Interim investment strategy at Ireland’s two new Future Funds will be highly conservative for the first six to nine months. The €8.4 billion Future Ireland Fund, FIF, forecast to grow to €100 billion by 2035, and the €2 billion Infrastructure Climate and Nature Fund, ICNF, have been set up to invest windfall receipts from multinationals like tech and pharmaceuticals attracted to Ireland because of its low corporation tax rate.
For now strategy will comprise low risk allocations to high credit quality Euro-area sovereign and quasi-sovereign bonds with the aim of generating stable and reliable returns with minimal risk. Cash investments must have a credit rating of A- or higher, and a maximum maturity of three years.
Even in this interim stage, the investments will integrate ESG and align with the sustainable investment strategy of sister fund, the €10 billion Strategic Investment Fund, ISIF, adapted to reflect the FIF’s more limited investment universe.
“We will have invested more than €10 billion in the two funds by the end of the year, with that figure expected to rise to €16 billion by the end of 2025,” says Minister of Finance Jack Chambers.
“These two long term savings funds are a vital element of managing the state’s finances in a prudent and responsible manner over the coming decades. In using the proceeds from volatile windfall tax receipts to help us meet the challenges we know our country will face, rather than using them to fund existing day to day expenditure, we are safeguarding and protecting our future.”
Putting the infrastructure in place
Over the next six to nine months the National Treasury Management Agency, NTMA, mandated by the government to manage the investments, will design different and appropriate long-term strategies for both funds.
The NTMA will also put in place the necessary people – recruitment of a director to lead a new business unit is already underway – skills and supporting infrastructure to manage the funds for the long term.
Required structures include the procurement of a custodian to hold and safeguard the assets and hiring a panel of investment managers to implement aspects of the long-term investment strategy.
A new investment committee will be established by the NTMA to oversee the funds and the number of NTMA board members will be increased by two.
The investment strategies for the FIF and ICNF will be subject to consultation with the Minister for Finance and the Minister for Public Expenditure.
Investing for the future
Despite the forecast growth of the fund, the tax windfall could prove temporary. For each year from 2024 to 2035 the government says it will invest 0.8 per cent of GDP, estimated at between €10-€12 billion a year. But tax receipts are volatile and could dry up.
Ireland’s corporate tax rate is 12.5 per cent, one of the lowest in the world, compared with a global average of 23 per cent, according to the Tax Foundation. The government can access the fund from 2040 for pensions and health spending for an ageing population, plus decarbonisation and digitisation projects.
“New Zealand, Norway, Canada and Australia are among a number of sovereign wealth funds around the world that [the government] has taken into account in planning for the Future Ireland Fund, said a spokesperson at NMTA. “These funds offer very useful guidance,” they said.
However, using elevated tax receipts to set up a sovereign wealth fund is unusual.
The Infrastructure, Climate and Nature Fund’s purpose is to support government expenditure where there is “a significant deterioration in the economic or fiscal position of the state” in the years 2026 to 2030 on designated environmental projects. Up to 22.5 per cent of the assets under management can be used in any given year after 2026.
The two new funds will sit alongside the €10 billion ISIF which has its own mandate to invest with a specific double bottom line to generate return and economic activity in Ireland.
Recent ISIF investments include new port infrastructure in Cork Harbour which will accelerate the deployment of Ireland’s first offshore wind projects, on the east and south coast. Elsewhere ISIF recently committed over €1.5 billion to housing investment in Ireland to act as a catalyst for attracting third-party co-investment hoping to unlock up to €1 billion of wider homebuilding activity.
