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 2018
Date: 2019-05-28
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, 28.5.2019  COM(2019) 244 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 2018  {SWD(2019) 188 final}  
 
 
TABLE OF CONTENTS 

Introduction .................................................................................................................................................... 2 
1. 
2.  Operational context ........................................................................................................................................ 2 

3. 

Financial accounts and significant budgetary transactions in 2018 ................................................................ 3 
Financial statements of the EFSI GF as at 31 December 2018 .............................................................. 3 

3.1. 

3.2. 
3.3. 

EFSI operations under the EU Guarantee .............................................................................................. 4 
Provisioning of the EFSI GF ................................................................................................................. 4 

3.4. 

Calls and use of the EU Guarantee ........................................................................................................ 4 
4.  Management of the EFSI GF in 2018 ............................................................................................................. 5 

4.1. 
Financial Management .......................................................................................................................... 5 
4.2.  Market developments in 2018 ............................................................................................................... 5 

4.3. 
4.4. 

Composition and key risk characteristics of the portfolio ..................................................................... 5 
Performance ........................................................................................................................................... 6 

5.  Assessment of the adequacy of the target amount and the level of the EFSI GF ........................................... 6 

1 

 
 
 
 
 
 
 
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").  The  EFSI  Regulation  was  amended  by  Regulation 
(EU) 2017/2396 of the European Parliament and Council of 13 December 2017 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 increased, inter alia, the size 
of the EU Guarantee and adjusted the target  amount.  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 and 
was  amended  and  restated  on  21  July  2016,  21  November  2017,  9  March  2018  and  20 
December 2018. 

Article 16(6) of the EFSI Regulation provides that the Commission shall, by 31 May of each 
year,  submit  to  the  European  Parliament,  to  the  Council  and  to  the  Court  of  Auditors  an 
annual  report3  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 
main  part  of  the  Infrastructure  and  Innovation  Window  ("IIW"),  and  by  the  EIF  under  the 
SME Window ("SMEW") and the SME / MidCap fund investment sub-window of IIW. 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 
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  and  recovered  amounts  resulting  from  EFSI  operations  under  the  EU 
Guarantee and, to the extent of the available balance, for the payment of calls under the EU 
Guarantee.  

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 forth report on the EFSI GF. For previous reports, see COM(2016)353 final, 
COM(2017)326 final and COM(2018)345 final. 
The size of the EU Guarantee has been increased from EUR 16 billion to EUR 26 billion by the EFSI 2.0 
Amendment. 
The size of EIB Group Guarantee has been increased from EUR 5 billion to EUR 7.5 billion by the EFSI 
2.0 Amendment. 

2 

 
 
                                                           
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  EU  Guarantee.  On  the  basis  of  this  reporting  and  of  coherent  and 
prudent  assumptions  on  future  activity,  the  Commission  ensures  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 2019. 

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  the 
guarantee calls. 

3.  FINANCIAL ACCOUNTS AND SIGNIFICANT BUDGETARY TRANSACTIONS IN 

2018 

Financial information concerning EFSI is presented below, broken down in four sections: (1) 
the financial situation of the EFSI GF as at 31 December 2018, (2) the EFSI operations under 
the EU Guarantee carried out by the EIB Group as at 31 December 2018, (3) the provisioning 
of the EFSI GF and (4) the calls and use of the EU Guarantee. 

3.1.  FINANCIAL STATEMENTS OF THE EFSI GF AS AT 31 DECEMBER 2018 

The total  assets of the EFSI GF6 stood at  EUR 5 452 million as at  31 December 2018. The 
investment  securities  portfolio,  classified  as  available-for-sale 
assets  comprised 
(EUR 5 000 million), an FX forward sale of USD with positive net present value, classified as 
financial assets at fair value through surplus and deficit (EUR 2 million), and cash and cash 
equivalents (EUR 450 million). 

the 

In terms of the 2018 statement of financial performance7, the EFSI GF ended the year with an 
economic result of EUR -13.9 million. A net loss of EUR -34.5 million from positive (EUR 
28.4  million)  and  negative  (EUR  -62.9  million)  fair  value  changes  of  derivatives,  used  for 
hedging the currency risk of the USD-denominated portion of the portfolio, was offset by net 
gains  (EUR  17.0  million)  from  positive  (EUR  103.7  million)  and  negative  (EUR  -86.7 
million)  foreign  exchange  revaluation  of  financial  assets  and  interest  revenue  (EUR  17.5 
million).  The  remaining  loss  mainly  consisted  of  net  losses  from  sales  of  available-for-sale 
securities8 (EUR -13.3 million) and custodian fees (EUR -0.6 million). 

6  

7  
8 

The audited financial statements of the EFSI Guarantee Fund are disclosed in the staff working document 
accompanying the EFSI GF report. 
See page 6 of the staff working document accompanying the EFSI GF report. 
The net figure is composed of gains of EUR 4.3 million and losses of EUR 17.6 million. 

3 

 
 
 
                                                           
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 15.8 billion, as at 31 December 2018, out of the net available 
legal  commitment9  of  EUR  25.9  billion  guaranteed  by  the  EU.  The  amount  of  EUR  15.8 
billion is recorded as a contingent liability in the notes to the 2018 financial statements of the 
EU. 

In  2018,  EFSI  operations  managed  by  the  EIB  under  the  Infrastructure  and  Innovation 
Window  generated  a  net  revenue  of  EUR  112.7  million  for  the  EU.  Of  this  amount,  a  net 
receivable of the Commission from the EIB as at 31 December 2018 of EUR 38.9 million10 
was recorded in the 2018 EU financial statements. The EFSI operations related to a call under 
the Infrastructure and Innovation Window are described in the section 3.4. 

For the EFSI operations under the SME Window, the EU incurred cost of EUR 30.3 million 
in  2018. Out of this,  EIF administrative fees of  EUR 21.9 million  recorded in  the 2018 EU 
financial statements are payable to the EIF on or after 30 June 2019. 

3.3. PROVISIONING OF THE EFSI GF 

A total budgetary appropriation of EUR 2 069 million was committed in 2018 relating to the 
provisioning of the EFSI GF. Of this amount, a budgetary appropriation of EUR 1 905 million 
was  committed 
in  compliance  with  Commission  Decision  C(2018)307.  Additional 
commitment appropriations for an amount of EUR 105 million were made available from the 
budget line "Reserves for Financial Interventions". Finally, an amount of EUR 59 million was 
committed as assigned revenue. 

A total amount of EUR 2 014 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 59 million was recovered as assigned revenue (EUR 53.4 million from EFSI 
revenues and EUR 5.6 million from Marguerite Fund revenues) and an amount of EUR 154.9 
million was transferred as additional payment appropriations at the end of the budgetary year. 

3.4. CALLS AND USE OF THE EU GUARANTEE 

In accordance with Article 8.1(a) of the EFSI Agreement, the EU Guarantee was called for an 
amount  of  EUR  97.1  million  related  to  a  defaulted  operation  under  the  Infrastructure  and 
Innovation  Window.  In  accordance  with  the  Article  11  of  the  EFSI  Agreement,  the  EIB 
recovered initially the amount of EUR 18.6 million, reducing the amount to be paid to EUR 
78.5 million. The call was paid from the EFSI Account (EUR 17.7 million) and from the EFSI 
GF  (EUR  60.8  million).  Subsequently,  the  amount  of  EUR  1.6  million  was  recovered.  In 
relation to this defaulted operation, an amount of EUR 1.0 million for recovery costs and EUR 
0.6 million for recoverable administrative costs were called by the EIB. 

In 2018, an amount of EUR 0.6 million was paid to the EIB for funding costs11 and EUR 10.7 
million for value adjustments12. 

9   According to Article 11 of the EFSI 2.0 Amendment, the EU Guarantee shall not, at any time, exceed EUR 
26  billion  and  not  exceed  EUR  16  billion  before  6  July  2018.  Calls  and  uses  of  the  EU  Guarantee,  and 
provisions for portfolio guarantee products under SME Window, are deducted from the maximum amount 
of the EU Guarantee.  

10   Net of outstanding recovery costs of EUR 0.5 million payable to the EIB in 2019 in relation to a defaulted 

operation. 

11   See  Article  8.1(d)  of  the  EFSI  Agreement.  This  amount  does  not  include  the  EUR  1.6  million  of  costs 

related to the call mentioned above. 
12   See Article 8.1(b) of the EFSI Agreement. 

4 

 
 
                                                           
4.  MANAGEMENT OF THE EFSI GF IN 2018 

4.1. FINANCIAL MANAGEMENT 

The  EFSI  GF’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 EFSI GF. 

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.  

4.2. MARKET DEVELOPMENTS IN 2018 

The  year  2018  was  challenging  for  investors,  being  characterised  by  overall  negative  or 
historically low yields coupled with significant market volatility and uncertainties. Some key 
factors that contributed to this volatile environment were the gradual tightening of monetary 
policy  in  the  euro-area  and  US  on  the  back  of  expectations  of  continued  growth  and  rising 
inflation,  the  trade  war,  the  developments  in  Italy  and  the  darkening  economic  outlook  that 
took  hold  towards  the  end  of  the  year.  In  terms  of  monetary  policy,  in  particular,  the  ECB 
reduced the monthly net asset purchases  under the so-called quantitative easing policy from 
EUR 30 billion to EUR 15 billion in September and then terminated the net purchases at the 
end  of  2018.  The  US  Federal  Reserve  delivered  four  hikes  of  25  basis  points  over  the  year 
raising the Fed Funds target rate range to 2.25-2.5 by year-end. 

In this context, after moving significantly higher in the beginning of 2018, the European fixed 
income  yields  generally  registered  annual  lows  at  the  end  of  the  year  due  to  softening 
economic  growth  and  outlook,  declining  oil  prices  and  lower  expectations  regarding  the 
medium-term path of the monetary policy rates. Credit spreads edged higher during the year 
and  the  move  accelerated  in  December  on  falling  equity  markets  and  the  end  of  net  asset 
purchases  by  the  European  Central  Bank  (ECB).  Short-term  euro-area  bond  yields  also 
declined,  but  less  markedly,  resulting  in  flattening  of  the  relevant  yield  curves  across  the 
board. Euro-area economic sentiment index – which covers the mood among both households 
and companies – dropped more than analysts predicted, to its lowest level in almost two years.  
The decline was broad-based across industry groups and countries. Peripheral spreads to the 
German Bund decreased in December across the board. The spreads for Italy tightened over 
30  basis  points  finishing  the  month  at  250  basis  points  supported  by  the  understanding 
reached with the European Commission on the Italian budget. 

4.3. COMPOSITION AND KEY RISK CHARACTERISTICS OF THE PORTFOLIO 

On 31 December 2018, the investment portfolio was made predominantly of securities issued 
by  Sovereigns  (27%  of  market  value  against  46%  for  the  benchmark)  as  well  as  by  Sub-
sovereigns,  supranationals  and  agencies  (SSA)  and  foreign  governments  (18%  of  market 
value against 12% for the benchmark) and covered bonds (25% of market value against 20% 
for  the  benchmark).  The  remainder  was  mainly  allocated  to  unsecured  bonds  issued  by 
corporates  and  financial  institutions.  About  9%  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.  At  the  end  of  2018,  the  exposure  of  the  portfolio  to  bonds 

5 

 
 
complying with environmental, social and governance criteria was more than 3 times higher 
when compared to its benchmark.  

The portfolio duration13 at the end of 2018 was 2.41 years. Average credit rating is A-. 

The bulk of the portfolio is invested in liquid securities and an adequate part (21% 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). 

4.4. PERFORMANCE 

The annual 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. 

In a very  challenging market environnement characterised by overall negative or historically 
low yields coupled with significant market volatility and uncertainties, the Fund delivered a 
annual  absolute  performance  of  -0.312 %  in  2018.  This  return  is  in  line  with  the  annual 
performance  of  the  EFSI  benchmark  (-0.305 %)  and  was  achieved  against  a  background  of 
negative rates in the euro-area (especially for what is perceived by the markets as "credit risk 
free" and liquid exposures in Europe) and several hikes of interest rates in the United States. 

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

OF THE EFSI GF 

As  of  31  December  2018,  total  cumulated  signatures  under  EFSI  amounted  to  EUR  53.6 
billion covering 28 Member States, of which EUR 39.1 billion was signed under the IIW (407 
operations) and EUR 14.5 billion was signed under the SMEW (470 operations). Overall, this 
represents  a  significant  increase  compared  to  2017,  at  the  end  of  which  total  signatures 
amounted to EUR 37.4 billion.  

As  of  31  December  2018,  the  overall  outstanding  disbursed  exposure  covered  by  the  EU 
Guarantee amounted to nearly EUR 15.8 billion up from EUR 10.1 billion in 2017.  

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 19.8 billion. 

Under the  IIW, the outstanding  disbursed  exposure covered by the EU Guarantee was  EUR 
14.8 billion, of which EUR 14.2 billion  for debt operations and EUR 0.6 billion for equity-
type operations. 

Should  there  be  any  losses  due  to  these  IIW  operations,  those  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 
operations  under  the  IIW  Debt  Portfolios  and  IIW  NPB  Equity  Portfolio.  Under  the  IIW 
Standard Equity Portfolio, the EU Guarantee is in the form of a full guarantee provided that 
the EIB invests at its own risk on a pari passu basis the same amount of resources. 

13   The duration figure refers 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. 

6 

 
 
                                                           
As  of  31  December  2018,  under  SMEW,  the  total  outstanding  exposure  covered  by  the  EU 
Guarantee was EUR 0.995 billion, of which EUR 0.880 billion for guarantee operations and 
EUR 0.115 billion for equity operations14. 

Should there be any losses due to these SMEW 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  has  been  set  at  35%  of  the  total  EU  Guarantee 
obligations15.  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  this  target  rate,  taking  into  consideration  recoveries,  revenues  and 
reflows from EIB operations. Therefore, the target rate of 35% is considered adequate. 

The EFSI GF is in the building-up phase until 2022 thus the need for replenishment will be 
assessed in a later stage. 

14  As  evidenced  in  the  financial  statements  of  the  EU  as  at  31  December  2018,  not  including  guarantee 
contracts  whose  availability  period  starts  in  2019,  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 2.3 billion. 

15   See Article 12(5) of the EFSI Regulation. 

7