Many things make Canada unusual: Newfoundland’s time zone, our extraordinarily high per capita production of elite hockey players, and the most lakes in the world. We’re also one of the only wealthy, resource-rich countries without a national sovereign wealth fund.
What happened: Prime Minister Mark Carney announced the creation of a sovereign wealth fund seeded with an initial endowment of $25 billion doled out over the next three years.
The “Canada Strong Fund” will be managed by a new arms-length Crown corporation with an independent CEO and board of directors.
Carney said Canadians will be able to voluntarily buy into the fund, though details were scant on exactly how that would work.
Why it matters: Depending on how it’s designed, a sovereign wealth fund could be a way to spread around the fruits of economic growth, either through direct dividends to Canadians or by funding public services.
Norway, for example, draws on a portion of the returns generated by its primary sovereign wealth fund (the world’s largest with assets worth around $3 trillion) to finance around 20% of its national budget.
Yes, but: The government has not yet provided basic details on how the fund will work, leaving many questions unanswered, like…
Will its management board be free to invest as it sees fit to maximize profits, or will it have a mandate to back projects of national interest (similar to Quebec’s Caisse)?
Will the fund be limited to investing domestically, or free to allocate capital abroad?
Will the government be able to draw on the fund’s returns, and if so, what rules will be in place to prevent them from draining it (as happened with Alberta’s Heritage Savings Trust Fund).
Bottom line: Regardless of the answers to those questions, with just $25 billion to invest, the fund is unlikely to make much of an impact on Canadians’ lives anytime soon. For that to change, the government will need to find new ways to capitalize it — or wait a very long time for that seed funding to grow.—TS
