Working out where to invest will be key challenge for innovative €6.8bn fund

Finding capital to invest is not the problem; rather it is finding projects worthy of capital investment, Eileen Fitzpatrick, director of NewEra, told the conference held yesterday in Dublin to advertise the Ireland Strategic Investment Fund (ISIF).

This is one of the key challenges facing the ISIF. The €6.8 billion fund is to target investments that give a commercial return and are of benefit to the economy and job creation. The investments must not just replace ones that would have occurred anyway or benefit one business or sector at the expense of another, without any overall competitive or other benefit to the economy.

Private sector
As Eugene O'Callaghan, director of the fund, put it, there is no point investing in one hairdresser to the detriment of a hairdresser down the road.

The fund aspires towards having private sector co-investors, so we could be looking at €13 billion to €15 billion being invested over four years or so.

The Government and the people in the National Treasury Management Agency, which will house the fund, believe the opportunities are out there.

Support for this belief was given at the conference by speakers from debt, private equity, infrastructure and turnaround funds who have received money from the National Pensions Reserve Fund as part of the preparation for the transfer of a portion of its assets, or “wealth fund”, into the new “investment fund”.

For instance, Carlyle Cardinal Ireland, a joint venture between the Carlyle Group and Cardinal Capital that is solely focused on private equity investments in Ireland, is looking to invest €300 million in investment packages of between €2 million and €50 million. It has received a €125 million commitment from the ISIF.

A lot of smaller investments into SMEs are expected to occur by way of investment in funds that in turn invest in businesses. The ISIF is likely to handle larger investments directly.

One of the intriguing aspects of the fund is that it is not being copied from another jurisdiction, so at least some of the rules will be developed as the project unfolds.

Short-term benefits
While 80-85 per cent of the money will go towards areas with the highest economic impact – exports, manufacturing, internationally traded services, and infrastructure – the remainder is being tagged for projects with short-term benefits such as employment creation and the acceleration of the normalisation of the capital markets. This gives the fund more scope to invest in SMEs engaged in the domestic economy.

Deputy director of the fund Nick Ashmore said it will be open to "big idea" transformational type proposals, in which context he mentioned building a European equivalent in Ireland of the battery gigafactory being planned in the US, or a long-term investment in milk production. Think outside the box, was part of his message.

All the speakers said that a key aspect of the fund would be its protection from political pressure for “soft” investments. That appears to mean that billions will be invested in projects deemed to be of long- term benefit to the country, outside of the political process that usually governs such decisions.