Ireland's sovereign wealth fund relaunches with €1bn investment

Ireland's sovereign wealth fund is set to re-emerge as a significant investor in the country's recovering economy after the €64bn Irish banking collapse drained its resources during the crisis.

The Ireland Strategic Investment Fund is the successor to the National Pension Reserve Fund, a rainy-day vehicle established in 2001 when the country was flush with Celtic Tiger-era cash. One of the NPRF's purposes was to provide for an expected explosion in pension payments as the Irish population ages after 2025.

At its peak just before the Irish banking crisis of 2008-10, the NPRF had assets of €23bn and a broad investment portfolio. It received a cash injection each year from central government equivalent to 1 per cent of Irish gross national product. But €20bn of its assets were sucked into recapitalising Allied Irish Banks and Bank of Ireland, the country's two main banks.

ISIF is a smaller fund with more modest goals, and about €7.2bn in its discretionary portfolio, including nearly €4bn in cash and bonds, targeted at both debt and equity investment. It remains the state shareholder in Bank of Ireland, where it owns a 13.9 per cent stake, and in AIB, where it owns over 99 per cent.

So far ISIF has recouped most of the €4.7bn the NPRF invested in Bank of Ireland. AIB is being prepared for an initial public offering, and its board of directors has pledged that Irish taxpayers will be refunded in full over time for their nearly €21bn bailout.

ISIF expects to invest up to €1bn this year, in sectors such as real estate, early-stage investment, and food and agriculture. Its first commercial investment, announced last month, was as a cornerstone investor in the IPO of Malin Corp, an Irish life sciences company.

Eugene O'Callaghan, ISIF's director, described it as not just a sovereign wealth fund but a "sovereign development fund" targeting projects around the country that "will have a positive economic impact" on Ireland. "We're clearly a sovereign fund and we manage the assets on behalf of the people," he said.

ISIF's focus is purely domestic, and its aim is to achieve an annual portfolio return of 4 per cent - the level it needs to achieve its other mandated benchmarks. "We want to build a portfolio that can achieve that level of return," Mr O'Callaghan said.

As well as its cash and the bank stakes, ISIF inherited a portfolio of investments from the NPRF, including infrastructure and energy projects.

Being a big player in a relatively small market will bring challenges. One is that there will not be enough projects. Another is that, as the economy picks up and money starts to flow again into Irish assets other than real estate, competition from other investors will increase.

Mr O'Callaghan said there may be cases - such as well-funded infrastructure projects - that do not require participation by ISIF. But it will always be a commercial investor. "It's very important that we are a market-based investor and that our pricing is market-based," he said.

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