22 January 2015, Hubert Cottogni

Transcription

1 EIF experience with financial instruments in the period of including fund of funds, and recommendations for the period of January 2015, Hubert Cottogni

2 Agenda Introduction: EIF: What we do? Overview of possible EU-EIF financial instruments Decentralised Mandates European structural and investment funds (ESIF) Ex-ante Assessment SME Initiative Annexes 2

3 The European Investment Fund: What we do? We provide risk financing to stimulate entrepreneurship and innovation in Europe Making finance more accessible and helping SMEs to innovate and grow Offering a large array of targeted products to support SMES ranging from venture capital to guarantees and microfinance to SMEs Working with financial intermediaries across the EU-28 EFTA countries, candidate & potential candidate countries Supporting the market in a countercyclical way 3

4 A few facts about us We pursue EU policy objectives and financial sustainability Shareholders unique tripartite structure: 62.1% European investment Bank (EIB), 30% European Commission (EC), 7,9% 25 public & private financial institutions (FIs) Assets under management of over EUR 13bn, mobilising EUR 79bn with other market players AAA-rated by three major rating agencies Capital increase to EUR 4.5bn ensuring strong capital base 4

5 How does EIF cooperate with EU Member States and regions? We foster SME development in EU Member States and regions Developing carefully targeted financial instruments for EU Member States and Accession Countries Encouraging growth particularly in less developed regions, with the help of revolving instruments rather than grants Impartial advice that helps regional and national authorities manage their resources Know-how Transfer to regions and helping develop sustainable risk capital markets at the local level 5

6 Helping businesses at every stage: EIF standardized and customizable products Public Stock Markets Portfolio Guarantees & Securitization and Credit Enhancement Formal VC Funds, Mezzanine Funds, Co-Investment Funds VC Seed & Early Stage Microcredit & Portfolio Risk Sharing Loan Business Angels, Technology Transfer, Accelerator and Seed Funds PRE-SEED PHASE SEED PHASE START-UP PHASE EMERGING GROWTH DEVELOPMENT SME Development Stages HIGHER RISK LOWER RISK 6

7 Overview of possible EU-EIF financial instruments Central EU instruments Joint instrument Structural/Cohesion Funds Research, Development, Innovation Jobs, Growth and Social Cohesion Horizon 2020 Equity Facility for R&I SME and Small Mid Caps Guarantee Facility for RI (RSI successor) [EUR 1.06bn] for guarantees to SMEs/small mid caps. [EUR 0,43bn] for equity (CIP GIF 1 successor) Competitiveness & SME (COSME) [EUR 1.32 bn]: Equity Facility for Growth (GIF successor) [EUR 660m] Loan Guarantee Facility [EUR 660m] (CIP GIF 2 successor) Social Change & Innovation Progress Microfinance II Social enterprise investing [EUR 192m] Creative Europe Cultural and Creative Sector Guarantee Facility [EUR 121m] Erasmus for all Student Loan Guarantee Facility [EUR 517 m] New SME Initiative Pooling of resources from European Structural and Investment Funds (ESIF), COSME and Horizon 2020, EIB/EIF and national promotional banks Guarantees of new loans to SMEs, securitization of existing SME loans Up to [EUR 8.5bn] from ESIF, [EUR 63 m] from H2020 and [EUR 63 m] from COSME Instruments under Structural and Cohesion Funds EU level instrument (contribution of Member State (MS) funds from Operational Programmes to centrally managed EU programs) Off-the shelf instruments Tailor-made instruments Significantly higher amounts than currently, but to be decided by each MS Source: EC, adapted 7

8 Decentralised Mandates: Stimulating SME Finance through structural funds More than EUR 3bn of finance for SMEs channelled through structural funds between Overall, Member States allocated approximately EUR 14bn to Financial Engineering Instruments (FEI) in the period of which more than 50% were committed to holding funds. The allocations for FEIs for period are expected to increase significantly. Fostering development of SMEs in EU Member States and regions through revolving instruments as opposed to grants. Impartial advice that helps regional and national authorities manage their resources. Know-how transfer to regions and helping develop sustainable risk capital markets at the local level. A total of 1.2bn assets under management, through 14 holding funds across Europe, both at regional and national level. EIF managed holding Funds have mobilised a total of 3bn to SMEs through high risk capital with 80 counterparts (out of which 49 are new EIF counterparts). 8

9 Financial engineering via National or Regional Holding Funds National or regional Level EU Level National/ Regional/ Local Level Regional/ /Local Level European Commission ERDF DG Regio Managing Authority Holding Fund / Holding Fund Manager Financial intermediaries SMEs and micro-enterprises Disbursement Up front (old) / in tranches (new) Irreversible Local Holding Fund Greater delegation to Local Authorities Management/administration are outsourced to a Holding Fund Manager which is selected by the Member State / Region Role of the Holding Fund Manager Structure investments, select Financial Intermediaries Administer, monitor & report on investments Attract a syndicate of financial intermediaries and investors Closely collaborate with national/regional authorities Financial Instruments Leverage private investor Revolving nature Flexible reallocation in line with investment strategy Delegation to an expert of selection of eligible SMEs Professional monitoring, reporting Move towards market-based discipline: Holding Fund manager cannot be at the same time financial intermediary => no conflict of interest 9

10 EIF managed Fund of funds on behalf of Member States and/or Regions Equity Fund-of-Fund Activity Other Mandates UK FTF: GBP 200m BIF (LT,LV,EE): EUR100m WBEDIF (AL,BA,HR,MK,ME,RS,XK): EUR 145m ERP (DE): EUR 1000m LFA-EIF (DE): EUR 100m DVI (NL): EUR 150m PGFF (PL): EUR 90m IPA Turkey (GAGF-G43-TTA*): EUR 126.9m CYPEF (CY): EUR 100m TOTAL : EUR 371.9m NEOTEC (SP): EUR 183m MDD (GER): EUR 200m PVCi (PT): EUR 111m EAF (GER, SP, A): EUR 122.5m ivci (TR): EUR 160m TOTAL : EUR 2.4bn Holding Funds Supported by Structural Funds (JEREMIE) BULGARIA: EUR 349m CALABRIA (I): EUR 45m CAMPANIA (I): EUR 90m CYPRUS: EUR 20m EXTREMADURA (ES) : EUR 19.8m GREECE: EUR 250m LANGUEDOC ROUSSILLON (FR): EUR 30m LITHUANIA: EUR 67.1m ROMANIA: EUR 150m MALTA: EUR 12m PACA (FR): EUR 20m SLOVAKIA: EUR 100m SICILY (I): EUR 60m SICILY ESF (I): EUR 15m TOTAL : EUR 1.2bn * ERP, LFA, BIF, WBEDIF will be increased in due course, along with EAF in Germany, Spain and Austria. 10

11 JEREMIE estimated impact as end of

12 JEREMIE key figures 14 JEREMIE Holding Funds under manageme nt for a total of EUR 1.2bn 44* calls for expression of interest published 317* of FI proposals reviewed 92* due diligence carried out 80* FI agreements signed * Including Latvia 12

13 ESIF allocations to Member States: EIF current and prospective market share Czech Republic United Kingdom The Netherlands Cohesion Regional Allocation Poland bn Italy Spain Romania Hungary Portugal Germany Greece France Slovakia Croatia Bulgaria Lithuania Latvia Estonia Slovenia Belgium Sweden Finland Austria Ireland Malta Cyprus Denmark Luxembourg ESIF Budget: EUR 322 bn 28 29bn 24 25bn bn bn bn bn 16 17bn bn 13 14bn bn 10 10bn 3 5 8bn 2 5 7bn 4 6bn 4bn 3bn 3bn 2,05bn 1,83bn 1,32bn 1,25bn 1,11bn 1,01bn 0,68bn 0,51bn 0,49bn 0,06bn 2 * Amount includes national co-financing for the operational programmes Operational Programs contributions paid to FEIs, Total Budget: approx. 14 bn* FEIs invested directly via Financial Institutions / National Funds; 7.1 FEIs invested via Holding Funds; 6.9 bn EIF market share: 8% AuM: 1.2 bn Other Holding Funds; 5.7 bn 13

14 Structural Funds: vs comparison Subject Regulatory framework Preparatory phase Product design & State Aid clearance Monitoring and reporting requirements Audit framework Alignment Rigid for the application to Financial Engineering Instruments (FEIs) Limited guidance on gap analysis requirements Clarifications on product design and instrument specifics late in the period (via COCOF notes) Details emerged during the period as the product requirements were being clarified Unclear, often overlapping and duplicated Some alignment between IFIs and National Agencies Has been reworked so FEI can be deployed more efficiently Ex ante considered very important to justify specific instruments. Separate legislation now just for ex ante assessment, clear guidelines and impact indicators have been established ahead of time. Detailed off the shelf instruments proposed in advance with built in a priori state aid clearance Clear and predefined requirements and templates Has now been streamlined, greater efficiency via a single audit model Cooperation with 'National Agencies' wherever possible to align implementation activities 14

15 Preparatory Phase Ex-Ante Analysis of market failures in all segments regarding access to finance; Estimate leverage and private investor participation; Timeframe: 6 months Biz Plan Based on ex-ante recommendations; Fully-fledged strategy for FIs, including budgets, targets, criteria, expectations; Timeframe: 1-2 months Funding Agreement Template for period already completed based on new regulations; Input from ex-ante and business plan; Timeframe: 3 months Implementation Preparation for launching calls for expression of interest for products identified in business plan; Selection of financial intermediaries and signature of contracts; Timeframe: 3-6 months 15

16 Ex-ante Assessment Support of financial instruments shall be based on an ex-ante assessment Ex-ante assessment shall include: Analysis of market failures Assessment of value added and consistency with other forms of public intervention Estimate of leverage Lessons learnt from previous deployment of financial instruments Proposed investment strategy Expected results Ex-ante assessment shall be completed before MA decides to make a contribution from OP to financial instruments 16

17 Financial instruments : Key novelties Wider scope: Expansion to all thematic objectives & priorities foreseen by ESIF OPs (ERDF, ESF, Cohesion Fund, EAFRD,EMFF) More implementation options for managing authorities: FIs at national, regional, transnational or cross-border level (shared management: Tailor made / Off the shelf) Contribution to EU level FIs under central management (ring-fencing) Ex-ante assessment to be carried out before launch of FI operation under the ESIF Better combination of FIs & other forms of support; Incentives regarding EU co-financing rates; Phased contributions to Financial Intermediaries; More detailed rules concerning (e.g. eligible expenditure at closure, (re-)use of interest/other gains and ESIF resources returned during the programming period, the use of interest/other gains and ESIF resources returned after closure (legacy) Annual reporting by MAs.

18 Financial instruments : Key novelties Implementation options: 1) Traditional implementation : MA sets up a FI at national, regional, transnational or cross-border level Taylor made instruments (cf ) Standardised off-the-shelf instruments, quick roll-out. 2) MA can contribute OP allocations to EU level instrument 3) MA can implement loans or guarantees directly (or through intermediate body) without formal set-up of a fund

19 Concrete example of a regulation more in line with market practice: Equitybased instruments + microcredit Capitalized management cost and fees (paid into an escrow account) due to be paid for a period of 6 years after the end of the eligibility period will be considered as Eligible expenditure. Eligibility of follow-on investments, 4 years after the end of the Eligibility period if the below conditions are respected: Equity-based instruments Funding agreement (MA or FoF / FI) signed before ; 55% of the programme resources are invested before ; Follow-on investment capped to 20% of the eligible expenditure (less the capital resources and gain). 19

20 Off the shelf instruments: Three instruments for SMEs 1. Loan for SME's based on a portfolio risk sharing loan model (RS Loan). 2. Guarantee for SMEs (partial first loss portfolio) (capped guarantee). 3. Venture Capital for SMEs and start-up companies based on a co-investment model (co-investment facility).

21 The SME Initiative Introduction (i) Key objectives Better access to finance for SMEs through capital relief, loss protection and liquidity Increased multiplier on public budget through participation of EIB/EIF and private sector Reduction of financial markets fragmentation Two risk-sharing instruments endorsed by the European Council: 1. Guarantee facility for portfolios of new SME loans 2. Securitisation instrument for portfolios of both new and existing SME loans Eligible assets: SME Loans, leasing and guarantees. Restructured loans should be excluded, no refinancing permitted 21

22 The SME Initiative Introduction (ii) Key advantages Credit risk protection on new (option 1) and existing, and new (option 2) portfolios of SME debt finance Uncapped guarantee (option 1) and full capital structure (Option 2 subject to risk retention rules) subscribed/underwritten by EIB/EIF and possibly third party investors Subject to the national regulator, capital relief on such portfolios Attractive pricing of the two options due to no fees being charged by the FLP ESIF funds and expected loss pricing for ESIF and EU mezzanine tranches. EIB Group apply their customary pricing policy. Transfer to such benefit to the final beneficiary to be ensured Provision of funding (in option 2) cash deals and possible by the EIB 22

23 The SME Initiative Schematic allocation of risks (all options) Portfolios created from eligible SME loans Tranches associated with different risks Instrument based on a risk-sharing structure Senior risk (EIB, third parties) Mezzanine risk (EIF, EU Funds, ESIF) First Loss Piece (ESIF, originator) Only under Option 2 Retained by the originator Adapted to strong and weak SME credit environments ESIF deployed for - local use poled us ESIF to be complemented by small volume of EC central budget 23

24 The SME Initiative Description of financial products Option 1 Financial Intermediary (FI) Option 2 EIB risk (plus potentially promotional banks) Mezzanine (EIF, EU Funds, ESIF) Junior (ESIF) Risk tranching Retained by the originator EIF guarantee Guarantee Rate up to 80% Loan by Loan SME Loans Beneficiaries SME 1 SME 2 SME n Risk tranching MEZZ FLP EIB risk (plus potentially promotion al banks) Securitisation Thirdparty risk ESIF + EU Funds (Target Rating: B3) ESIF & originator risk Retained risk New SME loans (Additional Portfolio) 24

25 The SME Initiative Side-by-side comparison Option 1 Provides uncapped portfolio guarantees and envisaged partial capital relief to banks building up new portfolios of loans Option 2 Securitisation instrument can be backed by portfolio of existing SME loans and small midcaps Description: Originators (gradually) builds-up a portfolio of new SME loans EIF issues uncapped portfolio guarantees (up to 80%) and shares the risk with banks ESIF are used to cover the first-loss piece EU funds from Horizon 2020 and/or COSME and the EIF join to absorb, along with ESIF, the second-loss piece EIB and possibly third party guarantee the senior tranche In return the originators will have to transfer benefits of the instrument to the SMEs in the form of acceptance of higher risk clients, reduction of collateral requirements and/or reduced pricing Description : A portfolio of existing SME loans is identified. 50% of the first-loss piece is retained by the originator and 50% is covered by ESIF The risk of the second-loss piece is covered by ESIF, EU funds from Horizon 2020 and/or COSME and the EIF. Originator possibly retains 5% of the risk EIB and other third-party investors purchase or guarantee the senior tranche up to agreed maximum amounts In return the originators explicitly undertake to provide new financing (amounting to multiple of the EU Funds contribution) to SMEs in the relevant Member State or region in line with the eligibility criteria the EU funds contributed in the structure 25

26 The SME Initiative Milestones completed and next steps European Council final adoption EIB Group promoted the SME Initiative along with the Spanish MA Negotiation of Funding Agreement and remaining legal documentation between the EIB Group, the MA and the EC Publication of the call for expression of interest Screening and due diligence on selected banks. Negotiation of Operational Agreements with selected FIs Deadline for origination of new loans to SMEs by FIs November 2013 Jan Mar 2014 April 2014 May - December 2014 Jan -Mar Ex-ante assessment (market gaps) 1. Spain officially announced its participation to the SMEI 2. Regional contributions are communicated Approval of the SMEI Spain Operational Programme Signature of the Funding Agreement between Spain and the EIB Group Operational greements between the EIF and the FIs to be signed before 31st December

27 The SME Initiative Open points Working Capital Eligibility of working capital financing still to be confirmed pending the publication of an interpretation note by the EC Leverage and eligibility of ESIF expenditure Waiting for clarification on the links between target leverage and eligibility of ESIF expenditure State Aid finalisation Favorable state aide regime presented by EC, publication of the interpretation note pending 27

28 The SME Initiative 15 Regions in Spain have contributed Map of Spain with the amount of ESIF contributed to the SME Initiative per Region Galicia EUR 44m Cantabria EUR 22m Castilla y León EUR 21m País Vasco EUR 12m La Rioja EUR 6m Aragón EUR 26m FRANCE Cataluña EUR 66m PORTUGAL Extremadura EUR 76m Madrid EUR 264m Castilla-la- Mancha EUR 29m Com. Valenciana EUR 73m Illes Balears EUR 28m Murcia EUR 7m Canarias EUR 27m Andalucí a EUR 98m C. A. Ceuta EUR 1m Under the premise of promoting an amount of new debt finance to SMEs equal to at least a multiple of 4x their ESIF contribution to the SME Initiative, 15 out of the 17 Regions in Spain have decided on joining the scheme. The total aggregate ESIF contribution to the SME Initiative in Spain is of EUR 800m 28

29 Contact Details Hubert Cottogni Deputy Director Head of Mandate Management Phone: (+352) European Investment Fund 37B, avenue J.F. Kennedy L-2968 Luxembourg 29

30 Annex 1: Selected Financial Intermediaries working with EIF under JEREMIE A network of private investors to manage and mobilise structural funds. 30

31 Annex 2: JEREMIE holding funds Portfolio mix and leverage figures in EUR Equity instruments: Risk Capital Funds Co-investment Funds Accelarator & Seed Funds Tech Transfer Funds Debt instruments: Funded Risk Sharing Products Portfolio Risk Sharing Loans Guarantee instruments: First Loss Portfolio Guarantees

32 Annex 3a: Off the Shelf instruments 1. Loan for SME's based on a portfolio risk sharing loan model (RS Loan)

33 1. Portfolio Risk Sharing Loan: Aim of the instrument: combining public and private resources to finance SMEs at better/preferential conditions (new loans); Programme contribution for the instrument: typically between EUR 2m and EUR 100m; Risk-sharing: 80%/20%, i.e. the financial intermediary shall contribute with its own private fund for a minimum of 20% (at market conditions); State aid: state-aid free at the level of the financial intermediary and Compliant with de-minimis rule at the level of SMEs Duration: typically 4 years after the signature of the funding agreement between the managing authorities and the financial intermediary; Purpose of the loan: financing tangible & intangible investments as well as the working capital link to the investment financed; Target: Eligible SMEs (according to EU recommendation), are excluded: SME in difficulty, active in the agriculture/fishery sectors, de-minimis exclusions, delinquent/default, etc. Loan maturity: between 1y and 10y (including grace period); Loan amount: up to EUR 1m; Advantage for the SMEs: access to finance at preferential conditions (interest rate reductions)

34 Annex 3b: Off the Shelf instruments 2. Guarantee for SMEs (partial first loss portfolio) (Capped guarantee)

35 2. Capped Portfolio Guarantee: Aim of the instrument: credit risk coverage up to a certain limit allowing the financial intermediary to facilitate SMEs access to finance at better/preferential conditions; Programme contribution for the instrument: typically between EUR 5m and EUR 30m; Guarantee rate: up to 80% on a loan by loan basis (credit risk retains by the financial intermediary in no case less than 20%); Cap rate to be determined in the ex ante risk assessment; Leverage: min.5x; State aid: state-aid free at the level of the financial intermediary and Compliant with de-minimis rule at the level of SMEs Duration: typically 4 years after the signature of the funding agreement between the managing authorities and the financial intermediary; Purpose of the loan guaranteed: financing tangible & intangible investments as well as the working capital link to the investment financed; Target: Eligible SMEs (according to EU recommendation), are excluded: SME in difficulty, active in the agriculture/fishery sectors, de-minimis exclusions, delinquent/default, etc. Loan maturity: between 1y and 10y (including grace period); Loan amount: up to EUR 1.5m; Advantage for the SMEs: access to finance at preferential conditions (interest rate and collateral reductions).

36 Annex 3c: Off the Shelf instruments 3. Equity Investment Fund for SMEs and start-up companies based on a co-investment model (Co-investment Facility)

37 3. Co-investment facility: Aim of the instrument: combining public and private resources; Programme contribution for the instrument: typically between EUR 10m and EUR 50m; Duration the funds: typically 10 years after the signature of the funding agreement between the managing authorities and the financial intermediary; Investment period into SMEs: up to 31 December 2023; Type of investment: equity; Investment amount: max EUR 15m / SME (including follow-on investments); Target: Eligible SMEs (according to EU recommendation), are excluded: SME in difficulty, active in the agriculture/fishery sectors, de-minimis exclusions, delinquent/default, etc.; SMEs prior to their first commercial sale / <5y following their first commercial sale, since inception turnover not exceeding 10% of the total investment amount, SMEs with a view to entering a new market-product / follow on investment. Public and private contribution: depending on the type of investment target, the private contribution (matching the contribution programme) shall be of a min. 10%/40%/60% of the overall amount invested into an SME; State aid: if all conditions of GBER fulfilled the instrument is state aid compatible (i.e. no notification to the EC needed); Advantage for the SMEs: supporting SMEs growth in a very difficult funding environment.