Ottawa willing to accept lower returns, more risk to put $15-billion growth fund to work

The Canada Growth Fund is prepared to accept a lower return or increase its potential loss exposure in order to encourage institutional investment in innovation and green projects.

The return and loss metrics will not be accepted by classic private equity investors when the fund makes concessional investments.

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The new Canada Growth Fund will bring in billions of dollars in new private investment required to reduce emissions, grow our economy and create good jobs, according to the finance minister.

We will make it easy for businesses to invest in major projects in Canada.

Several attempts have been made by the Liberal government to get pensions and other institutional investors to fund projects to create jobs.

The Canada Growth Fund will seek direct investments including co-investments with private investors and bilateral partnerships where the fund will invest in companies that are involved in the production of critical minerals

To address demand risk and improve project economics, the fund will enter contacts to provide revenue for a certain volume of production.

In cases where the risk level is too high, anchor equity will be provided to fund the project.

Some of the fund's investments will be piggybacked on the private funds, but there will also be sponsorships, where the fund identifies opportunities and tries to convene multiple financial and strategic partners.

According to a background document shared by the Finance Department, investment management teams will target companies and projects with a reasonable chance to strengthen the development of Canadian workers and generate knowledge that will produce long-term benefits for the Canadian economy.

Companies and projects with a focus on intellectual property development and commercialization are desirable, as are those that demonstrate an ability to improve Canadian competitiveness through new or existing value chains.

Investments could include equity, debt, and derivatives.

Private partners will be expected to share in any downside and will only be allowed to make concession investments where the Canada Growth Fund earns below-market returns or has higher exposure to loss through low-interest loans or subordinated debt.

According to the document, investors should share in the financial downside of under-performing investments.

Institutional investors will not be rewarded with returns in excess of what the private sector requires to proceed with an investment.

The aim of the new fund is to generate returns on an overall basis rather than individual basis, and to cover its capital on a portfolio basis and recycle its capital base over time.

Over the past seven years, the Trudeau government has tried to get Canada's active pension fund investors to finance domestic projects.

In September, Franois-Philippe Champagne said he would be reaching out to large funds about building dozens of electric battery plants in Canada and leasing them back to the automotive industry.

The creation of the Canada Infrastructure Bank five years ago was one of the least successful attempts to get private investors interested. The goal was to attract $4 to $5 of private money for every dollar invested, but it has fallen short.

Bshecter@nationalpost.com is the email address.