Ontario Premier Doug Ford speaks to media in Toronto on Thursday.Sammy Kogan/The Canadian Press
Ontario’s government is turning to the private sector to launch a $4-billion investment fund aimed at shoring up key sectors against economic turmoil, seeking to team up with an established investment manager that would put the money to work.
The provincial budget released Thursday outlines the launch of the Protect Ontario Account Investment Fund, and says the government has started a “competitive process” to choose a fund manager that would invest in Ontario businesses working in priority areas such as artificial intelligence, defence and advanced manufacturing.
Up to $4-billion of seed money for the fund will come from the previously announced Protect Ontario Account, a $5-billion initiative announced in last year’s provincial budget. The first $1-billion was earmarked for immediate relief for businesses and workers, including a $100-million loan to Algoma Steel Group Inc. ASTL-T to help offset the financial damage done by tariffs.
The new fund is intended to attract further capital from large, Ontario-based pension funds and other major investors.
Ontario is billing it as “an evolution in the relationship between government and the private sector,” aimed at creating “greater alignment” between policy objectives and private capital.
But it bears some resemblance to a strategy that federal and provincial governments have tried before, with mixed results: A pool of seed capital is carved out to act as a catalyst to draw in further investment, jump-starting infrastructure projects and helping private businesses expand, setting off a virtuous cycle for economic growth and productivity.
In reality, major Canadian investors have complained that there are still too few large-scale investment opportunities with manageable risks, and that regulations are too cumbersome to get projects approved or nurture homegrown industries.
Ontario said in its fall update last November that it was working on further initiatives to spend the remaining $4-billion earmarked last year. By putting that money in the hands of a private-sector partner, the province is hoping to “act at market speed, share risk with private investors and build durable assets aligned with provincial priorities,” according to the budget document.
The private investor that the province selects will act as the new fund’s general partner, finding investment opportunities and deciding how to use the capital, with oversight from an independent board.
The government, as anchor investor, will keep some control of the fund’s parameters as its largest limited partner, “retaining a prominent position” to make sure taxpayers benefit, according to budget documents.
“We want to invest in businesses in Ontario,” Finance Minister Peter Bethlenfalvy said Thursday, speaking to reporters. “We’ve got a lot of risk capital here in Ontario. We’ve got great pension funds and banks, insurance companies, asset managers. I want that money to stay here and invest in Ontario jobs, Ontario businesses in multiple industries.”
The fund is expected to invest in research and development for the critical minerals sector as well as life sciences, in addition to companies working on AI, defence and types of manufacturing that Ontario identified as cornerstones of a “new economy.”
It is intended to act as a complement to the Building Ontario Fund that the province set up two years ago to back infrastructure projects. That was fashioned after the federal Canada Infrastructure Bank, which got off to a slow start but has since committed billions of dollars to investments and received an expanded mandate earlier this year.
Ottawa also created the $15-billion Canada Growth Fund to invest in clean technology and projects to reduce carbon emissions, and it delegated management to the Public Sector Pension Investment Board, a $300-billion federal pension fund manager.
And Alberta’s government has added billions of dollars of new funding to its Heritage Savings Trust Fund, a pool of provincial wealth managed by arm’s-length pension fund manager Alberta Investment Management Corp. (AIMCo).
Ontario expects to give more details about the fund’s structure once it selects a general partner, and Mr. Bethlenfalvy said the province will “definitely have guardrails in place” to safeguard the way the fund is managed.
“We still have some more work to do,” he said.