Last month, Prime Minister Mark Carney announced the creation of the Canada Strong Fund, a new federal investment vehicle that would invest in domestic projects and companies.
It has been pitched as a sovereign wealth fund (SWF) by the government, and this claim has been echoed in the media. Despite this, the Canada Strong Fund is not, by any standard definition of the term, a SWF. So, this raises a straightforward question: what is it, exactly? And if it is not a SWF, what purpose does it serve instead?
What is a sovereign wealth fund?
A SWF is a government investment fund that deploys existing wealth, such as resource windfalls and current account surpluses, into diversified, usually foreign assets for macroeconomic adjustment. In other words, a SWF may be characterized as a kind of government savings account.
The state, through various streams, takes capital out of the domestic economy and invests it into medium-to-high yield assets to generate future returns. This has an intended effect of raising aggregate national savings, reducing present consumption in favour of assets that compound over time.
The Canada Strong Fund will be initially financed through government-deficit spending, meaning there are no savings to be found. The federal government is borrowing money to invest elsewhere — the opposite of what a SWF traditionally does.
This bet might pay off if the returns on these investments are higher than their cost, but that is not certain. More importantly, borrowing to invest would raise the national debt without reducing present consumption, diminishing overall savings.
To be fair, a SWF does not require a fiscal surplus by the central government. That is not what is meant by national savings here, and such a condition would disqualify any SWF by a country that ran a temporary deficit.
China, for example, maintains the US$1.37 trillion China Investment Corporation (CIC), despite a deteriorating fiscal situation. But China nonetheless funded its endeavour through bond purchases of its foreign exchange reserves, accumulated through decades of current account surpluses. In practice, China was reorganizing wealth its economy had already.
Canada has no equivalent reserve pool, and no equivalent transaction. To the extent the Canada Strong Fund is financed by global capital markets, it would worsen the country’s savings relative to its investment — a likely outcome, given the finance minister’s stated intention to borrow at favourable international rates.
A hammer looking for a nail
The economic aims of a SWF are varied, but also explicit and distinct from funding nation-building infrastructure projects. Most funds exist for one of two reasons: warehousing a finite resource windfall so future generations inherit something when it runs out (especially oil revenue) or managing the macroeconomic consequences of persistent export surpluses. The Canada Strong Fund doesn’t do much to address either of those concerns, nor are they particularly relevant to the Canadian economy.
Norway holds the world’s largest SWF at US$2.1 trillion as of 2025 as a result of its substantial oil revenue; any equivalent funding mechanism is well beyond Ottawa’s reach. Under the Constitution Act, natural resources belong to the provinces, not the federal government, leaving Ottawa without a direct claim on the royalty streams that fund comparable SWFs elsewhere.
More importantly, Canada’s resource wealth is dispersed across a much larger population. Norway, with its population of more than five million, produces around two million barrels of oil per day, a much more favourable ratio than Canada. Ottawa would not be able to skim enough royalties off its own industry to sustain a similar fund, even ignoring the unconstitutionality of doing so.
The currency adjustment rationale fares no better. When resource revenues or export surpluses flood a domestic economy, they bid up prices and cause the currency to appreciate. This crowds out other export sectors by making them less internationally competitive and leads to excessive foreign reserve accumulation.
A SWF fixes this by taking that capital and investing in higher-yielding foreign assets. This reroutes surplus wealth abroad before it enters the domestic economy and neutralizes any macroeconomic effect. This cannot apply to Canada, which is not accumulating any external surplus wealth through its current account to begin with.
Norway’s fund, for example, is prohibited from investing domestically. This rule was designed precisely to prevent resource revenues from re-entering and overheating the Norwegian economy. The Canada Strong Fund explicitly does the opposite, deliberately investing domestically in the hope of spurring longer-term growth.
A development bank by another name
If it doesn’t perform any of the functions of a typical SWF, what problems does the Canada Strong Fund address?
The better comparison is not to foreign investment vehicles at all, but instead to state-led development banks such as BPIFrance, the Irish Strategic Investment Fund, or our own Canada Infrastructure Bank. Like those institutions, the Canada Strong Fund will invest “strategically” in private sector companies and large infrastructure projects, with the explicit aim of nation building.
This has been a common theme of the Carney government, which has spearheaded legislation aimed at fast-tracking large, nation-building projects. To that end, the Canada Strong Fund fits a clear pattern. However, a large subsidy for national infrastructure is not a sovereign wealth fund.
The Carney government has anticipated this critique, but its defence is wanting. The prime minister invoked Singapore’s Temasek Holdings as an example, noting that the titular SWF “began with a domestic focus, then outgrew the scale of the domestic focus”.
While technically true, the comparison is a stretch. Temasek didn’t start as a sovereign wealth fund; it began as a holding company for state-owned enterprises. After 2002, it began to aggressively accumulate foreign assets, evolving into what might be considered a quasi-SWF.
The Canada Strong Fund mimics neither Temasek’s origin nor its trajectory; it is not a manager of existing state assets, nor is it designed to eventually “outgrow” its domestic mandate. The Canada Strong Fund is, and will likely remain, a domestic investment vehicle for state-led development.
But Canada doesn’t need a rainy day fund
Some in the Canadian policy space have pushed for a genuine SWF, and have been left dissatisfied with the current approach. But the bulk of these proposals underweight what a SWF would mean for a country in Canada’s macroeconomic position. Canada has no surpluses to invest, fiscally or otherwise. It runs a persistent current account deficit, meaning we still require a constant inflow of foreign capital to fund our consumption and investment.
Sovereign wealth funds are instruments of surplus economies. It is a specific policy for countries with more savings than they can productively invest at home, whether in the form of concentrated resource windfalls or persistent export surpluses.
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Canada is the opposite type of country in just about every dimension. It is a net capital importer, not a net exporter. Its resource rents are far from excessive and accrue to provinces, not to Ottawa.
Unlike the stagnant or shrinking populations of many nations with a SWF, Canada’s rapid demographic growth has created a constant, mounting demand for new physical assets: housing, schools, hospitals, and energy grids. This is not an economy that ought to invest abroad for extra capital tomorrow — it’s one that needs capital now.
What the Carney government is proposing is not a SWF, and the label is doing political work that the actual policy doesn’t support. It invokes much more ambitious concepts from well-regarded economies like Norway and Singapore where they don’t apply, framing the policy as a prudential savings vehicle when it is, by design, the opposite: a domestic investment program that will, at least initially, be funded by borrowing.
But the mislabelling does a disservice to what is actually being proposed. A genuine SWF would be the wrong policy for Canada. It would suck domestic capital from where it’s needed most to invest abroad, starving an economy that already imports savings to fund its own growth. Whatever the merits of the Canada Strong Fund as industrial policy — and those merits are genuinely contested — it is at least pointed at the right problem. On that count, the government has stumbled in the right direction, it’s just using the wrong name.
