Trade tensions, technological disruption, and longer-term pressures like population aging and climate change are all forcing a rethink of how the economy adapts and grows.
Into that mix come two recent headline-grabbing initiatives: new investment funds announced this spring by Ottawa and Queen’s Park. The political logic is easy enough to grasp. The economic benefits are less clear.
If you’re not sure what to make of them, you’re in good company. Here’s a guide to cutting through the fog.
In the budget tabled March 26, Ontario introduced the Protect Ontario Account Investment Fund, a commitment to invest up to $4 billion to attract pension funds and other private capital toward the province’s long-term economic and strategic priorities. The federal government’s spring economic update, tabled April 28, unveiled the Canada Strong Fund, with $25 billion in funding over three years. Touted as Canada’s first national sovereign wealth fund, the goal is to invest in key strategic Canadian projects and companies, generating jobs, economic growth, greater security and — Ottawa promises — financial returns to Canadians themselves.
Let’s get the branding out of the way first. The federal “sovereign wealth fund” doesn’t match up with financial market lingo. Sovereign wealth funds as most of us know them — for example Norway’s Norges Bank Investment Management and the Abu Dhabi Investment Authority — are usually built on accumulated resource surpluses, operate at a massively different scale, and invest explicitly to generate returns for future generations. This is an oversimplification, but basically: when countries have more money from oil than they know what to do with, they invest it elsewhere. (Norges, the world’s largest sovereign wealth fund, is valued at over US$2.2 trillion and invests almost entirely outside Norway.)
The Canada Strong Fund is none of those things. It is better understood as a targeted co-investment vehicle, designed to partner with private capital on selected projects.
Ontario’s name is at least more accurate, but Protect Ontario Account Investment Fund is still opaque — a mashup of current branding and a past policy commitment that means little outside Queen’s Park’s inner circles.
But the goal of these funds is clearer than their names: to deliver some real economic benefits.
Scale of these funds is worth putting in context: $25 billion over three years federally and $4 billion provincially is certainly real money — amounts beyond most of our imaginations. But they’re more modest than the headlines suggest. According to Statistics Canada’s Capital and Repair Expenditures survey, total planned capital spending on construction, machinery, and equipment this year is over $400 billion nationally, with $132 billion in Ontario. At roughly $8 billion a year, the federal fund would represent about two per cent of planned national capital spending. Ontario’s $4 billion fund — presumably to be deployed over several years — is a similarly modest share of annual provincial investment spending. Drop, meet bucket.
That’s not to say these funds can’t have an impact: targeted public capital can punch above its weight in the right circumstances. But this isn’t a leap into a new economic stratosphere either.
These funds also enter an already crowded policy space. Federally, there is the Canada Infrastructure Bank, the Business Development Bank of Canada, Export Development Canada, and a network of regional development agencies. Provincially, there is Invest Ontario, the Building Ontario Fund, and a wide array of regional and sectoral programs. Both levels of government additionally offer a myriad of business support grant programs and tax incentives.
Governments are not lacking tools to support investment. These new funds may fill some gaps that existing programs don't reach, but you’d need a microscope to find them.
So, why? There is a legitimate policy case to be made here, even if it requires some careful framing. The problem these funds are trying to solve isn’t a shortage of investment capital. Canada is awash in investment money, much of it sitting in some of the world’s largest pension funds. The challenge is getting that capital pointed toward long-term, productive investments that create jobs and incomes that financial markets, left to their own devices, would not pursue. The underlying logic is sound: use public capital and risk-sharing to crowd in private investment toward projects with big economic and social returns. These are new tools added to a toolkit that, given the scale of the economic renovation project underway, genuinely needs all the tools it can get.
But here’s the thing about these new-sounding tools: we’ve been here before. Public-private partnerships were once the dominant model touted for delivering large infrastructure projects, as ubiquitous in policy circles as BlackBerrys were in office towers. The logic was similar: leverage private capital and expertise, share risks and returns, deliver projects on time and on budget. The results have been decidedly mixed. Projects like Ottawa’s Confederation Line and Toronto’s Eglinton Crosstown exposed a persistent pattern: cost overruns, completion delays, returns getting privatized, risks becoming socialized. In 2014, Ontario’s Auditor General found that for 74 infrastructure projects the province paid an estimated $8 billion more than it would have if projects had been financed with traditional public funding and management. The lustre has come off infrastructure banks and their variants globally and yet here we are, contemplating bigger versions of the same basic idea.
All of this points to a deeper problem: the policy challenge these funds are meant to solve isn’t clearly articulated. Is private capital actually staying away from the kinds of projects these funds would support? Is availability of capital genuinely the constraint — or is it something else, like skilled labour availability, project risk, or simply the absence of appealing opportunities? If the diagnosis is fuzzy, the prescription may not fit.
There’s also an assumption baked into both funds that the private sector is eagerly lining up to partner with government. That isn’t always true. Taking public money comes with strings: reporting requirements, political exposure, procurement rules, and the ever-present risk of being caught in a policy reversal. For many private investors, a simpler deal without government involvement is better than a subsidized one with it.
Then there’s the tension between economic and political logic. Reshaping an economy is a long game, measured in years and decades. But the pressure to show results is immediate. Early splashy announcements will be portrayed as proof of success long before actual costs and benefits are knowable. But are we simply subsidizing activity that would have happened anyway, with recipients quite happily accepting public money for investments they had already decided to do? And are taxpayers bearing the financial risk in deals where the upside flows primarily to private partners. These aren’t hypothetical concerns — they’re a recurring pattern in public finance with a long and not always flattering track record.
Fancy financial instruments also have a long history of working out rather less well than advertised. Complex financial structures have repeatedly obscured accountability in ways that only became clear after significant damage was done, by which time the costs have typically landed on taxpayers while the architects have moved on. Anyone who lived through 2008–09 knows this well. Anyone who didn’t should watch The Big Short. That history earns a degree of skepticism here.
So, what should we actually watch for?
Start with governance and accountability. Who is making investment decisions, under what mandate, and with what oversight? Ontario has announced it is recruiting a private fund manager. One can only hope this doesn't become a textbook case of a failed principal-agent relationship in some future public finance course, where the manager's incentives and the public interest quietly diverge in ways nobody notices until it's too late.
Next, look at the investment framework. What kinds of projects will be funded? On what terms? How will returns be shared? And just as importantly, how will losses be handled? How will taxpayers participate in any upside gains — and more importantly, how will downside risks be shared rather than quietly absorbed by the public purse? These details matter far more than headline funding announcements.
Oversight is also critical. What role will the Auditor General, the legislature, and independent oversight bodies actually play? Commercial confidentiality will limit transparency around individual deals. Fine, fair enough. But this transparency conundrum means that governance structures and investment frameworks become the primary mechanism of public accountability.
So here we are. Two new investment funds, with names carefully engineered to resonate with the moment, have been announced by governments genuinely trying to address a complex challenge. The ambition is real. But ambition and impact are different things, and at this stage the positioning is considerably clearer than the plan. These could be useful tools at a moment when Canada would benefit from them. If designed and governed well, there is a real case for their value. But the burden of proof is squarely on governments to demonstrate these are more than well-branded fiscal commitments dressed up in the language of transformation. Let’s watch the details, not the announcements.