Wednesday 21 March 2018

Richard Curran: Willie has a tough task ahead of him

Willie Walsh: head of IAG
Willie Walsh: head of IAG

It is great to see IAG chief executive Willie Walsh taking on the job of non-executive director of the soon to be reformed National Treasury Management Agency (NTMA).

Walsh has done a service by agreeing to take on the role, which is not really paid and is no longer even in the country in which he lives.

But if Willie thought it was going to be an easy job, he might have to look again. The duties of the NTMA have kept on expanding.

It is raising money for the state on the debt markets (likely to increase exponentially when we leave the troika bailout); casting an  eye on Nama (the biggest property company in the world); managing the state’s injury claims process (plenty of those coming in) and it will soon take over the National Pension Reserve Fund (NPRF).

The NPRF is the state agency which is supposed to invest money to fund the massive multi-billion euro public sector pension requirements in the decades ahead. Things were going swimmingly until the banking crisis, when  the fund was raided to the tune of €20.7bn to bail out AIB (€16bn ) and Bank of Ireland (€4.7bn).

The fund will get its money back from Bank of Ireland but who knows how much of the €16bn to AIB will ever be returned. In the meantime, it still has around €6bn of other investments to manage.

However, it is due to revert from a self-contained investment fund, into an arm of the NTMA. But something else will change. It will switch its investment targets from getting the best return possible, to investing in strategically important assets for the Irish economy.

This process has already begun with close to €1bn committed to things like Irish infrastructure, forestry, SMEs, Irish venture capital and an innovation fund.

This all sounds like good stuff, capable of supporting Irish jobs – for a while at least. The problem is whether it will deliver a return or not. The fund was criticised in the past, when first set up by Charlie McCreevy, for investing money in stock markets around the world.

People felt this was money leaving Ireland. But in truth, the Irish state was borrowing the money invested in the fund in the first place, so it had originated outside the country. 

Investing in government bonds, stock markets and other instruments around the world helped it bring in a pretty good return. Last year the fund grew in value by 9.4pc. Since 2001, the portion of the fund that excludes the bailout money for the banks, has yielded an average return of 3.4pc.

With its new mandate, it will have to sell down billions of euro worth of international shares and find suitable worthy and potentially profitable ventures in Ireland.

The €6bn could very soon dwindle if it doesn’t back some winners. Of course it will provide a helpful injection of cash into the Irish economy, but will it make much of a contribution towards paying those public sector pensions in the decades ahead?

 Probably not, is the answer. The public sector pension beast requires around €112bn over the next 60 years. That is a lot of money to find.

As a hard-nosed businessman, Walsh will want to find the best investment returns for that fund. But those instincts may well be frustrated by its new requirements to put the money into Ireland.

Undoubtedly it will provide some benefits in the short term, but we may rue the decision in the years to come. 

Online Editors

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