Irish government to sever ties between NPRF, pre-funding liabilities

IRELAND – Ireland's government is set to use the more than €6bn remaining within the National Pensions Reserve Fund (NPRF) to stimulate growth among domestic companies and infrastructure projects, with a forthcoming Bill to sever ties between the assets and pre-funding of state pension liabilities.

Announcing details of the Bill to reorganise the National Treasury Management Agency and formally establish the NewERA – the body currently responsible for the management of state assets such as utilities ESB and Bord Gáis – the Department of Finance said the new Ireland Strategic Investment Fund (ISIF) would direct its investment towards "areas of strategic importance".

Although no official confirmation on severing the ties between the NPRF's assets and pre-funding has been made, IPE understands that such a step will be implemented by legislation soon, potentially through the NTMA (Amendment) Bill 2013.

Discussing the rationale for the change, a statement by the Department of Finance said: "While the need for the state to provide for social welfare and public service pensions obligations has not abated, fostering economic activity and employment is currently a greater priority. This will in turn put the state in a better position to meet its pensions obligations in the longer term."

The wording echoed a previous response from the department when asked if NPRF assets would continue to be ring-fenced for social and pension spending.

Minister for finance Michael Noonan further stressed that the establishment of NewERA – alongside the move to launch the ISIF with €6.4bn in assets currently within the NPRF's discretionary portfolio – would "maximise investment, generate economic activity and create jobs across the economy".

ISIF will divest the NPRF's equity and bond holdings – at the end of March €2.2bn and €2bn in assets, respectively – and expand existing commitments to domestic infrastructure and small and medium-sized enterprise (SME) financing, as well as continue to manage the NPRF's directed portfolio consisting of Irish bank stakes.

The fund in January announced it would commit €500m to three SME financing funds, offering credit to small companies in the country.

The reorganisation will also see the government given a greater ability to control ISIF's investments.

Whereas the NPRF Commission was previously independently responsible for its investment strategy as defined by law, the Commission will now be dissolved, with the NTMA board setting the investment strategy "consistent with the government's policy objectives", according to a presentation given by the NTMA.

An ISIF investment committee reporting to the NTMA board will then approve or reject any investments.

The presentation also noted that investment capital would be "recycled", giving rise to the possibility the ISIF will remain as a permanent stimulus fund.