What Canada’s New Strong Fund Could Mean for its P3 Industry

The Canadian government has announced that it is creating a massive new sovereign development fund, called the Canada Strong Fund, to invest in national infrastructure projects. If it is implemented in full, it could significantly alter the infrastructure investment industry in the country. However, details remain, for the time being, forthcoming.

The announcement from the Canadian government states that the fund “will strategically invest, alongside the private sector, in Canadian projects and companies driving our economic transformation. This includes projects in clean and conventional energy, critical minerals, agriculture, and infrastructure.”

The government plans to contribute an initial investment of $25 billion into the fund over three years, and notes that it will grow “both from the returns that it generates, and through other assets that the government may allocate to it.”

“Through the Canada Strong Fund, all Canadians will have the opportunity to share directly in these benefits,” said Canadian Prime Minister Mark Carney. “This is our country, this is your future, and we are building it together.”

There is less detail on the Canada Strong Fund’s governance and mandate, but the government’s backgrounder on the initiative states that it will be set up as an independent and professionally managed crown corporation, will operate at arms-length from the government, and will have an independent board of directors.

Perhaps the most novel element of the new fund proposal is that it includes a future retail investor component. The announcement states that this “will give Canadians a direct stake in our nation’s long-term prosperity and help build long-term national wealth.”

Details for future retail investors remain to-be-determined as well, notably regarding what those retail investors will get in terms of fund governance. The government stated that it intends to consult on the details of the product, but signaled that it would be a tradeable investment product that any Canadians can purchase.

As a next step, the government plans to create a Canada Strong Fund Transition Office to run a consultation on many elements of its design, with further details provided later this year.

The Canada Strong Fund is the latest evolution of Canada’s “state capitalism” in infrastructure investment. Many of the country’s massive pension funds have now developed the in-house expertise to directly invest in infrastructure projects and platform companies globally. In 2017, Canada established the Canada Infrastructure Bank (CIB) to lend to privately-financed infrastructure projects in Canada.

As of its last annual report, the CIB was lending roughly CAD$3 billion per year, and had financed 94 projects amounting to CAD$46.1 billion in total capital costs.

It appears that the Strong Fund will mimic a key design constraint of the CIB as well. Like the CIB, the Fund will invest alongside private sector investors. That means there will presumably be one party in any CIB or Strong Fund project that is an entirely non-political market participant. That should help ensure both institutions invest in financially sustainable projects, and also help them avoid political boondoggles.

Strong Funds, Stronger Politics

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