Prime Minister Mark Carney recently announced Canada’s first national sovereign wealth fund, the Canada Strong Fund. It’s aimed at investing $25 billion in domestic projects while offering Canadians a chance to invest alongside the government.

The fund has a dual mandate to deliver market-rate returns while also investing in Canadian projects that build a stronger and more resilient economy.

But these goals can conflict, and the fund’s current design raises questions the government has not yet fully answered.

What is a sovereign wealth fund?

A sovereign wealth fund is a pot of money owned and invested by a government to generate returns and build national wealth over time.

More than 100 exist globally, collectively managing more than US$10 trillion in assets. Most are funded from commodity surpluses or foreign-exchange reserves.

They differ from other public funds in important ways. Public pension funds manage money on behalf of retirees. Public banks and development funds lend or invest at below-market rates to achieve policy goals. Central bank reserves are held as a financial buffer, not invested for return.

Sovereign wealth funds are explicitly in the business of growing state capital. Governments can also use them to achieve geopolitical and economic goals.

Norway’s Government Pension Fund Global, valued at approximately US$2.2 trillion, is the best-known example. It invests oil revenue in a globally diversified portfolio to preserve the country’s resource wealth for future generations.

The Santiago Principles — a set of voluntary governance standards adopted by the international sovereign wealth fund community in 2008 — outline what responsible management looks like.

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