Mr. Eugene O'Callaghan:

This relates to the investments by the ISIF. If we invest in an SME fund, we would have agreed with the manager of the fund on the overall return. We would work that through in terms of the expected return from the underlying assets minus the cost of managing and so on. There is a second level beyond that which is portfolio level. The draft legislation, which it is hoped will be published shortly, will require the ISIF at a portfolio level to seek a return above the cost of Government debt. Clearly, an alternative use of these resources for the Exchequer is to take the cash and pay down Government debt. How much we would look, at portfolio level, to exceed the cost of Government debt will be addressed in detail in our business plan, which, as I said earlier, is currently being developed. We could exceed it by 1%, 2% or 4%. If the cost of Government debt is, say, 3% or 4%, we will have to work out the expected return. The calibration of that target depends in turn on how much debt investment as compared with how much equity investment we expect to see in the fund. That target will probably iterate as the opportunities become a bit clearer.

The Senator's second question was around the discussion of deadweight and displacement. These are phrases used by economists. They are economic terms which are not necessarily commonly used every day.

We have had to come to an understanding of these terms as well. Dead weight refers to an investment that would happen without the intervention of the National Treasury Management Agency. There is no additional economic impact to be obtained when the investment would have happened on its own without our involvement. As it will happen anyway, the economic impact will be achieved. There is no point in using the finite resources of the fund to help achieve an economic impact that could be achieved elsewhere. Let me give an example. Initially the ISIF was a potential participant in the financing of a PPP motorway project. It turned out there was more than sufficient demand from the marketplace to participate and provide the funding for the project. Our involvement was not required. We avoided an accusation of deadweight by not participating when we were not needed.

Displacement is more tricky. Our mandate is primarily to support economic activity in Ireland. Let me give an example. Economic activity happens when people go and have their hair cut. If we invest in a good hairdresser as opposed to the existing hairdresser who is in business down the street, the number of clients who will have haircuts will be roughly the same. Our mandate is to try to assist additional economic activity to take place. If we invest in a business that is successful but only displaces another business, that does not create new economic activity. There will need to be a case by case analysis because even in sectors such as hairdressing by virtue of providing very high quality product or service, some businesses can stimulate new economic activity and increase spending that otherwise would not have taken place. That is a much more fine tuned consideration. We need to consider each investment proposition in the context of whether it adds incremental economic activity or displace existing activity.

The phrase "term sheet" is investment market jargon and is the basis upon which a transaction proposal would be put forward and discussed between an investor and an investee company, in the case of a borrower looking for equity. The term sheet would set out for discussion the principle proposed, terms and conditions, the type of investment - whether equity or debt, the timeframe, the rate, the covenants or terms and conditions that might be attaching and the key commercial considerations. The commercial and business issues would have been dealt with at the term sheet stage. Normally when a detailed term sheet is agreed between the parties, the legal documentation process would follow, unless title or other legal issues have been unearthed.