Transcription
The moment Canada's strong fund was announced, the country split in two camps. One side called it a generational investment in Canada's economic future. The other called it a sovereign debt fund. Both camps are arguing about the name. Neither is asking the most important questions.
At the press conference, Cardi said something on camera that almost nobody paid attention to. It was just one sentence that if you actually follow it leads us to a financial instrument that used to exist in this country that millions of Canadians used and that instrument died quietly in 2017.
A sovereign wealth fund in the traditional sense has three defining features and they're worth holding in our head as a checklist for this video. First, it's funded by a surplus, not borrowed money. Either from resource revenues that the government chose not to spend or from years of running budget surpluses and accumulating savings. The fund is built on wealth that the country already has. Second, it invests independently of the government's day-to-day political priorities. The whole point is to insulate the money from whoever happens to be in power because politics tends to be shortsighted. Third, it typically invests outside the home country. Now, this sounds counterintuitive. Why would a country build a fund and then invest the money elsewhere? And the answer is simple. To avoid overheating your own economy. Too much government money chasing domestic assets pushes prices up and that distorts the market. Not good.
Norway is the textbook example of this. For decades, it has collected North Sea oil revenues, invested them globally in stocks, bonds, and real estate, and only let the government spend roughly 3% of the fund's expected real return per year. We've made a whole video about the sovereign wealth fund system a few months ago, and we talked about what the real wealth fund could mean for Canada. So, make sure to check that video out once you're done with this video.
Now, let's run the Canada Strong Fund through the same checklist. Funded by surplus? No. Canada is running a deficit of roughly $70 billion. Are we investing independently of political priorities? Not at all. The mandate was announced by the prime minister alongside a list of nation building projects. Is this fund investing globally? No. It's exclusively domestic. So, this sovereign wealth fund announcement fails to check every single checkbox. By any traditional definition, this is not a sovereign wealth fund, right?
Well, here's where it starts getting interesting. See, Carney himself, let's slip exactly what this thing actually is. The actual amount of money is protected. It's something consistent to buying a government bond, but has the upside, the additional return when these projects realize their potential.
From 1945 to 2017, Canada had a program called Canada Savings Bonds. At their peak in 1987, Canadians held 55 billion worth of them. The mechanic was simple. You lent the government money. The government guaranteed your principal back and you collected a return. And that return wasn't trivial in some of the years. In 1981, at the peak of inflation, the CSBs paid 19.5% interest, guaranteed government-backed return. By 2010, that same product paid 0.65%. For decades, that was how ordinary Canadians participated in financing national priorities. It's worth noting that the proceeds didn't go to specific projects. They went into general federal revenues like highways, hospitals, defense, or whatever the parliament decided that year.
So, if CSBs were so good, why did the government kill it in 2017? Two reasons, and both matter a lot in the context of this new fund. First, investors had simply better options. By 2010, Canada savings bonds were paying just over half a percent annually. Meanwhile, basic bank GICs were already paying more than 2%. Deposits were still protected by CDIC insurance of up to 100K. So, for an ordinary saver, the trade-off was obvious. Similar safety, better return. I like tying up my money for a year at a time, knowing that it will earn less than if I just left it in the bank. Second, the government didn't need retail savers anymore. Canada could borrow more efficiently from large institutional buyers like pension funds, banks, insurance companies, and global bond markets. So, Canada savings bonds didn't disappear because they failed. They disappeared because the financial system changed and the government did nothing to adjust it.
And they pick up spills. Twice as absorbent as other leading investment vehicles. Colorful, low growth, super absorbent. Canada savings bonds making life better at slightly less than the rate of inflation.
So all this raises the question if the government walked away at the time doesn't that prove that the concept of such fund is outdated? Well, not quite. The government stopped competing for retail savings the moment the institutional markets made it unnecessary. So the product died because the government didn't bother to keep it alive. That's not so much a product failure, more like a management failure on the government's part. The appetite for the safe government-backed savings vehicle with a decent return never really went away. So what Carney is describing is not Norway and they should have been a lot more honest about that instead of slapping a flashy sovereign fund label on it. What they're actually talking about is the Canada Savings Bonds 2.0 redesigned for the 2026 directed at infrastructure projects and repositioned as a stake in Canada's nation building at a moment when economic sovereignty feels so urgent. That's the real meaning behind the word sovereign here. It's not a wealth fund. It's a people's savings product.
Now, before we explore whether this will even work in Canada's reality, there's one more thing worth noting. Critics keep saying that Canada could build a real sovereign fund if it were just more fiscally responsible. That argument completely misses one important thing, and it has absolutely nothing to do with the deficits. In Norway, the federal government owns the oil revenues. That's why the fund grew from zero to over 2.2 trillion. Canada's constitution puts natural resources under provincial jurisdiction. Alberta's oil is Alberta's oil. Newfoundland's offshore is Newfoundland's. Any attempt by Ottawa to capture those revenues would hit immediate constitutional and political resistance. That's not a policy problem that any politician can solve. That's the Canadian Federation problem that nobody would want to touch with a 10-ft pole.
Alberta tried to run the provincial version of Norway's model. The Heritage Savings Trust Fund was created in 1976 with 1.5 billion in oil revenues. After 50 years, including decades of enormous Alberta's oil wealth, this fund sits at 32 billion barely. Norway's fund, founded 15 years later, is 60 times larger. The big difference is that Alberta's politicians kept pulling money out of the Heritage Fund to plug provincial budget gaps. It was a savings vehicle that every provincial government treated like a checking account. And without hard governance rules to prevent that, the savings never compounded the way that they should have. This was a textbook demonstration of what happens when politicians can't see beyond their own election cycle.
So if Norway is the wrong model for Canada, what's the right one? The concept of the Canada Strong Fund is generally not new. Singapore and Quebec are glaring examples of that and neither of them is a classic sovereign wealth fund.
One of the tragic illusions that many countries of the third world entertain is the notion that politicians and civil servants can successfully perform entrepreneurial functions. Clearly, the Singapore government agreed. When Singapore became independent in 1965, the government needed a way to own and develop its key national companies without running them directly through ministries. In 1974, it created Temasek Holdings, seeded with about 350 million in government assets. Given a commercial mandate and told to behave like an investment company instead of a bureaucracy, Temasek started entirely domestic. It held Singapore's airlines, banks, telecom companies, and ports. Over time, as those companies went international, so did Temasek. Today, it manages roughly 300 billion and invests globally. But the origin story is important here. It started as a government holding company for domestic assets with a mandate to generate commercial returns and build Singapore's economic muscle. That origin is much closer to what Canada is describing than anything Norway has ever done.
The second example is much closer to home. Quebec's Caisse de dépôt et placement du Québec, the CDPQ, was created in 1965 to manage provincial pension assets. But unlike Canada's national pension fund, which is mandated purely to maximize returns, CDPQ has a second job written into its founding law, invest in Quebec's economic development. Over 60 years, it has backed Quebec companies from startup to global scale. Alimentation Couche-Tard, the global convenience store empire, is one of the clearest examples with the CDPQ holding significant long-term equity in the company. The CDPQ currently manages over 500 billion dollars in assets. About 100 billion of that is invested directly into Quebec. Financial returns have been competitive with the rest of Canada's major pension managers. Both Quebec and Singapore succeeded because governance independence held. And that's one of the biggest things that we must scrutinize with the Canada Strong Fund.
There's one thing that both Temasek and the CDPQ had that the Canada Strong Fund doesn't. Temasek was built with government assets that already existed. Equity stakes in Singapore Airlines, banks, ports, all of them transferred out of ministries into a single holding company. CDPQ manages pension contributions. These are the money that are already flowing in from workers and employers. Neither one borrowed to get started. Canada is borrowing and that fundamentally changes the math. The government will be paying roughly 3.5 to 4% interest on the money it raises to fund this. That is the floor that the fund has to clear even before it creates a single dollar of value for Canadians. They will have to earn more than the cost of the debt. That's the bar that we need to set at minimum.
Now, borrowing to invest isn't inherently reckless. It's called leverage investing and plenty of institutions do it successfully all around the world. The question is what you're investing in because the return that you can realistically expect depends entirely on that. Norway's fund has delivered roughly 5 to 6% annualized over the last decade. But Norway also gets there by investing in globally diversified liquid assets. If a certain market underperforms, they just exit. They rebalance and the portfolio gets a new life. The Canada Strong Fund is structurally different. It wants to invest in a port, an energy corridor, a mine. These are not assets that you sell when the numbers don't look good to you. They take years to generate cash flows. So once you're in, you're really in. That illiquidity is as illiquid as it can get in the world of investment. And that means that the fund needs to demand a higher return from each project just to justify the additional risk.
There is a second number that we need to call out. Canada's federal debt is now 1.3 trillion. Annual interest payments are projected to be nearly 60 billion, and that's, mind you, more than we spent on the Canadian armed forces. Adding 25 billion to that debt load and investing it into projects that won't generate returns for a decade is a massive risk. If this fund underperforms, Canada doesn't just get to sell or wait it out. It will keep paying the interest every single year while it waits.
Now, we must say that the case for this fund is absolutely justifiable, at least in theory. Trade war with the US, geopolitical tensions, years of underinvestment into Canada's resource and infrastructure base, all of these are legitimate reasons to think about something like this today. So, the theory here is that the equity fund can step in where private capital hesitates. But here's where things start falling apart. Private capital isn't reluctant because the money doesn't exist. It's reluctant because the government made these projects too difficult to build. Permitting delays, regulatory uncertainty, those all are government-created problems. And the solution being proposed is another government fund. You could reasonably ask why not just fix permitting? And to be fair, the government is trying to do that. Bill C5, which passed Parliament last year, specifically targets this problem. It cuts major approval project timelines from five years to two and aims to replace sequential federal and provincial reviews with a single coordinated process. That's some progress, but still just on paper. The question still remains whether regulatory reform and the new equity fund together are actually more effective than either one alone or is just a more expensive version of the same thing. Because if the underlying friction isn't genuinely resolved, the fund is essentially paying 25 billion to invest into a system that continues being broken. And that's a risk that sits entirely on all of us Canadians.
There is one aspect of the Canada Strong Fund that has no precedent anywhere in the world. Retail Canadians will be able to invest directly in it with their principal protected. No other sovereign fund has ever done this. What Carney is describing is a product where you could put in, let's say, a thousand bucks and know that your thousand bucks is protected and collect a return tied to how Canada's infrastructure projects perform over time. That's not so much a wealth fund. Again, that's a Canada Savings Bond with an equity upside. The appetite for this might be real. Those CSBs held 55 billion in household savings at their peak. And at a moment of sharp national sentiment around sovereignty and economic independence, the Build Canada investment product carries a much more genuine emotional resonance beyond just the financial return.
Now, risk aside, the details of how this fund specifically will work for the regular Canadians and for the country is still unclear and it doesn't look like anyone has the full picture yet. Those decisions will determine whether the retail product is useful for ordinary Canadians or whether it sounds compelling at a press conference and just ends up being a big disappointment in practice.
There's one question that we still don't have the answer for, which is what makes this different from what already exists. We already have the Canada Infrastructure Bank. We have the Canada Growth Fund, Export Development Canada, the Business Development Bank, a bunch of other banks. And these are all not small programs. In fact, some of these like the infrastructure bank and the growth fund have mandates that explicitly overlap with what was described for the Canada Strong Fund. Now, the official answer is that the infrastructure bank provides debt or loans while the Canada Strong Fund will take equity stakes. That distinction makes sense. Equity holders take more risk and receive more of the upside. But without a clear mandate that draws a sharp line between these entities, there is a risk that major projects now have four or five different government vehicles to pitch. Each have overlapping criteria and competing with each other. So the result will be a lot more counterproductive than not and will be much more bureaucracy weight on the very projects that Canada is trying to accelerate. How the government resolves that overlap for us will be the first signal that will tell us whether the new fund has potential to make that change.
So with all of that, it's pretty much clear that it's not a sovereign wealth fund. The people calling it a sovereign debt fund are technically correct, but it only describes the input in a catchy way and completely missing what this fund is actually built to do. The closest honest description is the Canada Savings Bonds 2.0 directed at infrastructure equity with a governance structure borrowed from Quebec's and Singapore's models. That's a genuinely novel investment instrument. It's not unprecedented in its individual parts, but in the combination of it, it's new. The timing and the need for something like this is legitimate. But does the government have enough discipline to see it through for decades across election cycles and across changing political priorities? That's the big question we need to answer.
Let me know your thoughts in the comments. Do you think that the governance will hold across decades? Thank you so much for watching guys and thanks in advance for sharing your thoughts on this with us. We read every single comment you guys leave us and we learn a lot from your perspectives and insights. So, thank you for that. And also, thank you to our supporters. Your support means the world to us and helps us make better videos every single week. This channel is fully self-funded. We rarely choose to take sponsors. So, if you'd like to support the work that we do, you can join our YouTube membership or Patreon or check out our merch like this hoodie. We will leave the link to it in the description boxes below. If you've watched till this point in the video, you're an absolute rockstar. And I hope you have a wonderful rest of your day and I'll see you in the next video. Take care.