The CEO of Canada's largest stock exchange group is urging the Carney government to allow retail investors to buy stakes in a new $25-billion sovereign wealth fund through publicly traded units such as exchange-traded funds (ETFs).
TMX Group's recommendation
John McKenzie, chief executive of TMX Group Ltd., which owns the Toronto Stock Exchange, said his team has reached out to the Department of Finance on this matter. "Our recommendation was you do that in the form of a closed-end fund, or an ETF, (and) that you could put a piece of it on the marketplace," he stated.
Prime Minister Mark Carney announced plans for the sovereign wealth fund on April 27, which would back priority national projects in energy, critical minerals, agriculture, and infrastructure. All Canadians would be given an opportunity to participate through a retail investment product. The next day, the government said the retail component of the Canada Strong Fund would be broadly accessible, easy to purchase, hold, and transact, providing returns based on the fund's success while protecting initial invested capital.
Transparency and disclosure
McKenzie noted that the government's wording sounded more like a bond than an ETF, but the government has indicated it is open to input. "They're in listening phase," he said. "I think they brought this out as a concept without having it completely baked as to what they want to do, so they're open to ideas."
While a structure involving a public exchange stands to benefit TMX Group, McKenzie argued that a fund owning multiple assets like the proposed Canada Strong Fund could easily incorporate a retail component by listing it on an exchange, whether as an ETF or simply units. This structure would offer key selling points to retail investors, such as transparency and disclosure requirements, and unlike a bond, it would trade easily on a public marketplace.
"If it's a public market product, we're going to insist on disclosure around it, like we would on any other fund," he said. "You need to be able to value the things in it and that's why I like an exchange-traded product, not just because we're in exchange, (but) because it forces transparency, disclosure and liquidity in the way a private product wouldn't."
Importance for retail investors
This is particularly important because the sovereign wealth fund is being designed to operate like a large pension fund, which typically doesn't have to contemplate the needs of retail investors, McKenzie said. "My worry in these models is that performance of the fund is not transparent," he added. "We don't have the visibility into the assets that are in it in terms of how they're performing, what are the returns?"
By structuring the fund as an ETF, retail investors would gain access to a liquid, transparent investment vehicle with regular disclosure of holdings and performance, aligning with the government's goal of broad participation.
