NTMA to put first €10bn in sovereign wealth funds into low-risk investments

The National Treasury Management Agency (NTMA) plans to temporarily invest an initial €10 billion the Government is putting into two new sovereign wealth funds this year into low-risk investments like bonds as it goes about setting up an investment committee to work out a longer-term strategy.

The agency’s chief executive, Frank O’Connor, told reporters on Tuesday that it will shortly begin the search for a new director to oversee the two funds – the Future Ireland Fund (FIF) and Infrastructure, Climate and Nature Fund (ICNF) – after enabling legislation was enacted last month.

He said the initial €8.4 billion the Government will transfer to the FIF and €2 billion injection into the ICNF in between September and the end of the year – funded by windfall tax revenues – will mainly be invested in low-risk bonds.

He said the longer-term strategy will likely include investments in “lots of asset classes”, including equities, where day-to-day management will be outsourced to international investment managers. This is similar to the approach the NTMA took to managing the National Pensions Reserve Fund when it was set up in 2000, before it was raided during the financial crisis to help bail out ailing banks.

The Government estimates that the bigger of the two funds, the FIF, being set up to pay for additional healthcare and pension costs associated with a growing and ageing population from 2041, will grow to €100 billion in size by 2035.

The ICNF is being designed to ensure that capital spending on infrastructure and climate-action projects is maintained in the event of a future economic shock. An investment of €2 billion will be added to this fund each year from 2024 to 2030, building to a total of €14 billion by 2030.

The two funds impose extra responsibilities on the NTMA, which has grown from its establishment in 1990 to manage national funding and debt to also include responsibility for the National Asset Management Agency (Nama), Ireland Strategic Investment Fund (ISIF), State Claims Agency (SCA), NewEra advisory body to the Government on State-owned companies, and National Development Finance Agency.

On the debt management front, the NTMA said that it was sitting on €27 billion of cash and liquid assets at the end of June, which will reduce its borrowing requirement in the coming years.

The agency has raised about €7 billion in each of the past two years on the long-term bond markets, well below the average of more than €18 billion a year between 2017 and 2021. The NTMA has raised €5 billion in benchmark bonds at a weighted average market interest rate – or yield – of 2.75 per cent so far this year. Its official full-year target is to raise between €6 billion and €10 billion this year.

While some €29 billion of debt is due to be refinanced over the next two years, Mr O’Connor signalled that issuance next year will at the “lower end” of the range over the past seven years.

Meanwhile, Minister for Finance Jack Chambers secured Cabinet approval on Tuesday for the drafting of legislation that will allow Nama to take over the remaining assets of Irish Bank Resolution Corporation (IBRC) during 2025 and complete its wind-down by the end of that year.