Canadians are planning for next week’s holiday in an understandably tentative mood. Gasoline prices remain high enough to quash Canada Day travel plans. Homeowners are unsettled by the value of the roof over their heads, even as they await their next mortgage renewal. And, by all indications, our trade deal with the U.S. and Mexico is about to enter a period of annual reviews and renegotiations.
Ottawa has tabled multiple policy proposals to strengthen the national economy, among them the Canada Strong Fund. It will be designed to drive investment into large projects deemed important to the country’s long-term economy. Ottawa has promised $25 billion to launch the fund, which will be invested alongside institutional and other private investors.
In a clever bit of politicking, Prime Minister Mark Carney has proposed that the fund be made available to retail investors. These projects don’t need us, of course. Infrastructure projects in this part of the world draw more than enough of the world’s smart money. But building a retail sleeve into the fund is good optics, and perhaps something more.
First, on the optics. Carney has tabled a big idea at a time when it feels like the country could really use a few. Designing it in a way that allows Canadians to participate directly is just smart.
John De Goey, a portfolio manager at Designed Securities in Toronto, said the fund reminds him of war bonds. “During wars, governments issue bonds,” he said on the Canadian Advisor.cast. “They [would] use that to finance the war effort. … Canada’s really at war with the U.S., economically. It doesn’t feel like it necessarily, but I think that’s what the Carney government is trying to convey — that we, as Canadians, need to do whatever we can to support our sovereign interests.”
Second, there is at least the potential for the Canada Strong Fund to become a meaningful savings vehicle for investors.
Rebekah Young, vice-president, economic policy at Scotiabank Economics, has published an excellent paper on the proposal entitled Going Long for Local: Giving Canadians a Direct Stake in the Country’s Future.
“A Canada First Account could bring Canadians alongside the build — helping reframe the national investment story by giving households a clearer sense of agency in the country’s trajectory, and the hope that comes from having a tangible stake in the future,” she writes.
Still, the details matter.
“It needs a lot of careful design,” Young told me in an interview Wednesday. In Bay Street parlance, how will this be productized?
“They’re likely going to have to do a registered product,” Young said. “Otherwise, Canadians won’t have the incentive to invest or the discipline to hold.”
Liquidity risk is unlikely to be the reason retail investors stay committed over decades. They will need their own reasons to stay invested. Registered accounts align investors’ interests with the projects’ need for patient capital.
“It can be in Canadian investors’ interests to have … exposure to infrastructure over the long run,” Young said, “if they have the discipline to hold it.”
She suspects Ottawa will have to offer a mix of early-stage and mature investment opportunities with stable income in order to ensure the product is not too risky for retail investors.
Young said advisors will have to be realistic about client interest in all of this though. “It’s going to be upper-income households that have excess savings,” she said.
When the fund launches, it is almost certain to be wrapped in the kind of patriotic marketing usually reserved for coffee shop chains and beer companies. The more important conversation, however, will be about clients’ risk tolerance, investment time horizons and understanding of infrastructure investing.
Be ready.