Ireland Strategic Investment Fund

The ISIF has a statutory mandate to invest on a commercial basis in a manner designed to support economic activity and employment in the State.

Investing in Ireland

ISIF 2017 Commitment
ISIF Total Commitment
ISIF Co-Investment
ISIF Investment Return

Significant Economic Impact

Significant Economic Impact

In December 2014, the assets of the National Pensions Reserve Fund (NPRF) 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. The NPRF Discretionary Portfolio was made available to the ISIF to enable it to make investments that meet this mandate. The Directed Portfolio (primarily public policy investments in AIB and Bank of Ireland) 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 and has set a medium-term performance objective of 4% per annum.

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-2017, the value of the ISIF Discretionary Portfolio was €8.7bn and the value of the Directed Portfolio was €11.8bn.

DISCRETIONARY PORTFOLIO

Investment Strategy

In May 2015, the NTMA Board approved the ISIF Investment Strategy, following consultation with the Minister for Finance and the Minister for Public Expenditure and Reform.

ISIF INVESTMENT STRATEGY – KEY FEATURES

A Broad-Based Portfolio
  • across sectors including but not limited to infrastructure, energy, water, real estate, housing, food and agriculture,
    technology, healthcare and finance.
  • by regional location of its investments.
  • by asset class including debt, mezzanine, equity and project investments.
  • that seeks to achieve some transformative impact by investment in one or more “big ideas”.
Filling Investment Gaps

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 fill investment gaps 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.

ISIF Investment Strategy – Strategic, Sustainable and Long Term

The ISIF Investment Strategy entails investment across nine investment buckets which can be grouped under three strategic drivers:

ISIF Investment Strategy Chart

While the ISIF’s direct investment volumes to date are broadly as anticipated in the Investment Strategy, it has attracted higher levels of co-investment from the private sector than envisaged and, as a result, a higher total investment commitment for ISIF-backed companies and projects. The ISIF has attracted €1.7m in private sector co-investment for every €1m invested by the ISIF, compared with an initial projection of €1m for every €1m invested.

Since its inception in late 2014, the ISIF has witnessed a significant improvement in the Irish economy and in Irish investment markets, and, consequently, a materially altered environment for investment. However, it is apparent that capital gaps still remain in critical sectors of the economy, including higher-risk capital previously provided by banks and, more generally, opportunities persist for long-term equity oriented patient capital that is needed to scale and grow businesses and markets.

It was expected that the initial ISIF Investment Strategy would change over time and that flexibility and adaptability would be critical elements of its business model. To that end, when the initial ISIF Investment Strategy was finalised in mid-2015, it was agreed that a formal review of the Strategy would take place after eighteen months and that this would include consultation with the Minister for Finance and the Minister for Public Expenditure and Reform. This review is well advanced and is expected to be concluded shortly. As part of this review, the Government announced in Budget 2018 the establishment of a Rainy Day Fund and Home Building Finance Ireland, both of which will be funded initially from ISIF resources.

Investment Performance

The total Discretionary Portfolio value has grown since inception from €7.1bn to €8.7bn, comprised of investment gains of €674m and cash injections of €865m (AIB dividends €530m and the sale of the State’s shareholding in Aer Lingus €335m).

In 2017, the ISIF generated an investment return of 4.3%, made up of 4.5% on the Irish Portfolio and 4.1% on the Global Portfolio (the Global Portfolio holds Discretionary Portfolio assets which have not yet been invested in Ireland). The Irish Portfolio benefited principally from the strong performance of its venture capital fund investments and by solid returns from infrastructure, energy and SME investments. The focus of the Global Portfolio is to ensure cash is available to fund Irish investment commitments as they materialise. Its performance was driven by its equity and absolute return investments while its significant cash and fixed income investments generated extremely low returns, in line with market conditions.

Since inception, the ISIF has generated an annualised return of 2.8% per annum, comprising a return of 7.0% per annum from the Irish Portfolio and a return of 2.2% per annum from the Global Portfolio.

ISIF Timeline

ISIF Timeline Chart

Irish Portfolio

Including investments made by its predecessor (the NPRF), the ISIF had by end-2017 committed €3.3bn to investments consistent with its investment mandate. Including third party co-investor commitments, a total of €9.1bn had been committed to investment in Ireland.

The ISIF portfolio is diversified across all regions and many sectors of the economy and includes investments in infrastructure, energy, housing, commercial real estate, SMEs, dairy, forestry, technology, life sciences, education and international financial services.

ISIF Commitments to Ireland 2014-2017

Total Investment Committed in Ireland
ISIF Commitments to Ireland 2014-2017 Chart
  1. * Irish assets transferred from NPRF.

Figures may not total due to rounding.

Irish Portfolio: Capital Committed at End-2017

ISIF Capital Committed at End-2017 Chart

Of the €3.3bn committed to Ireland, €2.2bn had been drawn down at end-2017, with a market value at that date (after some income distributions) of €2.2bn.

€667m was committed by the ISIF to 23 separate investments during 2017 (average investment size of €29m).

ISIF IRISH INVESTMENTS 2017

Enabling Ireland

Name

ISIF
Commitment
€m
Description

DAD Property Fund 8 Pilot project to deliver a sustainable solution to social and affordable housing requirements.
Cherrywood – Hines 52 Enabling infrastructure works necessary to unlock residential housing in Cherrywood SDZ.
Man Aalto 25 Residential development debt fund, lending to smaller developers.
Ardstone Homes (follow-on)* 5 Residential housing fund in which ISIF is a cornerstone investor.
Shannon Airport Authority 14 Fully fund essential maintenance of the runway at Shannon Airport.
Port of Cork 18 Flexible debt funding solution to support the relocation of Port of Cork to Ringaskiddy.
Aqua Comms (follow-on)* 3 Irish developer of fibre-optic infrastructure including a transatlantic and Ireland/UK connectivity network.
Greencoat Renewables DAC 76 Cornerstone investor in IPO for renewable energy investor seeking to capitalise the Irish wind energy market.
Total 201
Growing Ireland
Muzinich 45 Fund providing growth capital to Irish SMEs and corporates.
Insight 83 Growth stage private equity fund that will target software opportunities in Ireland and globally.
BGF 125 Largest ever growth capital fund dedicated to Irish SMEs with over €200m to invest.
Motive Partners 25 Specialist financial technology focused private equity fund providing growth equity to FinTech businesses.
Draper Esprit (follow on)* 12 Listed venture capital fund making diversified investments in private high growth technology companies in Ireland and UK.
InsideSales 24 Industry leading predictive sales acceleration platform growing its European presence in Ireland.
Kaseya 20 Supplier of complete IT management solutions for managed service providers and midsized companies, growing its European presence in Ireland.
Cubic Telecom 10 Connectivity/software company that provides on-demand global connectivity for devices/vehicles via local mobile networks.
Swrve (follow on)* 2 Global leader in high-growth sector of in-app mobile marketing.
Finistere 40 Partnership between ISIF and Finistere investing in start-up and early stage AgTech companies in Ireland.
Panelto Foods 14 Large, growing indigenous prepared consumer food company.
Total 400
Leading Edge Ireland
Lightstone Ventures II 21 Specialist US-based venture capital fund focused on medical devices and biopharmaceuticals.
Nautilus Data Technologies 4 Development of a new generation of data centres, located on water.
Illumina Ventures 21 Genomics-focused venture capital fund investing primarily in early-stage, start-up companies.
Arch XI Overage Fund 21 Invests in transformative, industry disruptive, technology driven companies in life and physical sciences.
Total 67
Total 2017 Investments 667
  1.   *Additional commitment to an existing ISIF investment.
  2.   Figures may not total due to rounding.

CONNECTIVITY FUND

The Connectivity Fund was established as a sub-fund of the ISIF in 2015 to invest the €335m proceeds from the sale of the State’s shareholding in Aer Lingus with the aim of enabling and enhancing Ireland’s physical, virtual and energy connectivity. In 2017, the ISIF completed two new investment commitments from this sub-fund (Port of Cork and Shannon Airport) and made an increased commitment to an existing commitment, Aqua Comms, bringing total commitments from the Connectivity Fund to €93m:

  • Aqua Comms: €26m equity investment, to support Ireland’s first dedicated subsea fibre-optic network interconnecting New York, Dublin and London via Killala, Co. Mayo;
  • daa: €35m investment in a 2028 bond issuance underpinning long-term financing for the operator of Dublin and Cork airports;
  • Port of Cork: €18m junior debt facility to enable the Port of Cork to relocate from its existing constrained locations in Cork City to a redeveloped site in Ringaskiddy; and
  • Shannon Airport: €14m loan facility to support the upgrade of the existing runway, a core element of Shannon Airport’s capital investment programme.

Economic Impact

The ISIF seeks to allocate the majority of its capital to priority sectors and investments where the highest economic impacts are likely, while also ensuring that all investments satisfy its commercial return objectives.

The economic impact and employment supported by ISIF investment differs from traditional Government expenditure. With investment, public resources are expected to be returned with a gain at the end of the investment period; whereas with Government expenditure public resources are depleted as a result of the spending. Returned investment capital can then be recycled into additional beneficial projects.

In line with the ISIF’s double bottom line mandate, a key part of the ISIF’s due diligence in advance of investment is a comprehensive assessment of the additionality, displacement and deadweight of each transaction.

Post-investment, the ISIF completes a semi-annual census of all investees to collect economic impact and employment data to enable it to monitor the economic impact progress of all investments.

Additionality refers to the additional economic benefits to Gross Value Added (GVA) which are likely to arise as a result of the investment under consideration, over and above what would have taken place anyway.

Displacement refers to instances whereby the additionality created from an investment is reduced or made smaller at the overall economy level due a reduction in such benefits elsewhere in the economy.

Deadweight refers to instances whereby the economic benefits created from an investment would have been achieved in any event in the absence of intervention.

ISIF ECONOMIC IMPACT 2017

ISIF Economic Impact 2017 Icon

1,811

IRISH COMPANIES/PROJECTS

generated combined revenues of €1.9bn, 28% through exports.

ISIF Economic Impact 2017 Icon

€948m

WAGES & SALARIES

earned in 2017 by employees of these companies.

ISIF Economic Impact 2017 Icon

30,786

JOBS

are supported, directly and indirectly, by ISIF investments.

ISIF Economic Impact 2017 Icon

€993m

GVA

to the Irish economy.

ISIF Economic Impact 2017 Icon

€526m

By end-2017, the ISIF had committed €526m to residential housing investments in response to the national housing crisis. ISIF backed residential housing platforms have funding committed or sites acquired to deliver over 9,500 homes by 2021.

ISIF Regional Economic Impact 2017

ISIF Regional Economic Impact 2017 Chart

Global Portfolio

In July 2016, the NTMA completed implementation of its medium-term Global Portfolio Transition Strategy (GPTS), which is designed to position the ISIF to transition from a largely global portfolio into an Irish portfolio as investment opportunities in Ireland are executed and drawn down over a period of years. The overall focus of the GPTS is to ensure that cash is available as required for Irish investments over an indicative period of four to five years, while making a significant contribution towards the ISIF’s overall investment return objective.

By design, the GPTS is a relatively low-risk multi-asset class and multi-strategy investment approach, investing across cash, fixed income, credit, equities, multi-strategy solutions and absolute return mandates through top quality external global asset managers.

The Global Portfolio’s total assets at end-2017 were €6.5bn, comprising quoted equities, bonds, cash and alternative assets.

Global Portfolio Assets at End-2017

Global Portfolio Assets at End-2017 Chart
Global Portfolio Managers at End-2017
Manager Mandate Market
Value
€m
Global
Portfolio
%
Goldman Sachs Asset Management Multi-Asset 1,672 26
J.P. Morgan Asset Management Multi-Asset 1,003 15
Irish Life Investment Managers Multi-Asset 841 13
Amundi Asset Management Fixed Income & Cash 636 10
BlackRock Investment Management Fixed Income 321 5
Muzinich & Co Fixed Income 235 4
Deutsche Asset Management Fixed Income 169 3
Acadian Asset Management Equity 311 5
Generation Investment Management Equity 194 3
AQR Capital Management Absolute Return 288 4
Blackstone Alternative Asset Management Absolute Return 226 3
Bridgewater Associates Absolute Return 224 3
Global Real Estate Managers* Real Estate 61 1
NTMA Cash and Financial Assets 347 5
Total 6,528 100

*Legacy NPRF investments (14 managers).
Figures may not total due to rounding.

The ISIF’s custodian, BNY Mellon, provides custody and transaction services to the NTMA. BNY Mellon is responsible for transaction settlement and the segregated holding of the ISIF’s directly-owned public markets assets.

Sustainability and Responsible Investment

The NTMA, as controller and manager of the ISIF believes that the Fund, as a large and long-term investor in Ireland, has a duty to actively contribute to the sustainability of the Irish economy for future generations and to encourage others to do the same. To this end, it has developed an ISIF Sustainability and Responsible Investment Strategy to protect and enhance both the value and the reputation of ISIF investments for the long term through responsible investment practices and environmental, social and governance (ESG) risk mitigation. Throughout its investment decision making processes, it aims to focus in particular on climate change risk and emissions and on governance issues.

During 2017, the ISIF appointed a number of service providers to assist in the implementation of its Sustainability and Responsible Investment Strategy.

ISIF Sustainability and Responsible Investment Service Providers
Service Provider
Service
Hermes EOS Proxy Voting & Engagement Services
oekom/ISS – Ethix Climate Solutions Global Portfolio Analytics/Portfolio Carbon Footprint
Environmental Resource Management (ERM) Development of an ESG Framework for Irish Portfolio investment and monitoring

In December 2017, the ISIF published its revised Sustainability and Responsible Investment Strategy which allows for the exclusion of specific entities or categories of investment as a responsible investment tool on a limited basis. Such exclusions may be made where, having considered relevant, reliable and reasonable factual evidence, it has been reasonably concluded that investing in an entity or category of investment is not consistent with the NTMA’s statutory duties concerning investments of the Fund or with its investment strategy for the discretionary assets of the Fund. Under the revised Strategy, the ISIF has excluded companies materially involved in the production and processing of coal and oil sands, the highest carbon content fossil fuels, and has re-iterated its investment decision, made in 2016, to exclude tobacco manufacturing companies. This is in addition to the exclusion of companies involved in the manufacture of cluster munitions and anti-personnel mines, which are prohibited investments under the Cluster Munitions and Anti-Personnel Mines Act 2008.

DIRECTED PORTFOLIO

The Directed Portfolio – primarily public policy investments in AIB and Bank of Ireland – continues to be managed within the ISIF under direction from the Minister for Finance. During the financial crisis, a total of €20.7bn was invested by the NPRF in AIB and Bank of Ireland at the direction of the Minister for Finance for public policy reasons. These assets transferred to the ISIF on the establishment of the Fund.

The figures in this section relate to investments held by the ISIF only and do not include public policy investments in Irish financial institutions made by the Minister for Finance through the Exchequer. At end-2017, the Directed Portfolio comprised:

  1.   Ordinary shares in AIB valued at the market price of €5.42 per share;
  2.   Ordinary shares in Bank of Ireland valued at the market price of €7.12 per share; and
  3.   €215m in cash, committed to lending to the Strategic Banking Corporation of Ireland.

In June 2017, in conjunction with the initial public offering of AIB shares, the ISIF was directed to sell 780 million shares at a price of €4.40 per share, which resulted in a reduction of the ISIF’s percentage holding from 99.9% to 71.1%. €3,434m of proceeds was subsequently transferred to the Exchequer on foot of Ministerial Directions.

The Directed Portfolio had a valuation of €11.8bn at end-2017. Its return in 2017 was 19.9%. Arising from the €20.7bn invested in AIB and Bank of Ireland, cash returns on investments to date have amounted to €10.1bn while investment valuations in AIB and Bank of Ireland at end-2017 were €11.5bn, bringing the total amount (income and value) to €21.6bn.

Directed Portfolio at End-2017
Cash
Invested
€bn
Cash
Received
€bn
End-2017
Value
€bn
Shareholding at
End-2017
%
Total
(Income &
Value)
€bn
Preference Shares 1.8 3.2 - 3.2
Ordinary Shares 2.9 1.0 1.1 2.1
Bank of Ireland 4.7 4.2 1.1 13.9 5.3

Preference Shares 3.5 2.2 - 2.2
Ordinary Shares 8.7 3.7 10.5 14.1
Capital Contribution 3.8 - - -
AIB 16.0 5.9 10.5 71.1 16.3

Total Bank Investments 20.7 10.1 11.5 21.6
Cash to SBCI 0.2
Total Directed Portfolio 11.8
Figures may not total due to rounding.