ISIF: Double bottom line
Additionality, displacement and deadweight are key impact concepts for the Ireland Stategic Investment Fund, according to Rachel Fixsen
At a glance
• Fund size: €8.1bn
• Committed resources: €2.6bn
• Total investment commitment in Ireland: €7.3bn
• All investments required to back economic activity and jobs in Ireland plus give commercial return.
• Most capital targets investment that encourages productivity.
• Fund aims to multiply its impact by working with other investment partners.
The Ireland Strategic Investment Fund (ISIF) is an impact investor par excellence. Far from being an add-on to existing investment activity, the term could describe everything the sovereign fund does. Its mandate requires all investments to support economic activity and employment in Ireland and generate a commercial return into the bargain.
The €8.1bn fund, which is the successor to the National Pensions Reserve Fund (NPRF), seeks to invest in transactions where it can make a difference, where the fund’s characteristics can enable commercial investment transactions with positive economic impact.
In March, the fund invested €50m in the Reverence Capital Partners Opportunities fund, which focuses on investing in global, middle-market, financial services firms. As part of the deal, the Reverence fund was to make efforts to create financial services jobs in Ireland via the companies in its portfolio.
The month before, the ISIF agreed with the European Investment Bank to back a programme that was expected to support €112m of new investment in privately-owned forests in Ireland, via forestry investment fund Dasos. The ISIF itself was to invest €55m.
The fund’s mandate reflects its shift from being a sovereign wealth fund focused only on wealth creation, to a sovereign development fund with a ‘double bottom line’ objective – its success is measured both by investment returns and the economic impact it achieves.
It has a long-term focus and targets most of its capital towards investments encouraging productivity in the economy and the enterprise sector.
ISIF also aims to increase its firepower by attracting co-investment partners. When it decides whether or not to put its money behind a particular investment, the fund considers whether the opportunity in question will boost Irish GDP, or whether it will only support an economic development that would have been achieved anyway — and it prefers the former.
“The Ireland Strategic Investment Fund (ISIF) is an impact investor par excellence. Far from being an add-on to existing investment activity, the term could describe everything the sovereign fund does”
In more concrete terms, the ISIF uses three key economic concepts in assessing the possible positive economic effect of a project or investment: additionality; displacement and deadweight.
Additionality means extra economic benefits that the investment is likely to spark; displacement is about that additionality being reduced because benefits somewhere else in the economy might be reduced as a result of the investment, and deadweight refers to instances where economic benefits would have been achieved anyway.
The prize of economic additionality that the ISIF aims for can be in the forms of increased output, profits, employment, net exports or capital expenditure, for example.
Infrastructure supply can come within this, as can investment in research and development, because these can make the economy more competitive in the future – even though the resulting additionality from these types of investment may not occur straight away.
Another consideration for the Irish fund is how long the benefits of its investments will last. “Sustainable, long-term additionality will have a more prolonged effect on economic activity and will result in a greater impact than one-off, short-term gains,” the fund says.
It targets areas for investment that have higher potential economic and employment effects, and the plan is that this type of investment should make up around 80% of the ISIF’s portfolio over time.
“Some of the sectors with the lowest levels of deadweight and displacement and highest levels of additionality would be those involved in exports, manufacturing, and internationally-traded services,” it says.