Strategic investment fund to put €6.8 billion into economy

Newly established fund may attract an equal amount of private-sector funding

Details of the Ireland Strategic Investment Fund (ISIF), which will replace the National Pensions Reserve Fund (NPRF), were outlined at a function in Dublin Castle today.Photograph: Brenda Fitzsimons / THE IRISH TIMES

Details of the Ireland Strategic Investment Fund (ISIF), which will replace the National Pensions Reserve Fund (NPRF), were outlined at a function in Dublin Castle today.Photograph: Brenda Fitzsimons / THE IRISH TIMES

Wed, Mar 5, 2014, 22:27

The investment of €6.8 billion in commerical projects that are of benefit to the Irish economy is to be overseen by the National Treasury Management Agency over the coming four to five years.

The investment is to occur in tandem with private sector investment and the experience of the agency to date indicates the total invested as a result of the creation of a new fund will be of the order of €12 billion to €15 billion.

This compares with total government spend by government departments last year of €40 billion, or Bank of Ireland’s plan to release €33 billion in “new” lending into the economy by the end of 2017.

Details of the Ireland Strategic Investment Fund (ISIF), which will replace the National Pensions Reserve Fund (NPRF), were outlined at a function in Dublin Castle today attended by approximately 400 representatives of the funds and investments industry, and other interested parties.

They were told that the NPRF, a sovereign wealth fund, was to be changed into a sovereign investment fund. There was very little literature availabe on such funds, as Ireland was “almost alone in the globe” in setting up such a fund, Eugene O’Callaghan, Director of the NPRF, told the meeting.

While there is €19.9 billion in the NPRF, €13.1 billion of this is invested in the banks and other areas, leaving an “discretionary portfolio” of €6.8 billion.

This money is going to be placed in the ISIFwhen new legilsation is introduced by the Oireachtas in the coming months. The legislation will also reconfigure the National Treasury Management Agency, which houses the NPRF, the National Asset Management Agency, and a number of other functions.

As part of its preparations for the establishment of the fund, the NPRF has already invested €1.2 billion in a range of sectors and projects, including Irish Water, with this investment being matched by €1.5 billion in third party capital.

The key principles that will guide investment by the fund are the pursuit of a commercial return - which must be at the very least greater than the cost to the state of borrowing money - while also targetting investments that will support economic growth and jobs. The Ireland-focused investment mandate will also seek to involve private sector co-investment, and the recycling of capital to allow new investments, so as to maximise the effect on the Irish economy.

Mr O’Callaghan said that the economic impact aspect of the fund’s mandate would mean it would avoid “deadweight” investments, being those where the benefits would have been achieved anyway, and “displacement” investments, where any gains arising would be at the expense of another entity in the economy.

Instead the fund will seek opportunities where the benefits that will accrue would not have otherwise accrued for the Irish economy.

“It will probably take a few years to sink the €6.8 billion into the ground,” John Corrigan, chief executive of the NTMA, told the gathering, while Mr O’Callaghan later told reporters it could take between three to six years.

Nick Ashmore of the ISIF said the fund was open to “transformational type” ideas as well as more conventional ones, and said the longer timeframe that would apply to the investments opened up greater scope for “thinking outside the box”.

A key aspect of the new fund was isolating it from attempts at political interference and Mr O’Callaghan said the commercial investment aspect of the fund’s brief would be very important in that regard, as would governance at the NTMA and the existence of co-investors.

Speakers at the event include drepresentatives from investment funds who are targetting different sectors of the Irish economy and who have in turn received investment from the NPRF.

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