Canada’s new sovereign wealth fund: What Ottawa can learn from Alberta

As the federal government embarks on launching a national sovereign wealth fund, Ottawa could seek lessons from the handling of Alberta’s fund to help ensure it becomes a success.

Alberta launched its sovereign wealth fund decades ago, but provincial governments regularly dipped their hands into the account, which is why the bank balance failed to meaningfully grow.

The new Canada Strong Fund will have an initial $25-billion contribution from the federal government and will allow Canadians to individually contribute with all the funds earmarked to help build major projects in the country, while turning a profit too, the government claims.

At this point, the fund is merely a proposal, void of many details for how it would be designed and structured.

Generally, experts support the idea of a sovereign wealth fund, but they have questions about this one, including how it would generate revenue, what projects it would support, and how it differs from a host of other federal agencies and banks.

“The devil is in the details,” said Charles St-Arnaud, chief economist with Servus Credit Union. “The idea of having a fund that invests in our infrastructure and all that is not a bad idea.”

The main difficulty for St-Arnaud is understanding how the fund will accumulate new investment and revenue in the future.

“It’s not clear exactly what’s the intention and what will be the outcome of it,” he said.

Alberta’s example shows how tempting it can be to politicians to repeatedly use the fund for short-term needs — especially when facing a deficit budget — sacrificing the opportunity of long-term growth.

What is a sovereign wealth fund?

There are more than 100 sovereign wealth funds around the world setup by governments with the aim of building wealth and often funded with money generated from a depleting resource or industry, such as oil and gas.

They vary in size from Norway’s massive $2-trillion US fund to much smaller accounts setup by U.S. states and some Canadian First Nations.

Canada’s fund will invest in energy, infrastructure, mining, agriculture and technology, and the federal government will borrow the money to get it started.

“For the Government of Canada to borrow a 30-year bond right now, 3.9 per cent is the interest rate. Well, some of these projects are getting returns of 10 to 15 per cent,” said Calgary Liberal MP Corey Hogan on CBC Radio’s The Calgary Eyeopener.

“That can be an incredible return for Canadians and it’s a way for all of us to benefit from the major nation building that’s going on,”

Build Canada, a think-tank focused on growing the national economy, has advocated for a federal sovereign wealth fund, but isn’t sure about what Ottawa is currently proposing.

“It’s a sovereign wealth fund in name only,” said chief…