Page 97 - Annual Report 2010

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Financial Statements

3.6 Fair value of financial assets and financial liabilities

Fair value is the amount for which an asset could be ex-changed, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction on the meas-urement date. When available, the EIF measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transac-tions on an arm’s length basis.

The determination of fair value for financial assets and liabilities for which there is no observable market price requires the use of valuation techniques as described in note 2.3.2.

For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgment depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.

PE is an appraised asset class, valued not by the con-sensus of many market players in an active and efficient market but by a few experts, normally the fund managers

Details of the movements of financial assets in 2010 are given in notes 4.2 and 4.3.

There was no transfer of financial assets between Level 1 and Level 3 in 2010. Out of Level 3, disbursements amounted to EUR 37.6m, capital repayments amounted to EUR 12.9m and terminated deals amounted to EUR 1.7m.

EUR At 31.12.2010 Level 1 Level 3 Total

Financial assets

Financial investments - AFS 864 451 939 190 135 993 1 054 587 932 Financial assets designated at fair value through P&L 0 3 375 484 3 375 484

864 451 939 193 511 477 1 057 963 416

EUR At 31.12.2009 Level 1 Level 3 Total

Financial assets

Financial investments - AFS 833 146 329 161 435 910 994 582 239 Financial assets designated at fair value through P&L 0 2 759 064 2 759 064

833 146 329 164 194 974 997 341 303

who value each investment based on their views of the investment’s earnings potential and/or comparisons with other investments and in accordance with customary in-dustry valuation guidelines.

For loans and receivables as well as other liabilities, the carrying values approximate fair values.

The fair value hierarchy reflects the significance of the in-puts used in making the measurements. These levels differ from the category classification mentioned under 2.3.2a:

„„ Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

„„ Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices);

„„ Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The table below analyses financial instruments measured at fair value at the end of the reporting period by the level in the fair value hierarchy into which the fair value measurement is categorised: