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Irish reserve fund should focus on local infrastructure, think tank says

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IRELAND - The Irish National Pensions Reserve Fund (NPRF) should divert €2bn of its remaining €5bn in assets towards domestic infrastructure, as the impact of bank recapitalisation has been less severe than expected, a think tank has said.

According to the quarterly economic observer published by the Nevin Economic Research Institute (NERI), supported by unions affiliated with the Irish Congress of Trade Unions (ICTU), the Irish government should aim to attract €15bn in investment by 2017 - with Irish pension funds encouraged to divert part of their overseas investments towards domestic projects.

The proposal is not a new one, with the ICTU previously arguing that an exemption to the 0.6% pensions levy should be offered to schemes investing 5% of assets in domestic infrastructure.

The report said: "We propose that €2bn of the NPRF be directed away from overseas investment to a strategic investment fund focused on lending to domestic infrastructure projects.

"In this way, the NPRF assets would be maintained but directed to domestic activities, whether in commercial public enterprise companies or in other enterprises."

Tom Healy, the think tank's director, added: "The funds for the investment programme can be sourced from our own National Pension Reserve Fund, private Irish pension funds - most of which have their resources invested overseas - and from the European Investment Bank (EIB)."

NERI argued that investment in water and communications infrastructure, as well as energy and general construction projects, should be targeted, with a staggered rollout of investments across the five years.

The report noted that Irish private pension funds had around €70bn in assets and suggested investment could be incentivised through an exemption from the pensions levy in "approved activities", although it did not say if it expected these approved investments to overlap with NERI's targeted projects.

On the topic of domestic scheme investment, however, the report said: "These sources of funding could be combined with inward overseas investment in long-term projects with high returns such as in renewable energy."

The NPRF, which has been divided into the €5.4bn discretionary portfolio and the €9.1bn directed portfolio administered by the department of finance, has already revealed plans to refocus its investments towards Irish infrastructure projects, as well as small and medium-sized enterprises.

NERI added that, because bailout drawdowns to recapitalise banks had so far been "lower than the worst-case scenario" outlined by the IMF - as much as €1bn could be found to invest from the rescue package.

The value of the NPRF fell by €8bn over 2011, with funds diverted to shore up Bank of Ireland and Allied Irish Banks - with the state currently owning a 99.8% stake in the latter financial institution.

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