and directing that capital toward investments with the highest potential return for Canada and Canadians, the economic update said.
Details of the Fund
The new sovereign wealth fund is Ottawa's latest effort to use public dollars to crowd in private sector capital. The fund will take equity stakes in Canadian companies and projects, with an initial focus on projects referred by the Major Projects Office. Finance Minister François-Philippe Champagne said the fund could also invest in other projects that have already received federal support.
“You could have a project which would have received the indigenous loan guarantee, for example, from the Indigenous Loan Guarantee Corp. where the federal government is already a partner to build these projects, so the fund could well decide to take an equity interest, to co-invest,” Mr. Champagne said at a news conference on Tuesday.
The fund will be a new Crown Corporation that will operate at arm's length from the government, with its own chief executive officer and board of directors, the government said. To avoid overlap with existing organizations – such as the Canada Infrastructure Bank, Export Development Canada, the Business Development Bank of Canada, and the Canada Indigenous Loan Guarantee Corp. – the government on Tuesday announced that it would undertake comprehensive mandate reviews of each organization.
Retail Investor Participation
A key aspect of the fund is that Canadian retail investors will be able to invest in it. The details of this investment product are still being developed. On Monday, Mr. Carney described it as “something consistent with buying a government bond,” but with an additional return when projects realize their potential. The economic update spelled out the guiding principles for this new retail asset. It must be accessible to people across the country, easy to buy, hold, and transact, and the initial capital will be protected, similar to a bond or guaranteed investment certificate.
