On April 27, Prime Minister Mark Carney announced what he framed as a new nation-building tool: the Canada Strong Fund (CSF).
The “U.S. has changed,” Carney began his remarks. “That’s their right. And we are responding. That is our imperative.”He then proceeded to outline the Federal government’s new $25 billion investment in what he termed “Canada’s first national sovereign wealth fund.”
The federal government’s goal in creating the CSF is to support it’s Build Canada agenda by investing “in strategic Canadian projects and companies alongside other investors—with a clear objective to achieve commercial returns to build the wealth of Canada.” The federal government plans to achieve this goal by co-investing with private finance in infrastructure projects, with an emphasis on market returns that are equal to other investors.
Despite the rhetoric around the fund as a nation-building exercise belonging to all Canadians, details on how the fund will work—and what makes it distinct from similar funds, such as the Canada Infrastructure Bank and Canada Growth Fund—remain scarce. Nevertheless, the announcement raises important questions about what the fund will accomplish for whom, and whether the CSF will serve as an engine of privatization.
What is a sovereign wealth fund—and is the CSF one of them?
Despite the federal government framing it as a Sovereign Wealth Fund (SWF), the CSF sits uneasily among the other models of SWFs. Many SWFs invest a country’s trade surpluses or other excess revenues into foreign assets as a means of diversifying revenue without distorting the domestic economy. The International Forum of Sovereign Wealth Funds has a useful definition (see p. 27):
SWF are defined as special purpose investment funds or arrangements, owned by the general government. Created by the general government for macroeconomic purposes, SWFs hold, manage, or administer assets to achieve financial objectives, and employ a set of investment strategies which include investing in foreign financial assets. The SWFs are commonly established out of balance of payments surpluses, official foreign currency operations, the proceeds of privatizations, fiscal surpluses, and/or receipts resulting from commodity exports.
The CSF is notably not funded out of surpluses or commodity exports and is geared at investing internally rather than in foreign financial assets.
If the CSF isn’t a typical SWF: what is it? That question is made more complicated by the presence of two existing Crown Corporations which have clear overlap with the CSF: the Canada Infrastructure Bank (CIB) and the Canada Growth Fund (CGF), both of which have a mandate to work in tandem with private investors to build infrastructure or develop industrial sectors. These are referred to as “derisking funds,” where governments make loans to, or co-invest with, private companies or financiers at a submarket rate to support private sector projects that achieve a government’s priorities. Such priorities can include promoting economic growth in specific sectors (the CGF is tasked with funding projects that reduce emissions) or building important infrastructure (the CIB has a mandate to build infrastructure in particular sectors).
When pressed on what makes the CSF distinct from the CIB, Prime Minister Carney highlighted that the CSF would not provide loans (like the CIB) or pursue sub-market returns (like the CGF). Instead, he argued that the most important difference is that the new “sovereign wealth fund” will generate the types of investment returns that private partners also earn, unlike the CIB.
The Spring Economic Update further highlighted that the CSF will take minority positions in investments, following the lead of private investors. So, while federal policymakers are selling CSF as setting up “nation-building investments,” early statements distinguish it through a focus on market returns that operate as a junior partner. This raises important questions about whether the CSF can achieve the lofty goals those policymakers have set for it.
Worsening an already problematic model
As derisking funds, the CIB and CGF both have a clear mandate to sacrifice returns to achieve government priorities. This is similar to other Trudeau-era funds such as its Social Finance Fund. Academic research on derisking funds has called into question how well such funds achieve government priorities. Instead, many scholars argue that they direct public funding into private profits and emphasize revenue generation over (ill-defined) social and environmental goals (see, for example, the Ontario Nonprofit Network’s statement on the Social Finance Fund).
Further, the effort to attract investment can lead governments to take on undue risk such as guaranteeing returns for projects. This can lock governments into situations where they have to provide payments for unused infrastructure, reducing the fiscal space available for public services as governments remain on the hook for paying back investors.
Nevertheless, derisking funds at least provide, in theory, a means through which governments can achieve their priorities. While the press conference for the CSF made claims about ensuring Indigenous ownership / economic benefits and creating high-paying union jobs, the announcement entirely lacked details about how a fund which is distinguished by market-rate returns can achieve those goals. The Spring Economic Update also explicitly links the Canada Strong Fund to projects that have a potential “major project” designation under the Building Canada Act—a designation which allows projects to bypass environmental assessments and consultations with Indigenous groups—and lays out a deal flow where CSF investment projects are referred to its Major Project Office.
These issues make it likely that the CSF will be even less effective than derisking funds at achieving national priorities such as Indigenous reconciliation and high-paying jobs. By fashioning a fund that is meant to replicate the goals of private finance in achieving returns, the federal government is just involving the state more directly in the harms of financialization.
An engine of privatization
Perhaps most concerning, however, were references to the funding of the CSF through the privatization of existing Canadian infrastructure. The press release for the fund highlights that beyond the initial government investment of $25 billion, the CSF may grow “through other assets that the government may allocate to it.” Even more problematically, during the press conference, Prime Minister Carney further revealed that the fund could continue to grow through “asset recycling.” This was verified in the Spring Economic Update, which laid out the vision most clearly, stating: “Asset optimisation 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.”
Pioneered by Australia, asset recycling refers to a process by which existing infrastructure is either sold off, or its revenues are turned into asset streams for private capital, converting a public good into a private asset. Ontarians will be familiar with this process, with Highway 407 a prominent example of a publicly-funded piece of infrastructure sold off to a private conglomerate for well under market value.
Such sales can have disastrous consequences for the public purse and for the public’s ability to control key infrastructure. In one famous case, the city of Chicago sold off the revenues from its parking meters to a financial consortium, signing a contract that required the city to compensate those investors every time it impacted their revenues through hosting a parade or adding a bus lane that removed a parking space (in addition to paying higher parking fees).
That the federal government is considering taking part in such schemes to fund a CSF program without a clear avenue to achieving public goals should raise serious concerns about its priorities. In effect, the plan seems to be to sell off or assetize existing public goods in order to fund junior investments in private companies, without defining how the fund can influence those companies and their projects for public goals.
Retail returns
One thing that distinguishes the CSF from other federal funds is the promise that Canadians will be offered retail investment products that will allow them to invest in the CSF. This is to come with a guarantee that no Canadian will lose their initial investment, while having the upside of sharing in the returns of CSV investments. This seems to mirror a similar program in Québec, Épargne Placements Québec, which offers stable but largely below market returns for investors.
The details of what these investments will look like will be important, as they may be simply a low-cost loan from Canadians to the federal government for these investments, with some return attached. In the worst case scenario, these promises may result in a liability for the Canadian government where they are responsible for ensuring Canadians get these returns if projects fail to pay off. The devil will be in the details.
Confusion, conflation, and concern
The announcement of the CSF is steeped in a narrative of national pride in the face of the challenges of an unsettled economic moment. Drawing on the idea of a SWF, the federal government is clearly evoking the idea of a fund that can serve in building a strong future for Canada. Indeed, the press conference evoked the national mythology of the railway as uniting the county, with the prime minister stating that due to this public/private endeavour “our resources were unlocked. Our trade increased. Our industries grew and a stronger, more united and more prosperous Canada emerged.”
Delving into the details, however, shows concerns that the CSF may increase the power of private capital to set the type of Canada that emerges. Despite allusions to Indigenous reconciliation and high-paying jobs, the distinguishing factor of the CSF is a focus on market-rate returns and the selling off of existing public services to fund junior stakes in new private investments.
If the CSF is meant to help guide Canada in these uncertain economic times, then we have to ask the question of what type of Canada it is likely to build.
