The Irish National Pensions Reserve Fund’s (NPRF) imminent reorientation into the Ireland Strategic Investment Fund (ISIF) poses significant challenges, both in the shape of ensuring independent governance and meeting its new dual investment target, the fund’s investment director has said.

Eugene O’Callaghan, who since 2010 has overseen the NPRF’s investment activities, said the proposed ISIF would have “no hope” of attracting matching co-investments unless it were able to demonstrate the independence of its governance arrangements.

The former executive director of Irish Life Investment Managers told IPE’s How We Run Our Money that the ISIF, to be funded with the €6.8bn currently held within the NPRF’s discretionary portfolio once the Irish government passes the required legislation, would face further hurdles due to its dual investment objectives of encouraging domestic growth while producing positive returns.

He said this “double bottom line” would prove a significant challenge.

“The concept of impact investing is emerging, but, for sovereign funds to have both return objectives and to support economic activity is quite a new development,” O’Callaghan said

“We will need to find ways to estimate in advance and monitor the economic impact our investments are having and to report this to the trustees.”

The NPRF has been split into two discrete portfolios since the Irish government used its capital to bail out Allied Irish Banks and Bank of Ireland.

Since the current government announced its intention to reorientate the discretionary portfolio, still controlled by the NPRF Commission and invested in global equities, fixed income, property, commodities and infrastructure, the fund has been gradually selling off overseas holdings – recently resulting in the sale of €800m in private equity fund holdings and commitments to Lexington Partners.

It has already allocated significant capital to projects targeting Ireland, including a €500m commitment to three funds offering assistance to the country’s SMEs and a $100m joint venture with China’s CIC.

For more on the Ireland Strategic Investment Fund’s future strategy, see How We Run Our Money in the current issue of IPE