Ontario to seed $4-billion fund, search for external manager to run it

Ontario Premier Doug Ford, left, and Finance Minister Peter Bethenfalvy arrive to announce the 2026 budget at Toronto’s Queens Park on March 26. Photo by Peter J Thompson/National Post files

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The fund’s goal is to attract capital and share risk with the provincial government acting as a limited partner, according to budget documents released by Finance Minister Peter Bethlenfalvy on Thursday. The government will select a private-sector asset manager to run it.

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The new fund would unlock investments in Ontario “that would otherwise not be deployed at scale,” the government said. It comes at a moment when Canadian pension plans are facing greater pressure to invest more domestically to help spur economic growth — particularly as the future of the trade relationship with the U.S. looks uncertain.

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Prime Minister Mark Carney has also signaled that he wants to make it easier for large funds to invest in Canadian infrastructure and strategic sectors.

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The creation of the fund, dubbed the “Protect Ontario Account Investment Fund,” signals that there’s political will to shore up economic resilience while limiting the government’s role in the fund’s operations, according to Shelly Kaushik, senior economist at BMO Capital Markets. This helps “reduce the government’s fiscal exposure and allows the private sector to allocate its resources most efficiently,” Kaushik said.

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Ontario’s fiscal outlook deteriorated marginally as it delayed balancing its books for a third year in a row.

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For the fiscal year that begins on April 1, the province is projecting a deficit of $13.8 billion. While that’s more than the $12.3 billion shortfall the current fiscal year, it’s still only about one per cent of Ontario’s gross domestic product. On a relative level, Ontario’s fiscal situation remains competitive among its peers.

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Canada’s most populous province is now forecasting a $6.1 billion deficit in fiscal 2027-28, compared with a small surplus previously. Bethlenfalvy says Ontario will balance the budget in fiscal 2028-29.

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The province is expanding tax rebates for new home buyers in an effort to shore up its languishing housing market. It’s also cutting income tax for small businesses. These measures also act to constrain revenue, and net debt burden continues to grow, Kaushik said. Interest as a percentage of government revenue, currently a little more than six per cent, is projected to rise to seven per cent by fiscal 2029.

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Ontario’s long-term borrowing requirement is seen hitting $47.2 billion in the next fiscal year, down by 19 per cent from the current year.

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The province, traditionally one of the largest sellers of Canadian dollar bonds, changed its guidance for domestic borrowing — it expects that to represent 60 per cent to 80 per cent of the total in the year ahead. The previous range was 65 per cent to 80 per cent.

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Last year, Ontario raised 59 per cent of its long-term debt in Canadian dollars.

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With assistance from Melissa Shin.

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