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Governance 2011
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Risk management and legal
process, RMM performs an independent analysis of each
transaction and issues an opinion to the Chief Executive and
the Deputy Chief Executive. In this context, it reviews credit
ratings, transaction structures, direct and indirect exposures
to the intermediaries originating the operation (portfolio guar-
antees) and expected performance gradings (private equity)
proposed by TRM for these investments. RMM carries out
the monitoring of guarantee activities in close collaboration
with TRM. RMM performs portfolio reviews for EIF’s private
equity investments and guarantee instruments, which are pe-
riodically submitted to EIF’s governing bodies.
The Investment and Risk Committee (IRC) chaired by the
Deputy Chief Executive is responsible for reviewing new
transactions and all risk and investment-related aspects of
the existing EIF portfolio, inter alia: reviewing the relevant
market risk events, reviewing the portfolio and transaction
rating/grading movements, advising on impairment of trans-
actions and supporting the decision of the Chief Executive
and the Deputy Chief Executive to present transactions to
the Board of Directors for their approval.
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 collaboration not
only between RMM and TRM/RBD, but also with Man-
date Management and Product Development and Incu-
bation (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 re-
mit, within its area of responsibility, is to pursue the strategic
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 institutional,
strategic and policy-related matters.
As concerns transactions, this includes the structuring and
negotiation 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 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
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 obliga-
tion 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.
As a direct result of its organisational risk awareness and
preparedness, EIF has been able to remain engaged as the
financial crisis has deepened and spread over the course
of recent years. During this challenging period, to be able
to maintain vigilance and responsiveness, and at the same
time allow continued business origination, monitoring efforts
were stepped up both at the level of critical transactions
and the overall portfolio. Proactive management of exist-
ing transactions was reinforced and more comprehensive
stress tests were implemented. The Board of Directors and
the Audit Board were kept fully abreast of developments
as they occurred and presented with scenarios most likely
to impact the EIF accounts. The EIF Corporate Operational
Plan (COP) includes as a medium-term objective the main-
tenance of EIF’s AAA rating and to this effect the COP
integrates scenarios for EIF capitalisation over the planning
horizon. An overview of EIF’s risk management activities
can be found in section 3 of the notes to the annual ac-
counts for IFRS 7, which contains further details on EIF’s
risk assessment 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-estab-
lished setup has proved valuable in an increasingly difficult
external environment:
The senior management of EIF ensures that risk manage-
ment is implemented according to best practice and the
“four eyes principle”. Notably, transaction risk-return assess-
ment is proposed by 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 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