News
Quarterly newsletter - Issue 4
Date: 03/03/2004-- CONTENTS --
1) Foreword from the Chief Executive
2) EIF latest news & operations
3) The EU corner
4) Latest publications
5) How to subscribe - how to unsubscribe
6) Contact
1) Foreword from the Chief Executive
Dear Readers,
2004 will mark a milestone in the history of the European Investment Fund. The EIF was created 10 years ago, with the objective of supporting the European integration and the development of SMEs. Today, EIF is a specialised institution for SMEs and innovation. In 2000, EIF became the EIB's group specialised subsidiary in venture capital and Private Equity with portfolio amounting today to around EUR 2.5bn and an investment capacity amounting to EUR 4bn.
We have also expanded our activities in the SME guarantee market, we indeed consider guarantees to be a key instrument for enhancing SME finance, with a particularly high leverage. Today, EIF focuses on two main guarantee product lines: credit insurance and securitisation. Our abilities for serving our Community objectives have been underpinned in 2003 by the top rating AAA assigned by the three main credit agencies, and early January by the Basel Committee recognising EIF as MDB (Multilateral Development Bank) with a 20% weighting under the existing agreement and with a 0% weighting under the future Basel agreement.
More recently, in 2002, we created new advisory activities upstream of our traditional market positioning, where we provide strategic and technical advice on the design, implementation and evaluation of SME finance policies, financial engineering, projects and structures to a range of counterparties.
I would like to stress that during this decade, EIF has succeeded to adapt to market conditions and even sometimes anticipate them, thanks to its flexibility and strong shareholder support.
In December 2003, EIF approved its Corporate Operational Plan which sets the main strategic routes until 2006. During this period, we will continue to develop our core activities, meaning venture capital/PE investments and SME guarantees, in particular towards the future Member States (e.g: Bank of Valletta has became shareholder). We will also continue to develop our advisory activities, and embark on new routes by implementing cooperation agreements with like-minded institutions. Our portfolio will probably exceed EUR 10bn in the course of 2004.
Dear Readers,
The EIF 10th years anniversary will be an opportunity to highlight again our commitment to better serve community objectives and strengthen our cooperation with our operational network which comprises today around 350 financial intermediaries.
10 years, 10 bn euros, and 10 countries, that is our new challenge for this particular year.
Francis Carpenter
Chief Executive
2) EIF latest news & operations
EIF operations in 2003
New Guarantee volumes in 2003 have increased significantly, with signatures exceeding EUR 2.25 billion (MAP: EUR 1.65 billion; Own Risk: EUR 594 million). These signatures are the result of, on the one hand, the increased demand for the European Commission's Multiannual Programme (MAP), notably from Acceding/Accession Countries, and on the other hand, from the development of the European securitisation market and credit enhancement operations.The MAP's micro-credit window has been especially successful, as several new guarantees agreements have been signed (so far EUR 180 guaranteed), signifying micro-credit coverage and mentoring services are available from financial institutions in five countries.
As for its Venture Capital activity, EUR 135 million in new commitments were signed this year. This amount is lower than last year, reflecting very much reduced fund raising in the EU. EIF plays a leading role in the European Venture Capital market with a continuous presence achieved through ongoing disbursements for investments, which remain comparable to previous years. Through these new commitments, EIF is rebalancing its portfolio composition by stage (for example, through second and third round investments) and, where possible, by vintage year (for example, through secondary transactions).
EIF portfolio amounts to some EUR 9bn for both venture capital and SME guarantee activities.
09/02/2004: EIF sets new securitisation transaction: Promise XXS-2003-1
EIF acts as credit default swap counter-party. The originator of the deal is HVB. This deal is the third Promise transaction originated by the HVB Group with the EIF involvement (following Promise Austria 2002 and Promise Color 2003). EIF has so far participated in 11 synthetic SME loan securitisations, thus contributing to total risk transfer of EUR 17.7 bn.
09/02/2004: Loan guarantee for Mortgage and Land Bank of Latvia
EIF signed an agreement with the Mortgage and Land Bank of Latvia (Hipoteku banka) under the Loan Guarantee window of the European Commission's MAP mandate. EIF's guarantee will cover the credit risk of a portfolio of SME loans originated by the bank, with a particular focus on start-ups and expanding companies. Under the terms of the agreement, beneficiary SMEs will benefit from reduced collateral requirements. The Mortgage and Land Bank of Latvia is a wholly state-owned bank founded in 1993 with the aim "to promote the development of the national economy of the restored Republic of Latvia through SME lending, mortgage lending and the issuing of mortgage bonds". The current agreement, which is the third one signed in the Acceding and Accession countries under the MAP mandate, marks the first time that EIF will cooperate with an intermediary in Latvia.
06/02/2004: Up to EUR 15m VC commitment in Waterland Private Equity II
On 12 December 2003, EIF signed a commitment to invest up to EUR 15 million in "Waterland Private Equity Fund II B.V.", a EUR 170 million multi-country fund mainly targeting SMEs operating in the outsourcing and efficiency, ageing population and leisure & luxury sectors, with an emphasis on services companies. The geographic focus of the fund is on "Rheinland", a cross-border region that includes the Netherlands, Belgium and North Rhine-Westphalia (Germany). The fund is the second fund to be managed by the Netherlands-based Waterland Private Equity Investments B.V., a pro-active investor that has developed a solid track record since 1999 in expansion capital investments (buy and build strategy) in fragmented growth sectors.
04/02/2004: EUR 30m VC commitment for Polish Enterprise Fund V
EIF signed a commitment to invest up to EUR 30 million in "Polish Enterprise Fund V LP", a Warsaw-based fund that will invest in generalist SMEs involved in sectors such as consumer products and services, IT and telecom, financial services, industrial products and services, pharmaceuticals, media and health care. The geographical focus of the fund will be primarily on Poland, and selectively also on other Acceding and Accession Countries. The fund is to be managed by Enterprise Investors Corporation (EI), a pro-active investor that works closely with the management of its portfolio companies to provide mentoring and support. EI has developed an extensive investment track record in the region over the past 14 years through the management of four other funds involved in highly diversified transactions, including expansion, buyout, public to private, restructuring, privatisation, and post-privatisation transactions.
04/02/2004: EUR 10m VC commitment for Euroventures Hungary III
EIF had signed a commitment to invest EUR 10 million in "Euroventures Hungary III LP", an Acceding Country fund targeting a wide range of SMEs, including new technology-based firms involved in the software, communication and micro-electronic sectors, complemented by investments in traditional industries such as agro-food companies. The fund, managed by the Budapest-based Euroventures Capital Hungary Kft (EV), recently achieved a first closing at approximately EUR 31m. EV is one of the most experienced teams on the Hungarian venture capital market, with a track record since 1990 in all stages of the VC investment process, including exits through trade sales and IPOs. EV is an active early-stage investor principally in Hungary, and selectively in Slovenia and the Czech and Slovak Republics.
21/01/2004: EIF ready for Basel II
The Basel Committee on banking supervision has decided to permit national supervisors to apply a 0% risk weight to the EIF under the New Capital Accord (Basel II) and a 20% risk weight under the current accord. This recognition will allow EIF guarantee intermediaries to continue benefiting from capital relief and will contribute to support the SME guarantee activity of the European Investment Fund in the coming years.
19/01/2004: EUR 4.5m for Vives
EIF has signed a commitment to invest EUR 4.5m in Vives (under the EU mandate MAP), with other co-investors including KBC and Fortis, both EIF shareholders.The fund is managed by Sopartec, the technology transfer and investment company of Université Catholique de Louvain (UCL). The fund will exclusively focus on companies in their seed and start-up phase. It will focus on new technology-based firms, which are either spin-offs from the UCL or companies benefiting from a strategic partnership with UCL. A strategic partnership between UCL and a potential portfolio company is defined as an agreement covering the management of intellectual property rights or the establishment of a research contract aimed at validating a technology concept. The operation will be officially launched at Louvain in Belgium on 19 April with representatives of the European Commission (Commissioner Busquin) and EIF.
19/12/2003: EIF sets new securitisation transaction: AR Finance 1 Plc
On 19 December 2003, EIF agreed to provide a guarantee to a mezzanine tranche of a Portuguese securitisation transaction of loans and lease receivables to SMEs issued by AR Finance 1 Plc (Ireland) and arranged by BNP Paribas, London. Originator of the securitised portfolio is Banco Alves Ribeiro, a niche bank with special expertise in property financing. The portfolio consists of leases to SMEs operating predominantly in the northern part of Portugal (Porto).
01/12/03: EIF signs new advisory agreement in Sweden
The main objective of this assignment relates to the provision of technical and strategic advice to BIC Mid-Sweden on the creation of a regional venture capital instrument in Västernorrland and Jämtland.The main scope of this structure is to attract capital from financial institutions, large corporations with regional interest and a consortium of private investors to SMEs based in the region, which is an objective 2 region in the EU regional policy framework.
01/12/2003: Fitch assigns EIF top credit rating
Fitch assigned EIF a AAA credit rating, which reflects the "strong shareholder support and conservative policies regarding risk management and liquidities", according to the agency. EIF also obtained in 2003 the top credit rating from the Standard & Poor's and Moody's. The external rating will notably underpin the further development of EIF guarantee activity in the area of securitisation of SME financing, where EIF acts as an external credit enhancer for notheolders investing in Asset-Backed Securities backed by portfolio of SME loans.
12/11/2003: EUR 15m EIF commitment in Innovacom 5
EIF has signed a commitment to invest EUR 15 million in "Innovacom 5" (second largest investor), a pan-European fund targeting new technology-based firms with a specific emphasis on new materials and components, telecom hardware, software and telecommunication networks, enterprise software, services and content. The fund, managed by the Paris-based Innovacom, recently achieved a second closing bringing the fund to EUR 120m. As the venture capital subsidiary of France Telecom, Innovacom has helped successfully launch innovative telecommunications and information technology start-ups since 1988, such as Business Objects, Cobalt Networks, Gemplus, Infovista, Intershop and LastMinute.com. With offices in Paris, Stockholm and San Francisco, Innovacom is an active early-stage investor principally in France and in the Scandinavian countries and selectively in Germany, in Austria and in Belgium.
01/10/2003: First EIF cooperation agreements enter into force
EIF has signed its first cooperation agreements with CDC PME (FR) and Vaekstfonden (DK). These agreements will notably consist in exchange of informations (such as for CDC PME and Vaekstfonden). This development will reinforce EIF unique market positioning and operational/institutional platform by better leveraging on its activities, address market developments more efficiently and play a pioneering role in the development of new financial instruments. By doing so, EIF now intends, in addition to its traditional positioning as co-investor and guarantor, to develop areas of cooperation in relevant market segments and regions with selected partners and better fill market gaps.
24/09/2003: Securitisation transaction in FTPYME BANCAJA 2
On 24 September 2003, the EIF has provided a guarantee for two mezzanine tranches of a securitisation transaction issued by FTPYME BANCAJA 2 Fondo de Titulización de Activos (Spain). The securitised portfolio consists of loans to SMEs operating mainly in the region of Valencia, originated by Caja de Ahorros de Valencia, Castellón y Alicante (Bancaja).
This is the fourth SME financing securitisation within the framework of the Spanish Treasury's FTPYME Programme for which EIF provides a guarantee (following FTPYME BANESTO 1 FTA, FTPYME BANCAJA 1 FTA, and BBVA-2 FTPYME ICO FTA). EIF is thus complementing the role of the Spanish Treasury in supporting SME securitisation in Spain.
02/02/2004: EIF Chief Executive receives award at ICO Microloans Awards Ceremony
In the presence of Her Majesty Queen Sofia of Spain, EIF Chief Executive, Mr Francis Carpenter, was granted an award at the ICO's Microloans Awards Ceremony in recognition of EIF support for Spain's Instituto de Crédito Oficial (ICO) micro-credit activity. ICO's micro-credit scheme has been launched in 2002 and was among the first micro-credit operations guaranteed by EIF.
20/01/2004: Chief Executive at European Parliament
On 20 January, Francis Carpenter was invited to present for the 1st time the activity of the EIF before the EP committee on industry, external trade, research & energy (ITRE). He presented the specificity of EIF within the EIB Group and explained the 4 main products of EIF :
- SME loan guarantees and micro-credit guarantees
- Credit enhancement for securitisation
- Venture capital
- Advisory role.
He also presented the strategy of the EIF which continues to be notably driven by the Lisbon process, and the many EU actions aimed at supporting innovation (3% Communication, Growth Action etc.). He stressed that SME and Innovation were the two main raison d'etre of EIF. The exchange of views focused on the need for ongoing support in these areas, and notably for micro enterprises.
Speech available at http://www.eif.org/News/events/event.asp?event=22
12/12/2003: EU Council endorses European Action for Growth
The European Council that took place in Brussels on 12 December endorsed the European Action for Growth and welcomed the work carried out by the EIB group (EIF and EIB) and the Commission in the implementation of the Union's Lisbon agenda to improve competitiveness, employment and the enlarged Union's growth potential.
The Growth Action aims at supporting growth and integration by increasing overall investment in TENs and major R&D projects. In line with the Growth Action, the EIB Board of Governor approved the reinforcement of EIF venture capital investment capacity, up to EUR 1bn.
The Action for Growth rests on close collaboration between the Member States, the Council, the Commission and the EIB group. The European Commission and the EIB group will provide a mid-term evaluation of the Action for Growth by the end of 2007, on notably the basis of (i) effects on growth; (ii) impact on the internal market and cohesion in the enlarged EU; (iii) mobilisation of private sector capital.
06/02/2004: EIF Staff Paper published by EVCA: "The Risk Profiles of Private Equity"
In the study, the authors introduce the different investment vehicles, referring mainly to VC, but also to buyout (BO) whenever possible. Discussion is based on published research articles, the authors' own research, and the Thomson Venture Economics (VE) database. An analysis is conducted of the risk profiles in detail, also in terms of the risk-return ratios of each vehicle. The authors conclude that there is a clear diversification benefit for funds, funds-of-funds, and portfolios of funds and direct investments. For example, the probability of any loss is small for a VC fund-of-funds, whereas the probability of a total loss of capital in a direct VC investment is about 30%. The study also makes a mention of the allocation of economic capital to cover for unexpected losses, especially with respect to Basel II regulations. http://www.eif.org/news/news.asp?cat=29&news=57
01/02/2004: EIF Corporate Operational Plan (COP)
The strategy of the EIF is developed and implemented through its operational priorities, financial management and internal activity and processes. The Corporate Operational Plan (COP) formulates and quantifies these priorities and goals over the coming years (2004-2006). http://www.eif.org/publications/publication.asp?publ=4
16/12/2003: EIF Staff Paper, "Development of a Rating Instrument for Private Equity Funds".
In collaboration with the European Investment Fund's Division of Risk Management and Monitoring and based on an analytically rigid exploratory research approach, Clemens J. Troche develops a straightforward rating instrument hat allows investors to share opinions about expected performance and inherent risks of their fund investments. It is based on the concepts of quartile ranking and complements this relative valuation by the inclusion of absolute performance predictions. The developed monitoring and valuation tool proves to be self-explanatory, unambiguous, and simple to use without requiring that investors have to disclose their decision-making processes. http://www.eif.org/news/news.asp?cat=29&news=51
22/10/2003: EIF Staff Paper, "Modeling Venture Capital Funds"
Modeling venture capital funds is a challenge and has become more important due to recent and upcoming securitisation deals, the need for efficient portfolio management, and Basel II. Here, Thomas Meyer and Tom Weidig summarise the issues both industry and academia face, from estimation of past performance to modeling venture capital funds. Tom Weidig also proposes a modeling framework based on an internal age concept. http://www.eif.org/news/news.asp?cat=29&news=47
5) How to subscribe - how to unsubscribe
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Should you have any comments or questions, please send an email to Patrice Liauzu (p.liauzu@eif.org).
Note that EIF does not invest in SMEs directly, but instead always works through financial intermediaries. The EIF is not involved in individual investment/credit decisions. SMEs in search of finance are requested to contact an EIF intermediary in their country/region - a list is published on EIF website - for information on eligibility criteria and application procedures.