Michael Sabia on Why PSP Investments Was Chosen to Run Canada Growth Fund

Former CDPQ CEO Michael Sabia testified in front of the Senate Committee on Banking and Finance earlier today.

Michael was asked a question by my former boss and now Senator Clément Gignac on why PSP Investments was chosen to run the new $15 billion Canada Growth Fund announced when the Liberal government presented their budget earlier this year.

Interestingly, Michael cited two main reasons:

  1. First and foremost, PSP Investments has a lot of expertise and is able to scale up these investments quickly.
  2. Second, he said they learned a lot of lessons with the creation of the Canada Infrastructure Bank, namely, it took a lot of time and "they lost a lot of time creating it." 

Sabia also said the investment focus of the Canada growth Fund doesn't typically fall into the purview of Canada's large pension funds.

I have explained in detail why PSP was chosen to run the Canada Growth Fund here

It could have easily been CPP Investments but that fund is governed by all provinces and federal finance minister, so it would require unanimous approval in record time.

PSP was the obvious choice because it has the expertise, the governance, and can quickly deploy these funds into productive investments, some of which may have come across their desk but were too small to invest in back in the day.

Now, I had a discussion with a friend who thinks PSP isn't the right choice from a taxpayer's perspective because their primary focus isn't on the Canada Growth Fund but managing the pension assets of their clients.

"I would have preferred a fund whose only focus is on the Canada Growth Fund".

Fair enough but as Michael Sabia explains while this sounds good in theory, in practice, they would have lost an inordinate amount of time setting it up as they did setting up the Canada Infrastructure Bank.

And truth be told, I'm not overly impressed with the Canada Infrastructure Bank and I doubt Michael Sabia is either.

That organization was supposed to be a complimentary lender on many large scale infrastructure projects but it seems to be doing a lot of small scale social infrastructure projects. 

Read Ryan Tumilty's article, Liberals put growth fund in pension plan board's hands. I quote:

A backgrounder the government has provided on the Growth fund said it will fund carbon reducing technology that hasn’t yet been widely adopted, companies that are in early stages of development with less mature technologies and low-carbon natural resource development.

Leo Kolivakis, a senior pension analyst, with experience at several large funds said the government was smart to put the growth fund in PSP Investment’s hands.

“We got to get this up and running fast. We need to figure out how we’re going to do this properly. And to do this properly. We need to have the governance structure and people with the expertise to deploy these funds properly,” he said.

Kolivakis said he is also curious to see more of the details, but he believes the pension plan may have good projects it couldn’t fund as a pension plan, because they aren’t significant enough.

“Many many projects that come through their desk might look great, but because they’re too small, they pass on them because it’s just not in their interest to do it or their clients to do it.”

In the budget, the government said the growth fund will be making its first investments in the first half of this year.

Let's wait and see how PSP will set up this new growth fund but it definitely has all it needs to do this properly.

Just remember my four words of advice: Don't bungle it up!! 

Lastly, I met up recently with Glenn Hodgson here in Montreal at Sofitel hotel's Renoir restaurant.

Glenn is an exceptional economist who understands policy extremely well. 

He's retired now but we spoke about Michael Sabia, Steve Poloz, David Dodge, Clément Gignac, Jerome Nycz at the BDC and others.

It's a small circle and Glenn told me Michael and Don Drummond were the hardest workers and most senior civil servants. "I'm in awe that Michael returned to Finance at the age of 68 to take on such a demanding job."

I told Glenn Chrystia Freeland needs all the help she can get and Michael is there to help on big decisions.

We both love David Dodge and he told me to read Steve's book, The Next Age of Uncertainty.

As we were leaving, we even saw Clément Gignac from far but didn't interrupt him as he was having lunch with people we didn't know.

Glenn and I also traded some stories on living with multiple sclerosis, a disease we both know all too well (mine has plateaued, I don't think about it anymore and Glenn is doing well too).

Alright, have a listen to Michael Sabia's testimony in French below.

I'll be back tomorrow with an important market comment you don't want to miss.