Page 61 - Annual Report 2010

59

Governing Bodies & Key People

reviews credit ratings (portfolio guarantees) and expected performance gradings (private equity) proposed by TRM to these investments. RMM is carrying out the monitoring of guarantee activities in close collaboration with the front office. RMM performs portfolio reviews for EIF’s private equity investments and guarantee instruments, which are periodically submitted to EIF’s governing bodies.

The Investment and Risk Committee (IRC) is the key forum for the approval of investments proposals to the Board of Directors. It is chaired by the Deputy Chief Executive and attended by the heads of RMM, TRM, Legal, Finance and Compliance. Furthermore, IRC also undertakes decisions related to the monitoring, management and restructuring of transactions. Risk policies, portfolio reviews, audit rec-ommendations and other items of pertinence are submit-ted in first instance to the IRC.

In conclusion, the role of risk management at EIF does not rest exclusively with RMM. All of EIF’s functions are involved in the process, which includes a constant collab-oration not only between RMM and TRM, but also with Mandate Management and Product Development and Incubation (MMPDI), Legal, Finance and Compliance on the development of new products or mandates, as well as the other functions represented in the IRC.

Legal

EIF is supported by a strong in-house legal team whose remit, within its area of responsibility, is to pursue the stra-tegic goals and to protect and preserve the legal integrity of the Fund. This is achieved through the provision of legal advice in connection with all EIF activities as well as insti-tutional, strategic and policy related matters.

As concerns transactions, this includes the structuring and negotiations of transactions and new initiatives, the develop-ment of new products, as well as support in connection with matters linked to the management of the existing EIF portfolio.

In addition, the legal service also plays an important role in ensuring that the Fund conducts its activities in accordance with its Statutes, applicable law and relevant contractual obligations, such as requirements set out in mandates pro-vided to EIF, and consistently with its mission and values.

Risk management and Legal

Risk management

Risk management is embedded in the corporate culture of EIF. In its pursuit of European Union policy objectives, EIF acts under market conditions with the statutory obligation to ensure an appropriate return for its shareholders. Its business requires the deployment of market instruments that entail certain risks. Hence, a risk management mindset per-meates all areas of EIF’s business functions and processes.

Thanks to its organisational risk awareness and prepared-ness, EIF has been able to rapidly respond as the finan-cial crisis deepened and spread over the course of 2008 and 2009. During this period, at the level of single trans-actions, monitoring efforts were stepped up and, at the portfolio level, more comprehensive stress tests were im-plemented and communicated to EIF’s governing bodies.

An overview of EIF’s risk management activities can be found in section 3 of the notes to the annual accounts for IFRS 7, which contains further details on EIF’s risk assess-ment for private equity, portfolio guarantees and treasury activities, covering credit, liquidity and market risks.

Below are the principal organisational responsibilities and activities pertaining to risk management. This well established setup has proven valuable in attending to an increasingly difficult external environment:

The senior management of EIF ensures that risk manage-ment is implemented according to best practice and “four eyes principle”. Notably, transaction risk-return assessment is proposed by the Transaction and Relationship Man-agement (TRM) and reviewed by Risk Management and Monitoring (RMM). The latter operates independently of the front office functions and reports directly to the Deputy Chief Executive, who in turn is appointed by the EIF’s Board of Directors.

The main tasks of RMM consist of reviewing and facilitating the implementation of new processes and methodologies to manage the risk-return profile of the Fund’s existing and new investment activities. As part of the new investment proposals process, RMM performs an independent analy-sis of each transaction and issues an opinion to the Chief Executive and the Deputy Chief Executive. In this context, it