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 On top of this, over CAD 33 billion has been withdrawn from the fund over its life for various expenditures.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
The state of Utah is trying to build 35,000 starter homes over the next five years. Last year, $300 million was allocated to something known as the Utah Homes Investment Program (UHIP). The initial idea was that these funds would be provided as low-cost deposits to financial institutions so that they could, in turn, offer low-interest loans to homebuilders who committed to building single-family starter homes.
But this didn’t go as planned. Apparently, the low-cost deposits weren’t low enough to compensate for the perceived lending risk. So Governor Cox asked if the funds could instead be directed to the Utah Housing Corporation. Enter the Condominium Construction Loan Program. The way this newly created program works is that UHC can now provide low-cost loans — up to 100% LTC — directly to developers.
However, there are some stipulations:
Warrantable projects: The projects must be warrantable to the Federal Home Loan Mortgage Corporation, meaning the property and the individual condominium units need to be eligible for conventional mortgage financing.
Owner-occupancy requirement: The individual condominium units must be sold to an owner-occupant, with a recorded deed restriction in place for a period of not less than five years. This is obviously to stop investors from buying and reselling.
Equity sharing: The equity appreciation on the condominium unit is shared between UHC and the first owner-occupant. The homeowner earns 75% of the equity appreciation (15% per full year of occupancy, through five years), with the balance going to UHC upon sale of the unit.
So it’s a trade-off: buyers get access to new homes at below-market pricing (because the developer’s cost structure is reduced), and in exchange, they give up some of the potential upside. Will it work and help Utah achieve its starter home goal by 2030? I don’t know. But it’s clear recognition that if you want to deliver below-market housing, you need to provide subsidies.
This week has been a busy one, but I managed to get through this recent Prof G Markets interview with Mark Cuban while on the road and in between meetings. I like Mark Cuban. He comes across as likable and balanced. He's also pretty good at making money.
The conversation covers a lot of topics: AI, why AI could change the way we design housing, healthcare, the media landscape, social media algorithms, why it should be easier to be a public company, and what Cuban would do if he were president of the US, among others. If you're interested in these topics, maybe have a listen.
The discussion around social media algorithms struck a bit of a chord. At one point, Cuban makes the statement that this is one of the underlying challenges facing the US: whoever controls the algorithms controls our thoughts. He goes on to say that the social media algorithms know his kids better than he does.
Algorithms also shape our cities. Everything these days is being reverse-engineered for the attention economy. Typically, this means promoting more extreme views, instead of measured ones, which can drive a further wedge between cyclists and motorists, existing communities and new developments, and so on.
We know all this. But it's scary to think about the influence it has on our behaviors.
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
The state of Utah is trying to build 35,000 starter homes over the next five years. Last year, $300 million was allocated to something known as the Utah Homes Investment Program (UHIP). The initial idea was that these funds would be provided as low-cost deposits to financial institutions so that they could, in turn, offer low-interest loans to homebuilders who committed to building single-family starter homes.
But this didn’t go as planned. Apparently, the low-cost deposits weren’t low enough to compensate for the perceived lending risk. So Governor Cox asked if the funds could instead be directed to the Utah Housing Corporation. Enter the Condominium Construction Loan Program. The way this newly created program works is that UHC can now provide low-cost loans — up to 100% LTC — directly to developers.
However, there are some stipulations:
Warrantable projects: The projects must be warrantable to the Federal Home Loan Mortgage Corporation, meaning the property and the individual condominium units need to be eligible for conventional mortgage financing.
Owner-occupancy requirement: The individual condominium units must be sold to an owner-occupant, with a recorded deed restriction in place for a period of not less than five years. This is obviously to stop investors from buying and reselling.
Equity sharing: The equity appreciation on the condominium unit is shared between UHC and the first owner-occupant. The homeowner earns 75% of the equity appreciation (15% per full year of occupancy, through five years), with the balance going to UHC upon sale of the unit.
So it’s a trade-off: buyers get access to new homes at below-market pricing (because the developer’s cost structure is reduced), and in exchange, they give up some of the potential upside. Will it work and help Utah achieve its starter home goal by 2030? I don’t know. But it’s clear recognition that if you want to deliver below-market housing, you need to provide subsidies.
This week has been a busy one, but I managed to get through this recent Prof G Markets interview with Mark Cuban while on the road and in between meetings. I like Mark Cuban. He comes across as likable and balanced. He's also pretty good at making money.
The conversation covers a lot of topics: AI, why AI could change the way we design housing, healthcare, the media landscape, social media algorithms, why it should be easier to be a public company, and what Cuban would do if he were president of the US, among others. If you're interested in these topics, maybe have a listen.
The discussion around social media algorithms struck a bit of a chord. At one point, Cuban makes the statement that this is one of the underlying challenges facing the US: whoever controls the algorithms controls our thoughts. He goes on to say that the social media algorithms know his kids better than he does.
Algorithms also shape our cities. Everything these days is being reverse-engineered for the attention economy. Typically, this means promoting more extreme views, instead of measured ones, which can drive a further wedge between cyclists and motorists, existing communities and new developments, and so on.
We know all this. But it's scary to think about the influence it has on our behaviors.
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