Budget 2026 clarifies how the Canada Strong Fund sits in a project capital structure
In April 2026, the federal government announced the Canada Strong Fund (“CSF”), Canada’s first sovereign wealth fund. Seeded with $25 billion, the CSF is mandated to earn commercial returns by investing alongside other investors in strategic Canadian projects and companies. It will also offer a broadly accessible retail investment product so that Canadians can share in the country’s growth agenda.
Budget 2026 and the accompanying Canada Strong Fund Technical Backgrounder (the “Backgrounder”) explain in more detail how the CSF is expected to operate, including where its investments will sit in a project’s capital structure.
How will the Canada Strong Fund invest?
The CSF’s investment pipeline will be sorted into two main streams:
- co-investments; and
- strategic investments.
Under the co-investment stream, the CSF will work with federal entities that support projects and companies, whether financially (for example, through Canada Infrastructure Bank (“CIB”) loans) or non-financially (for example, through support and coordination from the Major Projects Office (“MPO”)). Going forward, federal support from these entities “will normally include an opportunity for the CSF to make a minority co-investment on private-sector terms.”
Budget 2026 gives two hypothetical examples of how this stream could work:
- the MPO works with a project proponent to secure an opportunity for the CSF to finance the project, and the CSF offers structured financing on the same terms as the principal investor, such as a long-term loan that converts to equity once the project enters service.
- the CIB advances a concessional loan and, as part of its financial offering, gives the CSF an opportunity to make an equity investment on terms set by the lead investor.
Under the strategic investment stream, the CSF will source, diligence and selectively make direct investments in “high-potential companies and projects,” with a view to “strengthening strategic sectors, localising essential technologies and knowledge, and catalysing competitive ecosystems that will fuel Canada’s productivity and long-term wealth creation.”
Most strategic investments will be made alongside other investors on commercial terms. Only occasionally may the CSF invest on its own, where the investment meets its risk-adjusted return expectations and there is “a compelling case for significant economic benefits to the country.”
Budget 2026 points to the government’s recent commitment to invest in Cohere’s Series E equity round, on a commercial basis alongside private investors, as an example of the type of investment the CSF could make under this stream.
In both streams, the CSF’s terms will track those of the lead private investor. As a shareholder, the CSF will have “substantially the same rights” as the lead private investor and be exposed to “the same upside and downside,” and in trust or partnership structures it will invest on “substantially equal terms” with the other lead private investors.
The CSF will have the flexibility to invest across the capital structure “on the same basis with a lead private investor where present,” including through hybrid debt/equity investments in select cases where the lead private investor is providing capital in that form. In all cases, the CSF “will participate on a minority basis and will not assume a controlling share of any project or company.”
The Backgrounder also states that the CSF “will be distinct from existing federal financing Crown corporations or funding programs” and will not overlap with existing government initiatives that provide concessional financing or contribution funding for firms and projects in specific sectors.
Implications for proponents and other investors
A project’s capital structure may therefore involve several federal entities with distinct roles, interests and mandates, such as a concessional lender (e.g., the CIB) providing debt financing alongside the CSF, a commercial investor making “a minority co-investment on private-sector terms” with the aim of generating “long-term national wealth.”
Because the CSF’s terms are tied to those of the lead private investor, any arrangements that favour a sponsor, such as preferred returns, promotes, fees or enhanced governance rights, will need to be reconciled with the CSF’s expectation of “substantially the same rights” and “the same upside and downside” as the lead private investor.
Sponsors and other investors also should not expect the CSF to fill funding gaps on below-market terms. Although the CSF will not take a controlling share, the Backgrounder states that it will maintain “an ongoing relationship with investment partners to mitigate risks such as the change of control of partner investors or a decision by partner investors to divest some, or all, of a project,” which suggests that co-investors should expect the CSF to seek information and transfer protections that enable it to monitor and respond to changes in the project’s ownership and investor group.
The bottom line
Budget 2026 and the Backgrounder clarify where the CSF will sit in a project’s capital structure: as a minority, non-controlling investor on the same terms as the lead private investor, alongside (rather than in place of) concessional financing from entities such as the CIB.
McCarthy Tétrault will continue to monitor the CSF’s implementation and is well positioned to advise proponents, equity investors and lenders on the structuring, governance and financing of major projects in Canada.
For more information on these developments, please contact Samantha Cunliffe or Sam Jones.
