The €15 billion ($16.1 billion) Irish Strategic Investment Fund (ISIF) has identified attractive investment opportunities in the energy transition and has been successful in attracting additional investment to fund Ireland's net zero commitment.
By targeting 'climate positive' investments that support Ireland's transition (as outlined in the Government's Climate Change Action Plan) as a key investment theme, the Fund will invest in both sustainable infrastructure and new technologies; Investing in business models that support long-term transitions. In 2021, ISIF committed €1 billion to climate change projects over five years, of which it has already invested more than €600 million.
The strategy runs alongside Ireland's ongoing divestment program, which began in 2018 when it became one of the first countries in the world to divest its fossil fuel companies. The company is currently compiling a list of about 200 companies in which it will not invest as part of its strategy.
When ISIF was created from the remains of the National Pension Provident Fund at the end of 2014, the sovereign development fund was tasked with attracting €1 million of co-investment across its portfolio for every €1 million invested. Currently, approximately 1.6 million euros of co-investment is funneled into projects for every 1 million euros invested by the fund, and ISIF has committed 6.5 billion euros in 188 investments since its establishment, and approximately 10.2 billion euros. joint investment is now possible. promise.
“This is positive for our investees and for the Irish economy as a whole,” said ISIF, which leads the fund's investments in Indigenous businesses as one of its four investment themes alongside climate, housing, and food and agriculture. Brian O'Connor, senior investment director, said: It will be announced in the framework of 2022, forming a discretionary portfolio of €8.7 billion.
The remaining assets (€6.3 billion) are held in separately held oriented portfolios under the direction of the Ministry of Finance. The discretionary portfolio targets a return in excess of the five-year rolling cost of government debt (2.8%) over the long term, with assets comprising stocks (€3.4 billion), bonds (€1.6 billion) and real assets (€1.2 billion). (1.4 billion euros), absolute revenue (1.4 billion euros) and cash and equivalents (1.1 billion euros).
Mr O'Connor said companies and projects in which IDSF invests must achieve dual returns, targeting both profitability and supporting economic activity and jobs in Ireland.
Expanding local business
Mr O'Connor's team oversees a portfolio of Irish companies spanning investments in growth equities, private equity and private credit, managed by a variety of fund managers in Ireland and abroad. ISIF's mission is to invest in the Irish economy, with scope to invest globally when circumstances warrant. Benefits to support economic activity and employment in Ireland. The team also manages many of ISIF's co-investments with its fund partners, with investments split approximately 65:35 between funds and direct investments.
The ability to invest with global fund managers is critical to a fund's ability to diversify outside of Ireland's small market when supporting economic activity and employment in Ireland. “It's difficult to find enough opportunity in the Irish economy,” O'Connor said.
The fund does its best to invest broadly across many sectors, applying a portfolio approach to ensure that the risks it undertakes and the sectors it is exposed to are constant across the risk-adjusted returns. Achieving level dispersion.
Investments across the capital structure
Diversity also includes ISIF's ability for the team to invest at any point in the capital structure using a variety of instruments that best suit the investee. The fund offers flexibility not available to many other investors, offering an alternative to low-risk bank financing and private equity, which often aim for double-digit returns over a three- to five-year period. can. A flexible approach plays a key role in supporting a company's ecosystem at every stage of its growth journey.
“We can offer debt at one end of the risk spectrum and equity at the other end. We also offer mezzanine finance, debt-equity hybrid products, venture capital, growth capital, private equity and more in between. We can offer everything,” O’Connor said.
“We aim to ensure the right mix across the capital structure. We recognize that when co-investing in businesses, ISIFs are not necessarily optimized for short or medium-term exit time frames. companies can use ISIF stock to prioritize long-term growth.”
ISIF's role as a catalyst and its ability to attract co-investment funds into the economy is another central pillar. ISIF invests in all investments to avoid “dead weight”, meaning the economic return generated from the investment, while also adding “economic additionality”, or gross value added (the value that value producers add to the goods and services they buy). ) based on its ability to promote benefits to It would have been achieved anyway. The other type is 'displacement', where the investment simply replaces existing economic activity.
For example, avoiding dead weights means that ISIF does not invest in sectors that are already serviced by private investors or lenders to the extent that ISIF's involvement would not make a difference. Instead, it seeks to target key gaps that other investors and lenders are not filling.
“We don't drastically change our investment strategy based on market cycles,” O'Connor says.
Mr O'Connor concluded with a nod to how ISIF's capital has created a new generation of international Irish companies.
“Many Irish companies have expanded into international markets in recent years,” he says. “It is important that we support these types of companies by continuing to support their ambitions to grow in the medium to long term and by supporting their access to financing through co-investment partnerships.”
