INVESTING IN IRELAND

• During 2015 the ISIF committed €759m to investments that will support economic activity and employment in Ireland.
• The ISIF’s committed investments in Ireland totalled €2.2bn at end-2015, of which €1bn was drawn down at end-2015.
• Co-investment from private sector partners increases the total committed to Ireland to €5.4bn – a multiple of 2.5 times the ISIF commitment.

GENERATING SIGNIFICANT ECONOMIC IMPACT

• During 2015 ISIF investments supported 108 Irish companies/projects generating:
  • combined revenues of €1,229m.
  • €358m in exports.
  • €505m in wages and salaries.
• Almost 18,000 jobs are supported directly and indirectly by ISIF investments.
• ISIF investment contributed Gross Value Added of €538m to the Irish economy in 2015.

TRANSITION TO A NEW INVESTMENT MANDATE

• The ISIF continued its programme of gradually liquidating its global assets to focus on investing in Ireland, while seeking, in line with its statutory mandate, to generate a return over the long term in excess of the cost of Irish Government debt.
• The ISIF has implemented a low-risk investment strategy with its global assets during the transition period, which resulted in an investment return of 1.1% to the ISIF Discretionary Portfolio in 2015.

Investment Strategy

Unique Mandate

In December 2014 the assets of the National Pension Reserve Fund (NPRF) transferred to the Ireland Strategic Investment Fund (ISIF). The ISIF has a ‘double bottom line’ mandate to invest in Ireland on a commercial basis in a manner designed to support economic activity and employment in the State. The NPRF Discretionary Portfolio was made available to the ISIF to enable it to make investments that meet this double bottom line mandate. The NPRF Directed Portfolio – primarily public policy investments in the banks – will continue to be managed at the direction of the Minister for Finance.

The ISIF’s double bottom line mandate makes it one of the few sovereign wealth funds globally with a mandate to contribute to economic activity and employment, in addition to delivering commercial returns. The ISIF is required to generate a return over the long-term in excess of the cost of Irish Government debt and has set a medium-term performance objective of +4% per annum.

ISIF Investment Mandate

Investment Priorities

In July 2015 the NTMA published the ISIF Investment Strategy, following consultation with the Minister for Finance and the Minister for Public Expenditure and Reform.

ISIF Investment Strategy – Key Features

Investments in Ireland

Investments to End-2015

Including investments made by its predecessor (the NPRF), the ISIF had committed €2.2bn to investments consistent with its investment mandate by end-2015. Including third party commitments of €3.2bn, a total of €5.4bn had been committed to Ireland through the ISIF.

ISIF Capital Committed to Ireland at End-2015

In 2015 the ISIF committed a total of €759m to ten new investments across a diverse range of transaction types and sectors.

ISIF Irish Investments 2015

* Approved commitment, legal documents agreed subject to approval of execution versions and conditional on Leeds raising a minimum of $400m in total commitments.

Investment Case Study

DCU Campus Development Programme

DCU is currently experiencing a period of rapid growth and expansion with student numbers set to increase by over 30% in 2016/2017 as it merges with St Patrick’s College, Mater Dei Institute of Education and Church of Ireland College of Education in Drumcondra.

To facilitate this expansion, DCU has commenced a €230m development plan aimed at physically transforming the student experience at the university on a phased basis over the next 2-3 years. The plan includes projects such as an R&D focused nanobioanalytical building, an innovation campus focused on commercialisation, a sports campus, acquisition of nearby colleges and new student accommodation.

Economic Impact

The ISIF seeks to allocate the majority of its capital to priority sectors and investments where the highest economic impacts are likely, while also ensuring that all investments satisfy its commercial return objectives.

Over the longer term, 80% of the ISIF’s capital is targeted at investments where the highest and most sustainable economic impacts are likely. The remaining 20% is targeted at investments which will provide short-term economic gains, act as an accelerator of market activity or address instances of market dysfunction. At end-2015 62% of committed capital was in high economic impact transactions, with 38% in lower economic impact transactions.

ISIF Economic Impact 2015

Performance and Portfolio

Performance is reported on two levels, (i) the Discretionary Portfolio - the investment of which is the responsibility of the NTMA and (ii) the Directed Portfolio – the public policy investments made at the direction of the Minister for Finance.

Discretionary Portfolio

The Discretionary Portfolio earned a return of +1.1% in 2015 and has generated a return of +1.4% per annum since inception on 22 December 2014.

The Discretionary Portfolio’s value increased by €688m to €7.859bn in 2015. This increase includes:

• €280m from the Directed Portfolio following payment of a preference share dividend from AIB.
• €335m contributed by the Exchequer to a new Connectivity Fund within the Discretionary Portfolio, following the sale of the State’s shareholding in Aer Lingus. The Connectivity Fund has been earmarked for investment in projects that enhance Ireland’s physical, virtual or energy connectivity.

During 2015 the ISIF implemented a capital preservation strategy which involved limiting its downside equity exposure – via the purchase of options and a reduced exposure to equities. The aim of the capital preservation strategy is to ensure that capital is available for investment in Ireland as required, while both significantly dampening risk and continuing to hold assets that will generate positive performance in growing equity and real asset markets.

In late 2015 the NTMA commenced moving towards a medium-term Global Portfolio Transition Strategy which will form the basis for transitioning the ISIF over a period of years from a largely global portfolio into an Irish portfolio, as investment opportunities in Ireland are executed and drawn down. The overall objective is to ensure that cash is available as required for Irish investments over an indicative period of four to five years, while making a significant contribution towards the ISIF’s investment return objective.

The ISIF’s global custodian, BNY Mellon, provides custody and accounting functions to the NTMA. BNY Mellon is responsible for transaction settlement and the holding of the ISIF’s directly owned public markets assets.

Discretionary Portfolio Asset Allocation at 31 December 2015

Figures may not total due to rounding.

Directed Portfolio

The figures in this section relate to investments held by the ISIF only and do not include public policy investments in Irish financial institutions made by the Minister for Finance through the Exchequer.

During the financial crisis, a total of €20.7bn was invested in AIB and Bank of Ireland at the direction of the Minister for Finance for public policy reasons. These assets transferred to the ISIF on the establishment of the Fund.

At end-2015 the Directed Portfolio comprised:

At end-2015 the ISIF’s shareholdings in AIB and Bank of Ireland were 99.9% and 13.9% respectively. As the AIB shareholding leaves a free float of only 0.1%, the NTMA engaged an external corporate finance firm to provide an independent fair market valuation as of 31 December 2015 for the purposes of valuing this investment in line with generally accepted accounting principles.

The Directed Portfolio had a valuation of €14.0bn at end-2015. €1.6bn of proceeds from the sale and redemption of the Bank of Ireland preference share holding in December 2013 was remitted to the Exchequer under Direction from the Minister for Finance in March 2015 and used to part-finance the repayment of the more expensive portion of Ireland’s IMF loan. In December 2015 AIB redeemed and converted the preference shares, resulting in the receipt of €1.9bn in cash and 155bn ordinary shares. Under Direction from the Minister for Finance, €0.2bn of this cash was used to redeem the Minister’s outstanding EBS Promissory Notes and the remainder was remitted to the Exchequer.

The Directed Portfolio’s return in 2015 was 18.6%.

Directed Portfolio

Figures may not total due to rounding.