Page 10 - ePaper
P. 10
In any given investment project or financial activity, possible losses are normally distributed
in a certain, pre-defined order among the investors: Losses are first absorbed by the "equity"
owners (the shareholders), then the "subordinated debt" owners and only if there are still
losses to absorb, by the "senior debt" owners. This means that the "thicker" the layer of
protection before senior debt owners are hit, the more likely investors will be willing to
invest.
The substantial guarantee offered by the EU budget will allow the EFSI to invest in the less
safe tranches of the projects (equity and subordinated debt). In this way, the EFSI will make
it much easier to attract private investors into a project or activity, as these private investors
would invest in the most protected, so-called senior, financial tranches
18. How did you get the multiplier effect of 1:15?
The multiplier effect of the EFSI means that one euro of public money in the Fund will enable
it to invest three euros in subordinated debt in a certain project, allowing private investors
to invest five euro in the safer, senior tranches of the same project. This means that one
euro leads to a final investment of 15 euro, that is, in total a multiplier effect of 1:15.
The multiplier effect of 1:15 is a prudent estimate, based on historical experience from EU
programmes and the EIB. As a reference, the capital increase of the EIB in 2013 had an
estimated multiplier effect of 1:18. Likewise, in the context of the current Loan Guarantee
Facility for SMEs under the COSME programme, € 1 billion of funding results in at least € 20
billion being available on average on the ground for SMEs, the equivalent of a multiplier
effect of 1:20.
The multiplier effect in the individual case will depend on the mix of activities and the
specific features of each project. Some operations will have a higher or lower multiplier
effect.
19. Is tax-payers' money at risk? What if the guarantee of the EU budget is
called upon?
The EU budget guarantee allows the EIB to offer products with higher added value, but also
inherently more risky. The risks are mitigated by:
- professional management, benefitting from the experience and expertise of the EIB;
- an independent and professional Investment Committee that oversees the activities
of the EFSI;
- an adequate remuneration of the risk that will be kept in the fund to off-set losses;
- a well-diversified portfolio;
- a well-endowed guarantee fund of 50% of the total outstanding EU guarantee which
makes it based on historical experience unlikely that losses would exceed the
provisions in the guarantee fund;
- professional risk monitoring and the possibility to readjust the risk guidelines in case
of adverse developments in the early life of the portfolio;
9
in a certain, pre-defined order among the investors: Losses are first absorbed by the "equity"
owners (the shareholders), then the "subordinated debt" owners and only if there are still
losses to absorb, by the "senior debt" owners. This means that the "thicker" the layer of
protection before senior debt owners are hit, the more likely investors will be willing to
invest.
The substantial guarantee offered by the EU budget will allow the EFSI to invest in the less
safe tranches of the projects (equity and subordinated debt). In this way, the EFSI will make
it much easier to attract private investors into a project or activity, as these private investors
would invest in the most protected, so-called senior, financial tranches
18. How did you get the multiplier effect of 1:15?
The multiplier effect of the EFSI means that one euro of public money in the Fund will enable
it to invest three euros in subordinated debt in a certain project, allowing private investors
to invest five euro in the safer, senior tranches of the same project. This means that one
euro leads to a final investment of 15 euro, that is, in total a multiplier effect of 1:15.
The multiplier effect of 1:15 is a prudent estimate, based on historical experience from EU
programmes and the EIB. As a reference, the capital increase of the EIB in 2013 had an
estimated multiplier effect of 1:18. Likewise, in the context of the current Loan Guarantee
Facility for SMEs under the COSME programme, € 1 billion of funding results in at least € 20
billion being available on average on the ground for SMEs, the equivalent of a multiplier
effect of 1:20.
The multiplier effect in the individual case will depend on the mix of activities and the
specific features of each project. Some operations will have a higher or lower multiplier
effect.
19. Is tax-payers' money at risk? What if the guarantee of the EU budget is
called upon?
The EU budget guarantee allows the EIB to offer products with higher added value, but also
inherently more risky. The risks are mitigated by:
- professional management, benefitting from the experience and expertise of the EIB;
- an independent and professional Investment Committee that oversees the activities
of the EFSI;
- an adequate remuneration of the risk that will be kept in the fund to off-set losses;
- a well-diversified portfolio;
- a well-endowed guarantee fund of 50% of the total outstanding EU guarantee which
makes it based on historical experience unlikely that losses would exceed the
provisions in the guarantee fund;
- professional risk monitoring and the possibility to readjust the risk guidelines in case
of adverse developments in the early life of the portfolio;
9
