Opinion: Our new ‘sovereign wealth fund’ isn’t what it says

The Canada Strong Fund may turn out to be a very good investment vehicle. It may even make money. But it’s not a sovereign wealth fund. Photo by Peter J. Thompson/Postmedia

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A sovereign wealth fund is fundamentally a vehicle for managing accumulated public wealth. Norway’s is the classic example. Its Government Pension Fund Global, a.k.a. Norway’s Oil Fund, was created to manage the country’s oil and gas revenues for the benefit of current and future generations. Rather than concentrating that wealth at home, Norway invests globally to diversify risk and protect its domestic economy from overheating.

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The principle is straightforward: wealth comes first, the investment fund comes second.

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Norway is not alone. Several Gulf states have followed similar models, using oil and gas revenues to build enormous investment funds. In this country, the Alberta Heritage Savings Trust Fund was established in 1976 to save part of the province’s non-renewable resource revenues for future generations.

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The Canada Strong Fund turns that logic on its head. Ottawa announced the fund in April with an initial government contribution of $25 billion over three years, to be used in partnership with private investors to fund Canadian infrastructure and strategic industries.

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A government investment vehicle designed to mobilize private capital is not really the same thing as a sovereign wealth fund. Ottawa is capitalizing the new fund even as it continues to run deficits — deploying public capital while borrowing to finance its operations.

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That changes the economic calculation. If Ottawa borrows at four per cent and invests in a project expected to earn six per cent, it may make money. But the relevant comparison is not simply the project’s gross return. It is the risk-adjusted return relative to the government’s cost of capital.

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If the investment earns only two per cent, taxpayers still have to service the debt. The investment therefore has to generate enough return not merely to cover the government’s financing cost, but also to compensate taxpayers for the risk being assumed. Government investment is not free money.

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Then there is the question of diversification. One of the great strengths of the Norwegian model is precisely that it does not concentrate Norway’s wealth in Norway. Its fund invests globally across equities, bonds, real estate and renewable infrastructure.

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Canada’s large public investment institutions understand this principle. Consider CPP Investments. Its 2025 annual report says only seven per cent of its base CPP strategic portfolio was allocated to Canada, compared with 77 per cent to developed markets outside Canada and 16 per cent to emerging markets.

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That is not an accident. Canada represents a relatively small part of the global investment universe. More importantly, Canadians are already heavily exposed to Canada. Their jobs, businesses, housing, tax revenues and much of their economic future depend on the Canadian economy. Concentrating another large pool of national capital in Canada does not diversify that exposure. It reinforces it.