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I'm not sure that oil is Canada's only economic hard power, but it has to be our largest:
“To effectively use oil, Canada’s only economic hard power, Carney needs to get not just one, but two pipelines built,” said Adam Waterous, chief executive of Calgary’s Waterous Energy Fund, a major oil sands investor.
It's hard to imagine a more strategically important investment for Canada. Right now, virtually all of Canada's oil exports go to the US. That gives us zero leverage. We are price takers! To correct this, we need to diversify our customer base. And the only way we do that is by building pipelines to our coastlines and then selling to the rest of the world.
But beyond shoring up our economy, I'd argue that this is also the way we accelerate decarbonization. Here's the plan: We get rich, and then reinvest the profits into renewable energy, the world's largest sovereign wealth fund, and critical nation-building infrastructure like housing, transport, and education.
Oil and gas profits won't last forever. This is about building for that future.
Cover photo by Chris Liverani on Unsplash
One of the most popular blog posts that I have ever written on this blog over the last 12 years is this one: Canada must become a global superpower. And in this post, I argue that Canada needs to create a sovereign wealth fund, and that we have Norway to look to as a model. This is a topic that is raised semi-frequently in Canada. Just this past week, John Ruffolo, who is the Founder and Managing Partner of Maverix Private Equity, published this opinion piece in the Globe and Mail. Here's an excerpt:
Aging demographics, high taxes, deficits and unproductive wealth trapped in housing mean we simply don’t generate large capital pools for productive assets. Our pension funds, though world-class in size and governance, largely bypass Canadian innovators in favour of global opportunities. Our venture and private equity funds rely heavily on U.S. investors. Our banks, stable by design, avoid the kind of long-term risk capital required to build sovereign industries.
A sovereign wealth fund is not a slush fund. Done properly, it is a professionally managed pool of assets, governed independently, with two purposes: strengthen [Canada] sovereignty and generate long-term returns.
Canada has never had a true national sovereign wealth fund similar to what Norway, Singapore and others have done. That is, we don't have a federal-level, state-owned investment fund built from natural resource surpluses, trade surpluses, or foreign exchange reserves. What we have instead is a provincial SWF called the Alberta Heritage Savings Trust Fund (AHSTF).
Many Albertans will be quick to point out that the province's non-renewable resource revenues should remain that of the province. But let's be clear: this fund has not done what it set out to do. It has failed due to political interference and a governance structure that does not promote long-term thinking.
I'm not sure that oil is Canada's only economic hard power, but it has to be our largest:
“To effectively use oil, Canada’s only economic hard power, Carney needs to get not just one, but two pipelines built,” said Adam Waterous, chief executive of Calgary’s Waterous Energy Fund, a major oil sands investor.
It's hard to imagine a more strategically important investment for Canada. Right now, virtually all of Canada's oil exports go to the US. That gives us zero leverage. We are price takers! To correct this, we need to diversify our customer base. And the only way we do that is by building pipelines to our coastlines and then selling to the rest of the world.
But beyond shoring up our economy, I'd argue that this is also the way we accelerate decarbonization. Here's the plan: We get rich, and then reinvest the profits into renewable energy, the world's largest sovereign wealth fund, and critical nation-building infrastructure like housing, transport, and education.
Oil and gas profits won't last forever. This is about building for that future.
Cover photo by Chris Liverani on Unsplash
One of the most popular blog posts that I have ever written on this blog over the last 12 years is this one: Canada must become a global superpower. And in this post, I argue that Canada needs to create a sovereign wealth fund, and that we have Norway to look to as a model. This is a topic that is raised semi-frequently in Canada. Just this past week, John Ruffolo, who is the Founder and Managing Partner of Maverix Private Equity, published this opinion piece in the Globe and Mail. Here's an excerpt:
Aging demographics, high taxes, deficits and unproductive wealth trapped in housing mean we simply don’t generate large capital pools for productive assets. Our pension funds, though world-class in size and governance, largely bypass Canadian innovators in favour of global opportunities. Our venture and private equity funds rely heavily on U.S. investors. Our banks, stable by design, avoid the kind of long-term risk capital required to build sovereign industries.
A sovereign wealth fund is not a slush fund. Done properly, it is a professionally managed pool of assets, governed independently, with two purposes: strengthen [Canada] sovereignty and generate long-term returns.
Canada has never had a true national sovereign wealth fund similar to what Norway, Singapore and others have done. That is, we don't have a federal-level, state-owned investment fund built from natural resource surpluses, trade surpluses, or foreign exchange reserves. What we have instead is a provincial SWF called the Alberta Heritage Savings Trust Fund (AHSTF).
Many Albertans will be quick to point out that the province's non-renewable resource revenues should remain that of the province. But let's be clear: this fund has not done what it set out to do. It has failed due to political interference and a governance structure that does not promote long-term thinking.
Established in 1976 with an initial capital contribution of CAD 1.5 billion, the annual share of non-renewable resource revenues to be contributed was initially set at 30%. This was later reduced to 15%, and then in 1987, mandatory annual contributions were eliminated, making it more of an ad hoc thing. On top of this, over CAD 33 billion has been withdrawn from the fund over its life for various expenditures. The result is current assets under management of approximately CAD 30 billion.
To put this AUM into perspective, if the AHSTF had instead taken its initial contribution of CAD 1.5 billion, invested it into the S&P 500 in 1976, and then sat on its ass for the next half decade doing absolutely nothing besides keeping the fund active, it would today have a value of approximately CAD 160 billion (assuming an average annual return of 10% with dividends reinvested).
Now let's compare it to the Norway Government Pension Fund Global (their oil fund). This fund only received its initial capital contribution of ~USD 240 billion in 1996. But unlike Alberta, 100% of oil and gas revenues are contributed, there have never been any withdrawals, and governance is not political — it's independent and legally protected. The result is current assets under management of approximately USD 2 trillion, making it the world's largest sovereign wealth fund.
For fun, I asked AI to come up with an assets under management estimate for a Canadian Sovereign Wealth Fund had it been established in 1976 with the same CAD 1.5 billion initial contribution; had we made annual oil & gas revenue contributions ranging from $5 to $15 billion; had we achieved an annual return of 6% (like Norway); and had we never done any withdrawals due to strong governance and political independence.
The result is an AUM range between CAD 1.5 trillion and 4.4 trillion. In other words, Canada could, today, be sitting on the largest sovereign wealth fund in the world. But you know what the next best thing to this is? Starting one today.
Cover photo by Hermes Rivera on Unsplash
Established in 1976 with an initial capital contribution of CAD 1.5 billion, the annual share of non-renewable resource revenues to be contributed was initially set at 30%. This was later reduced to 15%, and then in 1987, mandatory annual contributions were eliminated, making it more of an ad hoc thing. On top of this, over CAD 33 billion has been withdrawn from the fund over its life for various expenditures. The result is current assets under management of approximately CAD 30 billion.
To put this AUM into perspective, if the AHSTF had instead taken its initial contribution of CAD 1.5 billion, invested it into the S&P 500 in 1976, and then sat on its ass for the next half decade doing absolutely nothing besides keeping the fund active, it would today have a value of approximately CAD 160 billion (assuming an average annual return of 10% with dividends reinvested).
Now let's compare it to the Norway Government Pension Fund Global (their oil fund). This fund only received its initial capital contribution of ~USD 240 billion in 1996. But unlike Alberta, 100% of oil and gas revenues are contributed, there have never been any withdrawals, and governance is not political — it's independent and legally protected. The result is current assets under management of approximately USD 2 trillion, making it the world's largest sovereign wealth fund.
For fun, I asked AI to come up with an assets under management estimate for a Canadian Sovereign Wealth Fund had it been established in 1976 with the same CAD 1.5 billion initial contribution; had we made annual oil & gas revenue contributions ranging from $5 to $15 billion; had we achieved an annual return of 6% (like Norway); and had we never done any withdrawals due to strong governance and political independence.
The result is an AUM range between CAD 1.5 trillion and 4.4 trillion. In other words, Canada could, today, be sitting on the largest sovereign wealth fund in the world. But you know what the next best thing to this is? Starting one today.
Cover photo by Hermes Rivera on Unsplash
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