Originally published in Blakes Bulletin on Competition Law, January, 2008
On January 28, 2008, Canada's Minister of Finance, The Honourable Jim Flaherty, addressed the growth of sovereign wealth funds and the role that they may play in the future at a Conference Board of Canada event in Toronto entitled "The Hollowing Out of Corporate Canada: Myth or Reality?".
A sovereign wealth fund is a pool of investment resources provided by a country's government, most often funded by foreign exchange assets. Sovereign wealth funds have grown significantly in recent years (due to large current account surpluses and increased revenues in oil producing countries) and are estimated to be valued at trillions of dollars globally. Some of the largest global sovereign wealth funds include the Abu Dhabi Investment Authority (United Arab Emirates), China Investment Corp. (China) and Temasek Holdings (Singapore).
Without condemning or praising sovereign wealth funds, Minister Flaherty noted that they will become increasingly significant players around the world where capital is at a premium and sovereign wealth funds look for new opportunities to invest. The Minister referred to the Industry Department's recently adopted Guidelines on the review of investments by state-owned enterprises (SOEs), noting that increasing foreign direct investment in Canada is a priority and that the Guidelines clarify the government's position without raising obstacles to investment.
The Guidelines reflect the government's policy that the governance and commercial orientation of SOEs will be considered in determining whether an investment subject to review under the Investment Canada Act is of "net benefit" to Canada, the statutory test for an investment to proceed.
With respect to corporate governance, the Guidelines state that the Minister of Industry will examine whether the SOE adheres to Canadian standards of corporate governance, such as commitments to transparency and disclosure, independent members of the board of directors, independent audit committees, etc. In evaluating the commercial orientation of a firm, the Minister of Industry will examine the SOE's business plans for the Canadian business with regard to Canadian employment, its support of innovation, research and development in Canada, and its anticipated capital expenditures in Canada.
In addition to the Guidelines, the government is also considering the proposal of a national security test as part of the government's review of foreign investment under the Investment Canada Act. (A national security amendment to the Investment Canada Act was proposed in 2005 but died on the order paper).
Minister Flaherty also noted that the Organization for Economic Cooperation and Development and the International Monetary Fund are working on developing best practices with respect to investments by sovereign wealth funds, which are expected to be introduced in the coming weeks.
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