Ireland’s Strategic Investment Fund (ISIF) has €6 billion to allocate and is looking for opportunities in food and agriculture, according to Cathal Fitzgerald, head of food and agriculture investments at ISIF.
What is the Ireland Strategic Investment Fund?
In essence we are a commercial organisation which is part of the National Treasury Management Agency. The ISIF was formed out of the National Pensions Reserve Fund (NPRF), which was set up in the early 1990s to part pre-fund future pension liabilities. The NPRF acted like any sovereign wealth fund and invested into a range of asset classes, mainly through third party funds globally.
Part of that €21 billion fund was used to re-capitalise Ireland’s two main banks during the financial crisis. The remaining part was converted into the ISIF which is designed to invest in Ireland only, with the legislation establishing the fund coming into effect at the end of 2014.
Under its new mandate, as well as seeking a commercial investment returns, the €7.5 billion ISIF has the added goal of ensuring it contributes to a positive economic impact in Ireland. We have hired 23 ex-private sector investment professionals to effect this direct investment strategy. The fund already has some €1.4 billion of investments that fit the mandate, so there is around €6 billion left to invest.
Does the fund have a target return?
We can invest across all capital structures – debt, equity, subordinated debt – which makes us quite unique. We can also be longer term in our approach because we are an evergreen fund with no withdrawals anticipated before 2025 and thereafter withdrawals will not be greater than 4of the funds value. The individual project return targets are set on a deal-by-deal basis depending on the risk adjusted rate of return of that sector or project.
Will you invest in early-stage, venture capital deals?
We have a number of venture capital funds that we support, but we wouldn’t invest directly in these types of deals. We might partner up and co-invest alongside other managers and we can leverage off our considerable experience of picking fund managers with good track records for this. VC deals will be managed by the funds that we support and not directly by the fund. Where we see gaps in the venture capital sector we will support the creation of new venture funds to service that requirement.
Do you have a deal size range?
We have no restriction yet but clearly from our size and the amount we need to invest, we are going to be aiming for higher ticket sizes. We may access smaller deals through a fund, and we could set up a fund ourselves for this purpose if we saw that there was a market gap in parts of the market that required a fund to service that segment.
Why have you decided to target food and agri as one of your sectors for investment? And what proportion of the fund do you expect to allocate to food and agri?
Food and agriculture is a focus because it fits our mandate of creating an economic impact and commercial returns. We see it as complementary to the mandate of the fund to have an allocation for the sector because Ireland has a natural advantage in several agri sub-sectors. We have a very low-cost dairy system due to a low=cost grass-based production system and we also have a lot of high profile multinationals in that space which are both indigenous and foreign. Ireland produces a large proportion of the world’s baby milk powder which evidences our strong ability in this sector.
Other sectors where we have a natural advantage include forestry and fisheries, although perhaps we have underscored there in the past creating potential for the future.
It is too early to put a figure on the allocation for food and agri, but our doors are certainly open to opportunities of any size. At this stage we are looking at which sectors we should pursue and where the most relevant role for us in those sectors is. We are not seeking to compete with banks in providing financing, but we are trying to be additional and complementary to other finance providers.
Which food and agri sub-sectors are attractive?
Initial analysis of the fisheries sector indicates that there are opportunities on the processing side and in bringing more fish onshore as so much goes straight to other parts of Europe. It’s a sector where we could really create some scale. We also have potential to replicate the growth experienced by Scotland and Norway in aquaculture.
Even in dairy, where Ireland is already successful, there is a role we could play in supporting the creation of a financial instrument to help smooth the effect of milk price volatility on farmers.
Agricultural technology is another focus area for the fund. This fits into the Government’s overall strategy for the agrifood sector currently being developed by the Department of Agriculture. We can see a new wave of technological development coming into dairy systems and beef systems with a combination of sensory data, feeding systems and genetics all being looped together to better enable farmers. Ireland is probably in the best position to develop an agtech sector in those particular areas due to the presence of leading agrifood and technology companies and a strong farmer base who are open to innovation.
What experience does ISIF and its staff have in investing in food and agri?
The only investment we carried forward from NPRF was a forestry fund but when we hired a new team, we gathered staff from a very varied background with lots of direct investment expertise across all sectors. I come from the food sector and will head up the food and agri portfolio, but will leverage off the direct investment experience of the new team and together we will cover the due diligence requirements of each deal.
It is also our strategy to partner with industry stakeholders who can bring knowledge, skills and expertise into the fund. These partnerships could be with a multinational company that wants to invest in Ireland or get product from Ireland. We could invest alongside them, for example.
We also would like to partner with other financial participants such as funds or other sovereign wealth funds to develop opportunities in Ireland. Due to our extensive network of connections both within government and in the commercial world we are an ideal partner for such entities.