European Fund for Strategic Investments
EC and EIF launch Venture Capital Fund-of-Funds programme
In January 2015, the European Commission proposed an Investment Plan called "European Fund for Strategic Investments - EFSI" to stimulate growth in Europe and to get more people back into work.
The Plan is built on three main strands:
- the creation of a new European Fund for Strategic Investments (EFSI), guaranteed with public money, to mobilise additional investment over the next three years (2015 - 2017);
- the establishment of a credible project pipeline coupled with an assistance programme to channel investments where they are most needed;
- a roadmap to make Europe more attractive for investment and remove regulatory bottlenecks.
According to European Commission estimates, taken as a whole, the proposed measures could add € 330 - € 410 billion to EU GDP over the next three years and create up to 1.3 million new jobs.
Agreement on the EFSI between the Council and the European Parliament Parliament was reached after a series of trilogues during a trilogue meeting in Brussels on 27 and 28 May 2015. The European Parliament voted on the EFSI on 24 June 2015, and the Council finally adopted the EFSI regulation on 25 June 2015.
The core elements of the EFSI are as follows:
The EFSI is intended to stimulate participation by private investors in a broad range of new investment projects. By taking on part of the risk through a first-loss liability, it is expected to achieve an overall multiplier effect of 1:15 in real investment. Such leverage will eventually allow more than €300bn of additional investment to be mobilised during a three-year investment period.
The fund is built on €16 billion in guarantees from the EU budget and €5 billion from the European Investment Bank. To facilitate the payment of potential guarantee calls, a guarantee fund will be established so as to gradually reach €8 billion (i.e. 50% of total EU guarantee obligations).
The EFSI is established within the EIB by an agreement between the EIB and the Commission. It operates for an initial investment period of four years.
The fund supports projects in a broad range of areas, including transport, energy and broadband infrastructure, education, health, research and risk finance for SMEs. It will target socially and economically viable projects without any sector-specific or regional pre-allocation, in particular to address market failures. The EFSI will complement and be additional to ongoing EU programmes and traditional EIB activities.
Before the end of the initial investment period, the Commission will submit an independent evaluation which will assess whether the EFSI has achieved the objectives of the regulation. Based on the conclusions of its report, the Commission will, as appropriate, present a proposal to either set a new investment period, restructure the fund, or terminate the EFSI.
EU funding comes from redeploying grants from the Connecting Europe facility (transport, energy and digital networks) and the Horizon 2020 programme (research and innovation), as well as unused margins in the EU's annual budget. As part of the deal, the Council and the Parliament agreed to increase the share of financing coming from unused margins, in comparison with what the Commission proposed, in order to reduce contributions from Horizon 2020 and the Connecting Europe facility (CEF).
Funding of the EFSI is composed as follows:
- Redeployment will amount to €5bn, of which €2.8bn from the CEF and €2.2bn from Horizon 2020;
- Funding from unused margins will amount to €3bn over the 2016-20 period. The source of this financing includes €543 million and €457 million specifically earmarked from the global margin for commitments for the 2014 and 2015 budgets respectively.
- Payments could be extended until 2023 to provision the EFSI guarantee fund.
Furthermore, €500 million of CEF-transport financial instruments will be redeployed for CEF-transport grants.
The EFSI regulation provides for a two-tier governance structure:
- A steering board will set the overall strategy, investment policy and risk profile of the fund. To ensure an impartial steering board and avoid political influence over the selection of projects, the board members will come from the Commission and the EIB only. Their numbers will reflect the institutions' size of contributions in the form of cash or guarantees. The steering board will take decisions by consensus. It will regularly consult stakeholders.
- An independent investment committee will select projects to receive EFSI support. Accountable to the steering board, it will consist of eight independent experts and a managing director. The managing director will be responsible for the day-to-day management of the EFSI and the preparation and chairing of meetings of the investment committee. The committee will take decisions by simple majority. Any project supported by the EFSI will require approval by the EIB.
Member states can contribute to the EFSI in guarantees or cash, while third parties can contribute in cash. However, contributions will not entail any influence over the fund's governance.
Third parties, including member states' national promotional banks, will be able to co-finance projects together with the EFSI, either on a project-by-project basis or through investment platforms.
The regulation sets up a "European investment advisory hub" to provide advisory support for the identification, preparation and development of projects across the EU. It will also establish a "European investment project portal" to improve investors' knowledge of existing and future projects.
(Source: Council of the European Union)