If you’re a money manager with a mandate from Ireland’s National Pension Reserve Fund, I’ve got some interesting news for you...
You’re fired.
The Irish Government is in the process of transforming its sovereign wealth fund, the “National Pension Reserve Fund”, into a sovereign development fund that will be re-branded as the “Ireland Strategic Investment Fund” (ISIS) and reoriented completely towards domestic investments.
This marks the end of the NPRF, which was once a high-flying €21 billion SWF with investments spread all over the world. The demise of this organization began after the financial crisis, when the Irish government directed the NPRF to put €7 billion into failing Irish banks and then was asked to contribute another €10 billion to bail out Ireland itself (as part of the EU / IMF bailout). All that’s left now is just over €6 billion, and the balance of that money will be repositioned under this new SDF, ISIS.
The new SDF will reportedly focus on “...road construction, water infrastructure and school-building programs, as a “cornerstone investor” that can attract further private money.” So, as I said earlier to the existing NPRF asset managers ... buh-bye.
ISIS is set to officially “go live” in 2014, as the NTMA (Amendment) Bill 2013 is expected to pass by the end of the year. But the NPRF hasn’t been waiting around for this Bill to pass to get started, as it has actually already begun investing in local assets and companies. It has allocated €500 million for SMEs and has put €118 million in “school building”.
Ireland is just the latest among a growing number of states that are using SDFs to achieve a variety of local development objectives. In most cases, these vehicles are launched as mechanisms to unlock capital in what would otherwise be capital-starved industries or regions as well as to create efficiency and discipline where none exists. Governments launch these quasi-independent investment agencies in the hope that they would serve as catalysts for domestic financial and real-asset markets. Just as the more traditional SWFs were seen as mechanisms to avoid Dutch Disease and facilitate intergenerational savings, SDFs have come to be seen as tools to kick start local economies and markets.
In sum, welcome to the SDF club, Ireland! I look forward to seeing exactly how the Ireland Strategic Investment Fund is structured to achieve its dual objectives of making returns while driving local development. And, by the way, on this topic I have some ideas...
