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.
France uses a nutritional rating system for the front of food packaging called a "Nutri-Score." Other countries have introduced similar initiatives, but supposedly France was the first to use this particular rating system, which ranges from A (best) to E (worst).
Here's what it looks like on a package of chorizo:
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.
Nutri-Scores were first introduced in supermarkets in 2017 and are applied on a voluntary basis. But having been in a handful of French grocery stores over the last week, I can tell you that it is widely used. So much so that I was more surprised when it wasn't there. What might they be trying to hide?
The Nutri-Score is also widely supported by the general public and, according to some surveys, nearly 90% of the French population believe that it should be mandatory on all food packaging.
So how does it work? The system is based on an algorithm that looks out for good stuff like fruits and vegetables, fiber, protein, and healthy oils, while penalizing bad stuff like sugar, saturated fat, and sodium, among other things.
It's an algorithm that is likely to be in constant flux. My understanding is that they have special rules for things like cheese. But regardless, I find that this simple rating system has a significant impact on my buying and eating decisions. Take the above chorizo. It has a score of "E." Do I really want that or should I go for the jambon next door that has a rating of "B?"
This also made me think of France's mandatory Energy Performance Certificate (or Diagnostic de Performance Énergétique). This is a diagnostic that is required of all properties being sold or rented in the country.
It ranks both energy consumption and CO2 emissions from A (most efficient) to G (least efficient). It also provides recommended renovations. And if you lie — and actual performance deviates too far from the stated rating — you could be in trouble.
But just like the Nutri-Score, I am sure that these energy efficiency scores similarly affect buying and renting decisions, especially if there's a capital expenditure recommendation tied to a low score.
This is how commercial real estate is bought and sold. A building condition assessment is done, somebody comes up with a cost for all the work that will need to be done, and then it gets factored into the price: "Yeah, so, I was going to pay you $50 million, but now I have to spend $2 million on CapEx."
But on the residential side, I don't think this is often the case. Not unless someone is measuring performance and telling you what improvements should be made and, in some cases, need to be made for the property to be legally rentable. Out of sight is out of mind.
No businessperson, landlord, or entrepreneur wants to deal with more bureaucracy and red tape. But I'm of the strong opinion that too much of the food we eat is over-processed shit. I also believe in continually striving to be better — especially when it comes to our built environment. And that starts with measurement and benchmarking.
This week, our team toured a new 9-storey mass timber residential building going up at 230 Royal York Road in Toronto. The developers are Windmill Developments and Leader Lane Developments. The construction manager is Oben Build. The mass timber company is Vancouver-based Intelligent City. And when it's completed, it is expected to be the tallest residential building in Toronto. But I suspect it won't hold this title for very long. Building out of wood is destined to become a major part of how we build in this city and country. So here are a bunch of photos from the site walk. I tried to include as many detail shots as possible so that you can all get a sense of how it pieces together.
