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Irish SWF targets real assets, agriculture as it lays out strategy

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Ireland’s sovereign development fund is to target real estate, renewables and the agricultural sector as it aims to deploy nearly €6bn domestically by 2020.

The Ireland Strategic Investment Fund (ISIF) – seeded from the remnants of the National Pensions Reserve Fund – said it would aim to invest across a wide range of sectors, including water, transport and energy infrastructure, venture capital and private equity.

Releasing its investment strategy, the €7.4bn fund said it expected it would take 3-5 years to redeploy its capital – of which nearly €1.7bn had been committed at the end of March, and with which it was targeting a return of 4%.

It highlighted real estate as one of the key sectors in which it would participate, helping fund residential developments and social and student housing opportunities.

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But it also noted the need to fund transport and educational infrastructure “to enable business investment and housing development” and said its activities in the energy sector would involve a “significant” exposure to renewable energy.

The strategy also noted Ireland’s sizeable agricultural sector and said changes to European Union dairy quotas would offer opportunity for growth in that area.

Offering an indicative breakdown of its portfolio, ISIF speculated that its largest exposure would be to real estate-based businesses and so-called ‘big idea’ investments – projects that go “above and beyond the reach and scope of other operators investing in the Irish market”.

In addition to the €1bn each allocated to the above areas, ISIF said it imagined around €700m would be invested in water and water-related projects – which would potentially involve working with Irish Water, the utility established in 2013 – and another €800m in energy projects.

In line with its existing commitments to fund domestic small and medium-sized enterprises (SMEs), the fund said it would be likely to allocate €900m to SME equity and debt projects.

Most of the SME activity is likely to be overseen by external asset managers, similar to the existing commitments to SME credit and equity funds managed by BlueBay Asset Management and Carlyle Cardinal.

It has also previously considered peer-to-peer lending portals as a means of funding SMEs.

ISIF said it would be likely to cap direct investments at €10m, limiting its share to 25% of project capital where possible, while investments under €10m would be overseen by third parties.

Despite ISIF director Eugene O’Callaghan previously saying the fund would be “very interested” in public/private partnerships (PPPs), the new strategy said ISIF was unlikely to be very active in the area “on account of the significant renewed private sector interest”.

In line with previous comments that the fund would grade projects based around low or high economic impact, the strategy said it hoped to have a balance of 80% high-economic-impact projects and 20% low-impact projects.

It said the lower-economic-impact investments would be considered where there was a short-term boost to employment, or help normalise Irish capital markets.

With the €1.7bn committed to date, ISIF estimated it has generated 1,152 jobs per €100m invested and said it would also measure the turnover and profitability of companies benefiting from its assets, as well as net exports generated.

Broken down across Ireland, 48% of investments were based in Dublin and the remaining 52% evenly spread across four regions outside the capital.  

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