In December 2014, the assets of the National Pensions Reserve Fund (NPRF), mainly liquid global assets, transferred to the Ireland Strategic Investment Fund (ISIF). The ISIF has a unique "double bottom line" mandate to invest on a commercial basis in a manner designed to support economic activity and employment in Ireland, and invests mainly in Irish assets in private markets. The NPRF Discretionary Portfolio was made available to the ISIF to enable it to make investments that meet this mandate. The global assets are transitioned over a multi-year period to provide liquidity for Irish investment opportunities as they are identified and executed.
The Directed Portfolio (primarily public policy investments in AIB and Bank of Ireland made during the financial crisis in 2009-2011) continues to be managed within the ISIF under direction from the Minister for Finance.
The ISIF's double bottom line mandate makes it one of the few sovereign wealth funds globally with a mandate to contribute to economic activity and employment, in addition to delivering commercial returns. The ISIF is required to seek to generate a return over the long term in excess of the cost of Irish Government debt.
In seeking to contribute to economic activity and employment, the ISIF's investment focus is on additionality, or investments which build the productive capacity of the Irish economy. The ISIF's unique characteristics - scale, flexibility across the capital structure and long-term investment horizon - mean that it can target such investments in a way that many other investors and financiers cannot. Conversely, the ISIF in its Investment Strategy seeks to avoid deadweight (crowding out willing private sector investment) and displacement (enterprises whose success comes at the expense of others within the Irish economy).
At end-2018, the value of the ISIF Discretionary Portfolio was €8.8bn, comprising global assets of €6.2bn and Irish assets of €2.6bn, and the value of the Directed Portfolio was €11.8bn.
As at year end 2018, the Discretionary Portfolio accounted for 52 % of the value of the Fund.
The Fund's Sustainability and Responsible Investment Strategy (SRIS) applies only to the Discretionary Fund and ISIF's PRI reporting reflects this throughout.
2015 Investment Strategy (ISIF 1.0)
In May 2015, the NTMA Board approved the 2015 ISIF Investment Strategy, following consultation with the Minister for Finance and the Minister for Public Expenditure and Reform. The key features of the 2015 Investment Strategy included;
A broad-based Portfolio; across sectors, regions and asset classes
ISIF's Key Differentiators; Utilisation of the ISIF's key differentiating features of scale, flexibility across the capital structure, long-term investment horizon and credibility as a sovereign investment partner to provide something additional or unique in the market and enable transactions which would not otherwise easily be completed.
Co-investment; Attracting co-investment partners where possible so that the impact of ISIF investments will be multiplied in the Irish economy.
Return; Risk-adjusted rates of return appropriate to the specific characteristics of each individual investment. Overall long-term portfolio return in excess of the average cost of Government debt.
2019 Investment Strategy (ISIF 2.0)
ISIF's 2025 ambition is to exceed the investment return benchmark and make sustainable progress under the Priority Themes.
The key features of the 2015 Investment Strategy are broadly unchanged under ISIF 2.0, specifically ISIF's key differentiators, the focus on co-investment and return (both commercial and economic impact return). ISIF's revised 2019 Investment Strategy, guided by the objectives of Project Ireland 2040, will target a €3 billion 5-year investment programme which will focus on five Priority Themes of key importance to the Irish economy: Regional development, Housing, Indigenous businesses, Climate change and Brexit. In addition, the Fund will continue to pursue investment opportunities that are suitable for its Connectivity Fund sub-portfolio, which includes existing investments in airport and port infrastructure and projects that enhance Ireland's global data and IT connectivity. The Fund will also maintain flexibility to selectively take advantage of compelling opportunities which are consistent with the Fund's mandate and do not fit under the priority themes.
Sustainability and Responsible Investment for a new mandate
The transition from the NPRF to ISIF involved the development and implementation of a new investment process for Irish investment together with the complex restructuring of the Fund's Global portfolio, which now has a shorter time-horizon
ISIF must invest on commercial basis in a manner that supports economic activity and employment in the State. As Ireland is a small economy, investment opportunities tend to arise in less liquid domestic private markets, and consequently the Fund has to take a long-term outlook of the risks as well the opportunities and ultimately the sustainability of a business or the sectors within which it operates. This makes the ISIF naturally very aligned with the broader principles of Responsible Investment and Sustainability. However, the challenge is to implement RI/ESG in a broadly consistent manner across two very different portfolios (shorter- term Global portfolio and longer-term Irish portfolio) as the Fund progresses through this transitionary stage from a well-established Sovereign Wealth Fund to a Strategic Development Fund.
Each year, the PRI reporting is quite different to previous years responses as they Fund evolves. For the purposes of this report assets as at year end 2018 are reported, but additional descriptive information is provided throughout as appropriate. Some Irish investments are being included for the first time.
The three key S&RI issues for the Fund over 2018 were the implementation of an ESG Framework for all Irish investments, development of Carbon measurement tools for Irish investments and the Fossil Fuel Divestment Act, 2018, a legislative requirement prohibiting investment in companys that generate >20% revenue from extraction, exploration or refinement of Fossil Fuels.
Further information on the Fund, its mandate and investments to-date are available on the Fund's website: www.isif.ie