REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE COURT OF AUDITORS ON THE MANAGEMENT OF THE GUARANTEE FUND OF THE EUROPEAN FUND FOR STRATEGIC INVESTMENTS IN 2017
Date: 2018-05-28
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: European Investment Bank, European Investment Fund, financial control, fund (EU), investment, operation of the Institutions

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 28.5.2018  COM(2018) 345 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE COURT OF AUDITORS  ON THE MANAGEMENT OF THE GUARANTEE FUND OF THE EUROPEAN FUND FOR STRATEGIC INVESTMENTS IN 2017 {SWD(2018) 268 final}  
 
 
TABLE OF CONTENTS 

1. 

Introduction .................................................................................................................................................... 2 

2.  Operational context ........................................................................................................................................ 2 

3. 

Financial accounts .......................................................................................................................................... 3 

3.1. 

3.2. 

3.3. 

Financial statements of the EFSI GF as at 31 December 2017 .............................................................. 3 

EFSI operations under the EU guarantee ............................................................................................... 4 

Financial flows and significant budgetary transactions in 2017 ............................................................ 4 

4.  Management of the EFSI GF in 2017 ............................................................................................................. 4 

4.1. 

Financial Management .......................................................................................................................... 4 

4.2.  Market developments in 2017 ............................................................................................................... 5 

4.3.  Major external cash flows ...................................................................................................................... 6 

4.4. 

4.5. 

Composition and key risk characteristics of the portfolio ..................................................................... 6 

Performance ........................................................................................................................................... 6 

5.  Assessment of the adequacy of the target amount and the level of the EFSI GF ........................................... 7 

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1.  INTRODUCTION 

The legal basis for this report is Regulation (EU) 2015/1017 of the European Parliament and 
of the Council of 25 June 2015 on the European Fund for Strategic Investments, the European 
Investment  Advisory  Hub  and  the  European  Investment  Project  Portal  and  amending 
Regulations (EU) No 1291/2013 and (EU) No 1316/2013 — the European Fund for Strategic 
Investments1 (the "EFSI Regulation"). At the end of 2017, the EFSI Regulation was amended 
by Regulation (EU) 2017/2396 of the European Parliament and Council of 13 December 2017 
amending Regulations  (EU) No 1316/2013  and (EU) 2015/1017 as  regards the extension  of 
the  duration  of  the  European  Fund  for  Strategic  Investments  as  well  as  the  introduction  of 
technical enhancements for that Fund and the European Investment Advisory Hub2 (the "EFSI 
2.0  Amendment").  The  EFSI  2.0  Amendment  has,  inter  alia,  increased  the  size  of  the  EU 
Guarantee and adjusted the target rate. The agreement on the management of the EFSI and on 
the  granting  of  the  EU  guarantee  (the  "EFSI  Agreement")  was  signed  by  the  European 
Commission  and  the  European  Investment  Bank  (the  "EIB")  on  22  July  2015.  The  first 
amendment and restatement of the EFSI Agreement was signed on 21 July 2016. The second 
amendment and restatement of the EFSI Agreement was signed on 21 November 2017. The 
third amendment and restatement of the EFSI Agreement was signed on 9 March 2018. 

Article 16(6) of the EFSI Regulation provides that the Commission shall, by 31 May of each 
year3,  submit  to  the  European  Parliament,  to  the  Council  and  to  the  Court  of  Auditors  an 
annual  report  on  the  management  of  the  EFSI  Guarantee  Fund  (the  "EFSI  GF")  in  the 
previous calendar year, including an assessment of the adequacy of the target amount and the 
level of the EFSI GF and of the need for its replenishment. This annual report shall contain 
the presentation of the financial position of the EFSI GF at the end of the previous calendar 
year,  the  financial  flows  during  the  previous  calendar  year  as  well  as  the  significant 
transactions  and  any  relevant  information  on  the  financial  accounts.  The  report  shall  also 
include information about the financial management, the performance and the risk of the EFSI 
GF at the end of the previous calendar year. 

2.  OPERATIONAL CONTEXT 

The EU Guarantee4 covers financing and investment operations signed by the EIB under the 
Infrastructure  and  Innovation  Window  ("IIW")  and  by  the  EIF  under  the  SME  Window 
("SMEW"). Part of the overall EFSI operations is covered by the EU Guarantee while a part is 
carried out at the own risk of the EIB Group5. 

According  to  Article  12  of  the  EFSI  Regulation,  the  EFSI  GF  shall  constitute  a  liquidity 
cushion  from  which  the  EIB  shall  be  paid  in  the  event  of  a  call  on  the  EU  guarantee.  In 
accordance with the EFSI Agreement between the EU and the EIB, calls are paid by the EFSI 

1 
2 
3 
4 

5 

OJ L 169, 1.7.2015, p. 1. 
OJ L 345, 27.12.2017, p. 34. 
This report is the third report on the EFSI GF. For last year report, see COM (2017) 326 final of 16.6.2017. 
The size of the EU Guarantee has been increased from EUR 16,000 million to EUR 26,000 million by the 
EFSI 2.0 Amendment. 
The size of EIB Group guarantee has been increased from EUR 5,000 million to EUR 7,500 million by the 
EFSI 2.0 Amendment. 

2 

 
 
                                                           
GF if their amount is in excess of the funds at the disposal of the EIB on the EFSI Account. 
The EFSI Account, managed by the EIB, has been established for the purposes of collecting 
the  EU  revenues  resulting  from  EFSI  operations  under  the  EU  guarantee  and  recovered 
amounts  and,  to  the  extent  of  the  available  balance,  for  the  payment  of  calls  under  the  EU 
guarantee.  

The EFSI GF is provisioned progressively taking into account the increase in exposure borne 
by the EU Guarantee. 

According  to  Article  12(4),  the  resources  of  the  EFSI  GF  are  directly  managed  by  the 
Commission  and  invested  in  accordance  with  the  principle  of  sound  financial  management 
following appropriate prudential rules. 

The EIB and the EIF are responsible for assessing and monitoring the risk of the individual 
operations backed by the EFSI Guarantee. On the basis of this reporting and of coherent and 
prudent assumptions on future activity, the Commission maintains the adequacy of the target 
amount  and  the  level  of  the  EFSI  GF  under  review.  In  line  with  Article  16(3)  of  the  EFSI 
Regulation, the EIB and the EIF reported back to the Commission and the European Court of 
Auditors in March 2018. 

Pursuant to Article 16(2) of the EFSI Regulation, the annual report of the EIB to the European 
Parliament  and  Council  shall  contain  specific  information  on  the  aggregate  risk  associated 
with  the  financing  and  investment  operations  carried  out  under  the  EFSI  as  well  as  on 
guarantee calls. 

3.  FINANCIAL ACCOUNTS 

Financial information concerning EFSI is presented below, broken down in three sections: (1) 
the financial situation of the EFSI GF as at 31 December 2017, (2) the EFSI operations under 
the EU guarantee carried out by the EIB Group as at 31 December 2017 and (3) the financial 
flows and significant budgetary transactions in 2017. 

3.1.  FINANCIAL STATEMENTS OF THE EFSI GF6 AS AT 31 DECEMBER 2017 

The net assets of the Guarantee Fund stood at EUR 3,504 million as at 31 December 2017. 
The assets were composed of the investment portfolio, classified as available-for-sale (EUR 
3,414  million),  an  FX  forward  sale  of  USD  with  positive  net  present  value,  classified  as 
financial  assets  at  fair  value  through  surplus  and  deficit  (EUR  6  million),  short  term  bank 
deposits (EUR 40 million) and cash and cash equivalents (EUR 44 million). 

In terms of the 2017 statement of financial performance, the EFSI GF ended the year with an 
economic result of EUR 2.4 million. EUR 10.6 million was generated from interest income, 
realised gains from sales of fixed income securities, and bond lending income. This was offset 
by operating and financial expenses of EUR 8.2 million, including the net foreign exchange 
result of the FX operations used to hedge the currency risk of the USD-denominated portion 
of the portfolio and its FX revaluation. 

6  

The  non-audited  financial  statements  of  the  EFSI  Guarantee  Fund  are  disclosed  in  the  staff  working 
document accompanying the EFSI GF report. 

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3.2.  EFSI OPERATIONS UNDER THE EU GUARANTEE 

The guarantee exposure of the EU in relation to disbursed outstanding EFSI operations by the 
EIB  Group  amounted  to  EUR  10,128  million,  as  at  31  December  2017,  out  of  the  legal 
commitment7  of  EUR  16,000  million  guaranteed  by  the  EU.  The  amount  of  EUR  10,128 
million is recorded as a contingent liability in the notes to the 2017 financial statements of the 
EU. 

In  2017,  EFSI  operations  managed  by  the  EIB  under  the  Infrastructure  and  Innovation 
Window generated revenue of EUR 61.0 million for the EU. Of this amount, a receivable of 
the Commission from the EIB as at 31 December 2017 of EUR 31.9 million was recorded in 
the 2017 EU financial statements. 

For  the  EFSI  operations  managed  by  the  EIF  under  the  SME  Window,  the  EU  incurred  in 
2017 an estimated amount of EUR 12.7 million in the form of EIF administrative fees. The 
amount is payable to the EIF on 30 June 2018. 

3.3. FINANCIAL FLOWS AND SIGNIFICANT BUDGETARY TRANSACTIONS IN 2017  

A  budgetary  appropriation  of  EUR  2,641  million  was  committed  in  2017  relating  to  the 
provisioning of the EFSI GF in compliance with Commission Decision C(2017)7068 for the 
financing of the Fund. 

A total amount of EUR 2,490 million was effectively paid into the EFSI GF during the year. 
Of this, the bulk came from payment appropriations of the general budget of the EU, while an 
amount of EUR 39.2 million was recovered from the EFSI Account (as assigned revenue) and 
an  amount  of  EUR  0.4  million  was  transferred  as  additional  appropriation  at the  end  of  the 
budgetary year. 

4.  MANAGEMENT OF THE EFSI GF IN 2017 

4.1. FINANCIAL MANAGEMENT 

The  Fund’s  investment  portfolio  is  invested  in  accordance  with  the  management  principles 
laid  down  in  Commission  Decision  C(2016)165  of  21  January  2016  approving  the  asset 
management guidelines of the guarantee fund of the European Fund for Strategic Investments.  

These  guidelines  foresee  that  the  assets  in  the  investment  portfolio  shall  provide  sufficient 
liquidity in relation to the potential guarantee calls, while still aiming at optimising the return 
and risk level that is compatible with maintaining a high degree of security and stability.  

Investment and risk management strategies were adopted reflecting the investment objectives 
and outlook of market conditions. The investment approach aimed at enhanced diversification 
across various fixed income asset classes.  

7   According to the article 11 of the EFSI 2.0 Amendment, the EU guarantee shall not, at any time, exceed 

EUR 26,000 million and not exceed EUR 16,000 million before 6 July 2018. 

8   Commission Decision C(2017)706 of 12 February 2017 on the adoption of DG ECFIN's annual work 

programme 2017, including procurement and grants, in the field of economic and financial affairs, serving 
as a financing decision. 

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4.2. MARKET DEVELOPMENTS IN 2017 

The  main  market  themes  during  2017  included  the  improving  global  growth  outlook,  some 
bouts of political risk and changing assessments regarding the expected timing and speed of 
the "normalisation" of monetary policy in advanced economies. 

Prospects  for  higher  and  more  synchronised  growth  across  the  globe  were  increasingly 
validated by data releases, in the euro-area in particular, surprising on the upside. 

At  the  same  time,  global  inflation  pressures  remained  overall  relatively  subdued,  allowing 
major  central  banks  to  maintain  an  overall  accommodative  stance.  In  the  US,  however,  the 
improving  growth  outlook  allowed  the  Federal  Reserve  Bank  (Fed)  to  pursue  its  plan  of 
gradually  withdrawing  the  accommodation.  In  the  euro  area,  the  European  Central  Bank 
(ECB) has also been signalling a path of gradual normalisation.  

The  markets  kept  a  close  eye  on  monetary  policy  announcements  and  related  data  releases 
trying to second-guess the time and pace of normalisation. 

The euro exchange rate appreciated strongly, reflecting the better domestic growth prospects, 
expectations of an eventual normalisation of the ECB’s monetary policy stance and a shift in 
investor appetite in favour of euro-denominated assets.  

The  European  fixed  income  market  was  characterised  by  market  volatility  with  Sovereign 
bond  yields  fluctuating  sharply,  especially  around  the  time  of  the  French  presidential 
elections. After that, political risk perceptions subsided overall and Sovereign bond spreads of 
European bonds (relative to German bonds) generally declined from their peaks. Longer-term 
inflation expectations embedded in bond yields were rangebound over the period. As a result, 
the  yield  of  the  benchmark  10-year  German  bund  fluctuated  in  a  range  between  0.16% 
reached before the French presidential elections and 0.60% to end the year at 0.43 %. 

Longer  United  States  bond  yields  initially  increased  until  March  but  then  took  a  declining 
trend  until  September  2017.  The  downward  movement  reflected  mixed  data  releases  and 
reservations  in  the  markets  about  the  United  States  administration’s  ability  to  push  through 
growth-friendly  reforms.  Market-based  inflation  expectations  in  the  United  States  remained 
contained, partly as a response to low actual inflation data. The market sentiment reversed in 
September  and  United  States  bond  yields  rose,  partly  on  account  of  better  than  expected 
macroeconomic  news  and  progress  of  passing  tax  reforms  supporting  expectaions  of  higher 
government borrowing and a potential pick-up in inflation. Beyond the intra-year fluctuation, 
10-year  United  States  Treasury  yields  finished  the  year  at  the  same  level  they  started  it 
(around  2.40%).  However,  shorter  term  yields  moved  upwards  during  the  year  as  the  Fed 
lifted  interest  rates  by  25  basis  points9  (bp)  three  times  during  the  year  in  March,  June  and 
December pushing up the targeted range for the Fed Funds rate to 1.25%-1.5%. 

9  

 One basis point is equal to 0.01%. 

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4.3. MAJOR EXTERNAL10 CASH FLOWS  

An amount of EUR 2,490 million in payment appropriations was made available to the Fund 
for 2017. This amount was paid in to the EFSI GF gradually from April to December 2017.  

There were no guarantee calls from the Fund in 2017. A total amount of EUR 0.4 million was 
paid to EIB for funding costs11. 

It is presently foreseen in the EU budget that around EUR 1,800 million will be paid into the 
EFSI GF during the course of 2018 bringing its total assets to an expected level of EUR 5,308 
million. 

4.4. COMPOSITION AND KEY RISK CHARACTERISTICS OF THE PORTFOLIO 

At the end of December 2017, the investment portfolio was made predominantly of securities 
issued  by  Sovereigns  (42.5%  of  market  value) as  well as  by  Sub-sovereigns,  supranationals 
and agencies (SSA) (21.5% of market value) and covered bonds (25.5% of market value). The 
remainder  was  mainly  allocated  to  unsecured  bonds  issued  by  corporates  and  financial 
institutions.  About  18%  of  the  portfolio  was  invested  in  liquid  and  highly-rated  (AA/AAA) 
USD  denominated  investments.  The  currency  risk  exposure  of  these  investments  has  been 
hedged. 

The portfolio duration12 at the end of 2017 was 3.47 years. Average credit rating is A-. 

The bulk of the portfolio is invested in liquid securities and an adequate part (16% of the total 
portfolio value) matures in less than 12 months. 

The profile of the portfolio, in terms of duration, credit risk and liquidity, has been calibrated 
in  line  with  the  forecasted  cash-flows  arising  from  the  EFSI  operations  under  the  EU 
guarantee (e.g. projected calls, revenues). 

4.5. PERFORMANCE 

The year-to-date (YTD) performance is calculated on a time-weighted basis in order not to be 
affected by the size of the portfolio, which grew considerably during the year. 

The  Fund  delivered  a  YTD  absolute  performance  of  zero  percent  in  2017.  This  zero  return 
was achieved against a background of negative rates (especially for what is perceived by the 
markets as "credit risk free" and liquid exposures in Europe13) and rising interest rates in the 
United States14. 

10  

'External' is defined by reference to the Fund. External cash flows include flows from/to the EU budget or 
from/to the EIB for guarantee revenues or guarantee calls but exclude cash flows 'endogenous' to the asset 
management activity (e.g. payments/receipts to/from counterparties for acquiring/selling securities). 

11   See Art 8.1(d) of second amendment and restatement of the EFSI Agreement. 
12   Duration figures refer to 'modified duration' which measures the price sensitivity of a bond to interest rate 
movements. This figure is based on the concept that a security price and interest rates are inversely related. 

13   For example, the average yield of German 5 year bonds was – 34 basis points during 2017. 
14   For example 2-year US treasury yields increased by 69 basis points during the year. While increasing yields 

offer better reinvestment opportunities over time, they lead to an intial negative revaluation effect.  

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5.  ASSESSMENT OF THE ADEQUACY OF THE TARGET AMOUNT AND THE LEVEL OF THE 

EFSI GF 

At  the  end  of  2017,  total  cumulated  signatures  under  EFSI  amounted  to  EUR  37.4  billion 
covering  28  Member  States,  of  which  EUR  27.4  billion  was  signed15  by  the  EIB  (278 
operations)  and  EUR  10.0  billion  was  signed  by  the  EIF  (328  operations).  Overall,  this 
represents  a  significant  increase  compared  to  2016,  at  the  end  of  which  total  signatures 
amounted to EUR 21.3 billion.  

At the end of 2017, the overall outstanding disbursed exposure covered by the EU Guarantee 
amounted to nearly EUR 10.1 billion up from EUR 4.4 billion in 2016.  

The exposure of the EU budget to possible future payments under the EU Guarantee in terms 
of signed operations (disbursed and undisbursed) amounted to EUR 13.5 billion. 

Under  the  IIW  the  outstanding  disbursed  exposure  covered  by  the  EU  Guarantee  was  EUR 
9.57 billion, of which EUR 9.36 billion for debt operations and EUR 0.21 billion for equity-
type operations16. 

Should there be any losses due to these operations, these will be covered by the EU Guarantee 
in accordance with the terms set out in the EFSI Agreement. In particular, the EU Guarantee 
under  the  IIW  is  granted  in  the  form  of  a  Portfolio  First  Loss  Piece  coverage  for  EIB  debt 
operations and in the form of a full guarantee for equity/equity-type operations where the EIB 
invests at its own risk on a pari passu basis the same amount of resources.  

As of end 2017 under SMEW, the total outstanding exposure covered by the EU Guarantee 
was EUR 0.539 billion, of which EUR 0.491 billion for guarantee operations and EUR 0,048 
billion for equity operations17. 

Should there be any losses due to these operations, those would be covered primarily by the 
contributions of the InnovFin SME Guarantee Facility, the COSME Loan Guarantee Facility, 
Cultural  and  Creative  Sectors  Guarantee  Facility  and  the  EaSI  Guarantee  Financial 
Instrument. In the case of the SMEW Equity Product, any losses would be covered by the EU 
guarantee  under  the  EFSI  and  the  InnovFin  Equity  First  Loss  Piece  (in  the  case  of  Sub-
window 2). 

The target amount of the EFSI GF was originally set by the EFSI Regulation at 50% of the 
total  EU  guarantee  obligations.  As  of  the  entry  into  force  of  the  EFSI  2.0  Amendment  this 

15   The difference between total signatures and signed exposure depends on several factors, such as the latter 
excluding EIB share in equity-type operations as well as differences due to repayments and applied foreign 
exchange rates.  

16   As at end 2017, the total signed (disbursed and undisbursed) exposure of the IIW portfolio benefitting from 
the  EU  Guarantee  was  EUR  25.2  billion  of  which  EUR  23.57  billion  for  debt  operations  and  EUR  1.63 
billion  for  equity-type  operations.  However,  due  to  the  first  loss  piece  coverage  of  the  EU  Guarantee, 
potential losses for the EU budget under the IIW were capped at EUR 12.13 billion. 

17   As evidenced in the financial statements of the EU for end-2017, not including guarantee contracts whose 
availability  period  starts  in  2018,  amounts  committed  and  undisbursed  for  guarantee  operations  under 
COSME,  and  those  committed  and  undisbursed  for  equity  operations.  Including  all  the  latter  categories 
would imply a total outstanding (disbursed and undisbursed) exposure to be potentially covered by the EU 
Guarantee of EUR 1.34 billion. 

7 

 
 
 
 
 
 
 
 
                                                           
target is set at 35% of the total EU guarantee obligations18. 

The  risk  assessment  of  the  different  products  supported  by  the  EU  Guarantee  shows  that 
overall  the  Union  budget  would  be  adequately  shielded  from  potential  calls  under  the  EU 
Guarantee with the target rate for provisioning the EFSI GF of 35%, taking into consideration 
recoveries, revenues and reflows from EIB operations.  

18   See Article 12(5) of the EFSI Regulation, as amended by the EFSI 2.0 Amendment. 

8