COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on identity of the asset manager for the common provisioning fund in accordance with Article 212 of Financial Regulation 2018/1046
Date: 2020-03-25
Institutions: Directorate-General for Budget, European Commission
Subjects: European Investment Bank, budgetary reserve (EU), financial management, fund (EU), general budget (EU), implementation of the budget, investment company, investment promotion, powers of the institutions (EU), public finance

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 25.3.2020  COM(2020) 130 final  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on identity of the asset manager for the common provisioning fund in accordance with Article 212 of Financial Regulation 2018/1046  
 
 
COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT AND THE COUNCIL 
on identity of the asset manager for the common provisioning fund in accordance 
with Article 212 of Financial Regulation 2018/1046 

Summary: 

Following  the  results  of  an  independent  evaluation,  the  Communication  informs 
Parliament  and  Council  that  the  Commission  will  manage  itself  the  assets  of  the 
Common  Provisioning  Fund  (CPF),  rather  than  submit  a  legislative  proposal  which 
would allow or instruct the Commission to delegate this role to the European Investment 
Bank (EIB). The CPF will receive funds from the EU budget over the course of the next 
Multi-Annual  Financial  Framework  (2021-2027).  These  assets  will  constitute  the 
provisions  that  secure  the  operation  of  financial  instruments,  financial  assistance  and 
the  EU1  and  developing  and 
budgetary  guarantees 
investment 
neighbourhood countries2, delivered through public finance institutions such as EIB and 
other implementing partners. These operations will support investment that contributes to 
EU policy goals such as building a sustainable economy.  

to  support 

in 

By directly managing the assets of the CPF, the Commission will be able to ensure that 
the  CPF  is  aligned  with  the  budgetary  demands  flowing  from  the  operations,  and  to 
report regularly to Parliament and Council on these matters.  The assets of the CPF will 
underpin  the  system  of  budgetary  guarantees  and  guaranteed  loans  that  the  EU  will 
provide under the next multiannual financial framework (MFF). It is precisely because of 
its  “systemic”  importance  for  the  EU  budget,  and  its  own  institutional  responsibilities 
that the Commission has decided to manage itself the assets of the CPF. The independent 
evaluation  finds  that  both  the  Commission  and  EIB  possess  the  appropriate  expertise, 
systems and governance arrangements to manage the CPF, and that the Commission has 
in  the  past  delivered  better  performance  at  lower  cost  to  the  EU  budget.  The 
Communication  will  also  inform  the  Parliament  and  the  Council  of  the  steps  that  the 
Commission  will  take  to  ensure  that  the  CPF  is ready  at  end  2020  to  start  investing  as 
from January 2021 when budget appropriations become available. 

1   Within  the  EU,  this  investment  support  is  provided  by  the  European  Fund  for  Strategic  Investment 
(EFSI) launched in 2014 and expanded in 2016. EFSI together with 13 other EU financial instruments 
currently available will be integrated into a larger and more comprehensive InvestEU programme for 
the period 2021-27.  

2   The  budgetary  guarantees  for  investment  support  in  developing  and  neighbourhood  countries  are 
organised  under  the  European  Fund  for  Sustainable  Development  (EFSD:  2017)  and  its  successor 
(EFSD+) for the next multiannual financial framework. 

1 

 
 
 
 
 
 
 
 
 
 
 
 
                                                 
1. 

INTRODUCTION: 

The  EU  budget  is  undergoing  a  profound  change.  It  must  respond  to  pressing  new 
environmental, strategic and socioeconomic challenges at a time when budget constraints 
bite  more  deeply.  This  calls  for  new  ways  of  making  the  resources  available  under  the 
EU budget work harder for the EU citizen.  

Budgetary guarantees have proven to be a viable means to multiply the policy impact of 
limited  public  finance.  Through  extensive  use  of  budgetary  guarantees,  each  euro 
committed by the EU budget in the Investment Plan for Europe was able to support EUR 
15.73  of  private  investment  in  projects  generating  environmental,  social  or  economic 
benefits.  

On  the  back  of  that  success,  the  Commission  has  proposed  to  expand  the  use  of 
budgetary  guarantees  as  one  of  the  principal  forms  of  public  finance  support  to 
investment provided by the EU budget. Under the InvestEU4 programme, it is proposed 
that the EU budget will provide several billion in funds as the backstop for a guarantee to 
the  European  Investment  Bank  (EIB)  and  other  implementing  partners.  EIB  and  the 
implementing  partners  are  expected  to  support  public  and  private  investment  with  a 
multiplier effect comparable to EFSI. The use of guarantees will also be extended in the 
external sphere where it is proposed that an External Action Guarantee to be established 
by  the  Regulation  on  the  Neighbourhood,  Development  and  International  Cooperation 
Instrument (NDICI)5 provides a mix of guarantees and guaranteed loans for investments 
and macro-financial assistance in pre-accession, neighbouring and other countries.  

These developments represent a qualitative change in the functioning of the EU budget. 
They require that the budget, and the provisioning of the guarantees that it supports, be 
resilient enough to absorb the losses that will potentially be incurred through defaulting 
financing  of  investments.  This  requires  a  rigorous  approach  to  the  design  and 
implementation  of  guarantee  programmes  so  that  losses  will  not  exceed  available 
provisioning.  

A second and crucial safeguard is the sound management of the provisions set aside in 
the EU budget to honour any calls on the budgetary guarantee by implementing partners. 
These  provisions  for  the  budgetary  guarantees,  financial  assistance  and  financial 
instruments will be held in the Common Provisioning Fund (CPF). The CPF represents 
the  liquidity  cushion  that  protects  the  rest  of  the  EU  budget  from  the  losses  that 
materialise in the programmes, supported by budgetary guarantees. It will be sufficiently 
large  to  be  able  to  withstand  all  calls  on  the  guarantees  under  realistically  imaginable 
scenarios. 

The CPF is therefore not “just another” portfolio of assets owned by the EU budget. The 
assets of the CPF will underpin the system of budgetary guarantees and guaranteed loans 

3      As of end-2019 
4      Partial  common  understanding  of  co-legislators  on  the  Proposal  for  a  Regulation  of  the  European 
Parliament and of the Council establishing the InvestEU Programme (COM(2018) 439 final of 6 June 
2018). 

5   Commission proposal for a Regulation of the European Parliament and of the Council establishing the 
Neighbourhood,  Development  and  International  Cooperation  Instrument  (NDICI)  (COM(2018)  460 
final).  This  proposed  new  instrument  would  include  the  External  Action  Guarantee  as  its  guarantee 
facility. 

2 

 
 
                                                 
that the EU budget  will provide under the next MFF.  It  is  critical  that the assets in  the 
CPF  be  synchronised  with  the  liabilities  stemming  from  the  budgetary  guarantees  and 
guaranteed  loans.  The  Commission  is  best-placed  to  play  this  role  as  it  is  the  only 
institution  with  the  full  overview  of  the  liabilities  against  which  the  assets  must  be 
managed.  It is precisely because of its “systemic” importance for the EU budget, and its 
own  institutional  responsibilities  that  the  Commission  has  decided  to  manage  itself  the 
assets of the CPF. 

Article  212  of  Regulation  (EU,  Euratom)  2018/1046  (“the  Financial  Regulation”  or 
“FR”)6  establishing  the  CPF  provided  for  an  evaluation  to  determine  whether  the 
management  of  the  CPF  assets  should  be  carried  out  by  the  Commission,  the  EIB  or  a 
combination of the two. The purpose of this Communication is to present the conclusions 
of the evaluation, explain why the CPF should be managed by the Commission, and set 
out the next steps to prepare for the CPF to become operational by January 2021.  

2.  THE  COMMON  PROVISIONING  FUND  (CPF)  AS  THE  CORNERSTONE  OF  THE  EU’S 

NEW APPROACH TO PUBLIC FINANCE:  

2.1.  What is the Common Provisioning Fund? 

The CPF will pool the provisions to cover the financial liabilities arising from a number 
of  different  budgetary  guarantees,  financial  assistance  and  financial  instruments.  In 
particular,  it  will  combine  the  provisioning  for  the  following  programmes:  EFSI7, 
InvestEU, and the External Action Guarantee (including ex-EFSD8 and External Lending 
Mandate). Moreover, the additional provisions for relevant new budgetary guarantees or 
financial  assistance  programmes  and  financial  instruments  could  be  accommodated 
within  the  CPF.  Additional  resources  may  also  be  transferred  to  the  CPF  from  the 
provisions  for  existing  financial  instruments,  or  from  other  Commission  policy 
instruments which have acquired a large outstanding portfolio of assets having the same 
investment universe as the CPF.  In accordance with Article 9(1) of the partial common 
understanding  of  co-legislators  on  the  Proposal  for  a  Regulation  of  the  European 
Parliament  and  of  the  Council  establishing  the  InvestEU  Programme,  Member  States 
may transfer the management of part of their Structural Fund resources that constitute the 
provisioning for the Member State compartment to the CPF.  

The  (adopted  or  proposed)  legislative  acts  establishing  EFSI,  InvestEU  and  NDICI 
foresee  a  commitment  amounting  to  several  billion  euros  from  the  EU  budget  in 
provisioning to support a significant amount of guarantees and loans. Given the catalytic 

6    Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council of 18 July 2018 
on the  financial rules applicable to the general budget of the Union, amending Regulations (EU) No 
1296/2013, (EU) No 1301/2013, (EU) No 1303/2013, (EU) No 1304/2013, (EU) No 1309/2013, (EU) 
No 1316/2013, (EU) No 223/2014, (EU) No 283/2014, and Decision No 541/2014/EU and repealing 
Regulation (EU, Euratom) No 966/2012 (OJ L 193, 30.7.2018, p. 1). Title X lays down the provisions 
governing financial instruments, budgetary guarantees and financial assistance. 

7        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 Investments (OJ L 169, 1.7.2015, p. 1). 

8    Regulation  (EU)  2017/1601  of  the  European  Parliament  and  of  the  Council  of  26  September  2017 
establishing  the  European  Fund  for  Sustainable  Development  (EFSD),  the  EFSD  Guarantee  and  the 
EFSD Guarantee Fund (OJ L 249, 27.9.2017, p. 1). 

3 

 
 
                                                 
effect  of  EU  programmes,  this  translates  into  a  multiple  volume  of  policy  impact, 
primarily directed towards support for private and public investment.  

Box: how does the Common Provisioning Fund work? 

  The CPF pools the assets belonging to the EFSI, InvestEU and NDICI programmes. 
These assets will be invested by the CPF in financial securities (mostly bonds) until 
such  time  as  the  asset  must  be  sold  to  meet  a  call  on  the  guarantee  by  an 
implementing  partner  who  has  experienced  a  default  in  its  portfolio  of  investment 
projects  that  they  finance.  Article  219(1)  of  the  FR  states  that  “guarantees  are 
irrevocable, unconditional and on demand for all operations covered.”   

  The  multiplicity  of  different  guarantees  benefiting  different  implementing  partners, 
supporting different types of investment in different geographies, implies a complex 
and uneven pattern of calls on the assets of the CPF. To ensure the robustness of the 
system  of  budgetary  guarantees,  it  is  crucial  that  guarantee  programmes,  subject  to 
coherent  risk-management  and  reporting,  which  ensure  that  losses  remain  within 
prescribed tolerance levels. Needs are to be serviced in full and promptly by a well-
diversified and sufficiently liquid portfolio of assets in the CPF.  

 

In  addition  to  careful  design  and  oversight  of  the  guarantee  programmes,  the  CPF 
asset management will be organised to reflect the different dimensions of risk (time 
horizon,  correlation  of  risk  factors,  liquidity,  etc.)  taking  into  account  the 
characteristics  of  the  full  spectrum  of  guaranteed  financing  and  investment 
operations.  

  The  CPF  will  not  entail  cross-subsidisation  between  the  different  policies  that 
transfer  assets  to  it.    Instead,  individual  contributing  policy  instruments  (such  as 
InvestEU or EFSD+) will own a share of the assets of the CPF corresponding to their 
budgetary contribution. These assets will only be used to meet liabilities generated by 
the  guarantees  linked  to  that  policy  instrument  –  and  will  not  be  available  to  meet 
liabilities  generated  by  other  contributing  policies.  Consequently,  the  CPF  will 
deliver  the  benefits  of  unified  asset  management  without  leading  one  policy 
instrument to cover losses incurred by another. 

Below is a schematic representation of the CPF that shows how budgeted resources from 
contributing  policy  instruments  will  be  used  as  the  capital  support  for  the  guarantees 
granted to the implementing partners under InvestEU and NDICI. 

CPF: the capital base for budget guarantees 

Guarantee                      
Programmes: max 
aggregate budget 
commitment = 
±EUR 100 bn 

InvestEU 

NDICI/External Action 
Guarantee  

Common Provisioning Fund: 

  1 portfolio of pooled reserves, 1 investment strategy, 1 

benchmark; 

  Contributing policies own shares in CPF on pro rata basis, 

different provisioning rates per compartment. 

4 

 
 
 
 
 
 
 
Contributing 
policies 

  InvestEU 

NDICI External Action 
Guarantee  

2.2.  What benefits will the CPF bring?  

The pooling of the provisioning for different types of budgetary instruments via the CPF 
will  deliver  efficiency  gains  and  allow  more  dynamic  management  of  assets  in  three 
ways:  

First,  the  management  of  financial  assets  exhibits  scale  effects  with  considerable 
efficiency  gains  as  the  volume  of  assets  under  management  grows.  This  is  due  to  high 
fixed  costs  in  building  the  organisational  capacity  to  perform  asset  management 
proficiently. This capacity comprises reliable portfolio management systems, data input 
and  processing  capacity,  qualified  staff  to  execute  all  functions  subject  to  the  required 
separation  of  duties,  good  governance  systems  and  arrangements  to  ensure  business 
continuity). However, once the infrastructure is in place, increasing the volume of assets 
under management comes with lower marginal costs. Therefore, this means lower costs 
relative to the volume of managed assets. Centralising asset management in the CPF will 
definitely  lower  the  implementation  costs  for  the  EU  budget  and  hence  make  more 
efficient use of scarce public resources. 

Second,  the  CPF  will  combine  provisions  for  several  budgetary  guarantees,  financial 
assistance  and  financial  instruments  with  different  characteristics  and  risk  and  time-
profiles.  Such  differences  in  risk  and  time-profiles  means  that  the  amount  of  the 
resources needed by a unified portfolio to meet guarantee calls in any given year could be 
lower than if each instrument set up individually met its guarantee calls separately. This 
benefit is reflected in the effective provisioning rate of the CPF as defined in Article 213 
of the Financial Regulation.  

Third,  the  CPF  will  be  embedded  in  a  framework  linking  the  management  of  the 
provisions more closely with the profile and evolution of the contingent liabilities of the 
EU budget. Given increasing use of and experience with budgetary guarantees, the CPF 
will be managed dynamically so that the portfolio is adjusted to the evolving profile of 
the liabilities. This will allow the assets to be aligned better with the changing pattern of 
the liabilities, so that the CPF plays the role of liquidity cushion more effectively.  

3.  METHOD, CRITERIA AND OPTIONS OF THE EVALUATION:  

3.1.  Organisation of independent evaluation and criteria: 

Given the importance that the CPF will play in the public finance architecture of the EU, 
Article 212 of the Financial Regulation provided for an independent evaluation to inform 
the  Commission’s  decision  on  the  identity  of  its  asset  manager.  Article  212  of  the 
Financial Regulation specifies the options to be considered: 

1.  CPF to be managed exclusively by the Commission; 

2.  CPF to be managed exclusively by the EIB; 

3.  Split the management between the Commission and the EIB.  

5 

 
 
 
 
 
Article  212  of  the  Financial  Regulation  also  establishes  the  criteria  for  assessing  the 
capacities of the two potential managers. These include criteria such as institutional set-
up  and  governance,  accountability  and  transparency,  risk  management,  technical 
infrastructure,  reporting,  expertise  of  each  organization,  scalability,  performance  and 
costs for services given.  

The  independent  comparative  assessment9  is  published  alongside  this  Communication.  
Its  findings  are  based  on  extensive  documentary  review  and  in-depth  interviews  and 
meetings with staff of both the EIB and the Commission. Findings were discussed in a 
workshop bringing together representatives from the Commission and the EIB.  

While the full evaluation is available on-line, the principal conclusions in respect of each 
of the dimensions of the analysis are as follows: 

Criterion 

Key findings: 

Institutional set-up and 
governance 

Accountability and 
transparency 

Both  EIB  and  the  Commission  have  appropriate  governance  and 
organisational  structures  in  place  for  their  asset  management  activities, 
respecting  good  corporate  governance  principles  with  clear  delegation  of 
decision-making, adequate segregation of duties, clearly defined roles and 
well-defined and documented procedures and processes.  

Both institutions have sound procedures and codes for managing potential 
conflicts of interest. 

Both  organisations  follow  good  asset  management  principles  and 
demonstrate commitment to industry best practice. 

There are clear lines of accountability in both organisations. 

The overall risk  management and control structures at both organisations 
adequately cover their activities relating to the  management of EU assets. 
The  EIB  could  improve  the  cost  transparency  of  its  asset  management 
activities.  

Risk management and 
technical infrastructure 

Both 
the  Commission  and  EIB  have  properly  documented  risk 
management  procedures  that  meet  the  standards  that  can  be  expected  for 
asset managers of their stature. 

Reporting  

Expertise 

Scalability 

Both institutions have access to IT service capabilities that enable them to 
carry out their functions. Both have systems to ensure cyber-security and 
business continuity.  

insightful  reports. 
Both  parties  produce  clear,  well-structured  and 
Information  on  outsourced  portfolios  is  provided  mainly  on  a  quarterly 
basis, for risk and performance information, and complemented by report 
on Portfolio Holdings on a monthly basis. This is in line with the reporting 
requirements which have been set out in inter-institutional agreements  but 
higher frequency reporting (on a monthly basis) is typical among peers. 

Both organisations  have highly qualified and experienced asset  managers 
academic/technical 
relevant 
with 
qualifications.  

professional 

experience 

and 

From  the  infrastructure  point  of  view,  both  organisations  can  handle  the 
anticipated  increase  in  Assets  Under  Management  following  the  creation 

9   Carried out by ICF in association with Keypoint Financial. 

6 

 
 
 
 
 
                                                 
of the CPF. 

Historical Performance10 

The evaluation compared performance of 2 Commission portfolios with 2 
similar (same length of time and similar asset management guidelines and 
investment  universe)  EIB  portfolios.  The  2  Commission  portfolios11 
produced higher returns (a cumulative gain of 23.4% and 24.2% over the 
10 years to June 2019) than the EIB portfolios (20.61% and 12.4%)  

Historical costs 

The  Commission is found to  have performed its role as asset  manager at 
lower cost than the fees charged by the EIB (0.03% per billion vs 0.05% 
per billion).12 

The  Commission  has  delivered  comparable  returns  at  a  lower  cost.  The  governance 
process  and  technical  infrastructure  for  asset  management  in  both  the  Commission  and 
EIB  are  “fit  for  purpose”.  The  Commission  is  seen  to  be  more  accountable  and 
transparent to the Parliament, the Council, and the European Court of Auditors. The EIB 
enjoys advantages stemming from its expertise in repos and the existence of the internal 
rating model, which are relevant for some specific financial transactions.  

3.2.  Commission assessment of the options: 

The Commission believes that the findings of the evaluation relating to cost, efficiency 
and  transparency  mean  that  keeping  CPF  asset  management  under  the  direct 
responsibility of the Commission is a better option than the alternatives. 

a) Split responsibility for CPF management (option 3): 

The  independent  evaluator  sees  possible  dynamic  advantages  in  dividing  responsibility 
for  the  CPF  portfolio  between  the  Commission  and  EIB.  These  comprise  potential 
benefits of risk diversification (not putting all eggs in one basket) and maintaining inter-
institutional competition to curb inertia. 

The  Commission  considers  that  these  advantages  are  intangible  and  speculative.  They 
would  almost  certainly  be  outweighed  by  the  technical  and  operational  difficulties  that 
would hinder its duty to oversee the CPF. If the Commission and EIB managed part of 
the assets separately, complex reconciliation processes would be needed for accounting 
and  performance  reporting  purposes.  A  split  management  would  also  require  an 
integrated  risk  management  framework  to  calculate  and  establish  consolidated  risk  and 
performance  metrics  for  the  single  unified  portfolio.  The  end-result  would  be  portfolio 
management  processes  that  would  be  complex,  time  consuming,  prone  to  operational 
issues and information may not be available on a timely basis. 

The Commission believes that this option does not represent a sound basis for organising 
the  management  of  such  an  important  portfolio.  Competition  between  the  Commission 
and  EIB  should  not  be  achieved  by  splitting  the  CPF  mandate  but  through  a  judicious 

10     Past performance is not a reliable indicator of future performance. 
11   European Coal and Steel Community (in liquidation) funds and RCAM portfolio managed for the Joint 
Sickness Insurance Scheme. The  EIB portfolios  were the GF-EIB and RSFF-EIB, a  Guarantee  Fund 
for external actions and Risk Sharing Finance Facility respectively. 

12   The  EIB  did  not  provide  the  cost  figures  to  the  study  team.  Therefore,  the  fees  charged  by  the  EIB 

were compared with the costs of the Commission. 

7 

 
 
 
 
 
                                                 
allocation of investment mandates in ways that play to the strengths and interests of the 
Commission and EIB.  

b) Choice between the Commission and EIB: 

The  Commission  is  of  the  view  that  the  choice  lies  between  assigning  responsibility 
exclusively  to  the  Commission  or  to  EIB  –  two  proven  asset  managers  with  long  and 
distinguished track records in managing assets on behalf of the EU. Both have developed 
strong capacities and put in place sound management processes. 

The  evaluation  confirms  that  both  organisations  are  capable  of  managing  CPF  assets. 
Both  organisations  perform  well  in  terms  of  governance  structure  and  accountability 
framework  for  asset  management,  IT  infrastructure,  expertise,  overall  performance 
against  objectives,  risk  management  or  reporting  capabilities.  Both  organisations  have 
also  demonstrated  the  capacity  to  scale  up  their  operations  to  handle  the  significant 
increase in the size of assets under management implied by the CPF. 

The main distinguishing considerations emerging from the independent evaluation are:  

1.  Costs:  the  independent  assessment  shows  that  the  Commission  can  manage  this 
activity  at  a  lower  cost.  The  cost  of  the  solution  of  keeping  CPF  management 
with the Commission is estimated to be lower than if assets are entrusted to EIB. 
The estimated cost (EUR [4.8] million per year) of option 1 whereby the assets of 
the  CPF  are  managed  in-house  by  the  Commission  is  significantly  lower  in 
absolute and relative terms as compared to the estimated costs of option 2 (EUR 
[9.9] million per year)  whereby the assets of the CPF are managed by EIB. 

2.  Performance:  based  on  the  track-record  for  comparable  portfolios  with  longer 
history, the returns generated by the Commission are higher than those generated 
by EIB. 

4.  STRATEGIC CONSIDERATIONS REGARDING CPF ASSET MANAGEMENT: 

The  evaluation  cannot  be  based  solely  on  a  static  rear-view  mirror  perspective.  It  must 
also  look  at  the  architecture  that  makes  most  sense  for  the  future  management  of  the 
contingent liabilities and the related assets from the perspective of the protection of the 
EU  budget.  There  is  a  paramount  need  to  protect  the  EU  budget  against  the  risk  that 
losses incurred under the guarantee programmes exceed the assets available in the CPF to 
meet these calls. The decision on the CPF asset manager should take account of who has 
the strongest incentives and most cost-effective means to do this. 

4.1.  Liability-driven asset management 

The  increased  recourse  to  budgetary  guarantees  and  financial  assistance  create  bigger 
contingent  liabilities  for  the  EU  budget.  The  Commission  is  as  a  consequence 
strengthening its capacity to steer, oversee and implement budgetary guarantees in order 
to  avoid  any  unforeseen  impacts  on  the  EU  budget.  In  particular,  the  Commission  is 
enhancing  its  corporate  capacity  to  comprehensively  assess,  manage  and  measure 
contingent  liabilities  and  to  map  the  underlying  risk  patterns  of  these  contingent 
liabilities onto the investment strategy that is used to manage the associated provisions.  
In  concrete  terms,  it  will  use  the  insights  that  it  gains  from  its  closer  involvement  in 

8 

 
 
 
framing guarantee programmes to determine the level of provisions needed by the CPF 
and define the CPF investment strategy and asset allocation.    

Centralisation in the management of assets will bring significant efficiency gains. It will 
also  require  the  Commission  to  properly  design  and  implement  a  single  investment 
strategy,  which  caters  for  the  underlying  needs  (and  constraints)  of  the  different 
guarantee programmes. This should deliver at the very least capital preservation with the 
possibility for additional returns if market conditions allow.  

The Commission is ultimately responsible for ensuring that the asset management of the 
CPF  is  properly  aligned  with  the  need  to  cover  any  financial  liability  arising  from 
financial instruments, budgetary guarantees or financial assistance. To do this properly, 
the  Commission  must  define  and  implement  the  investment  strategy  in  a  way  that  is 
aligned with the evolving profile of the liabilities incurred by the guarantee programmes. 
There are 4 reasons why it makes sense for the Commission to play this role: 

1.  given  its  “systemic”  importance  for  the  EU  budget,  the  Commission  has  a 
particular responsibility for the sound management of the CPF and must account 
for this to the Parliament, the Council and the Court of Auditors. This is reflected 
in  the  fact  that,  pursuant  to  the  Article  213(5)  of  the  Financial  Regulation,  the 
Commission  must  itself  define  and  oversee  the  investment  strategy  for 
management of CPF assets. The Financial Regulation leaves no flexibility on this. 
It  then  makes  sense  to  also  keep  direct  control  over  the  implementation  of  this 
investment  strategy.  Delegating  this  residual  function  to  EIB  would  only  create 
transaction and coordination costs for no material gain.  

2.  the  multiplicity  of  implementing  partners  involved  in  the  InvestEU  and  NDICI 
programmes in the future means that only the Commission is well placed to pull 
together  the  needs  and  experience  of  the  different  implementing  partners  and 
programmes in a unified liability-driven asset management strategy; 

3.  as  it  negotiates  guarantee  agreements  with  the  different  implementing  partners, 
the  Commission  will  gain  first-hand  experience  of  the  risk  factors  driving  the 
credit  risk  of  the  guaranteed  portfolios.  For  example,  risk  exposures  to 
beneficiaries  outside  the  EU  will  be  subject  to  different  macroeconomic 
developments than within the EU. The same is true for different industry sector-
specific  exposures.  The  Commission  will  be  well  placed  to  reflect  these  risk 
factors across all the contingent liabilities covered by the CPF into an investment 
strategy that captures the key risk dimensions;13  

4.  the investment strategy of the CPF will need to integrate operational knowledge 
regarding  programme  implementation.  The  Commission  will  be  able  to  manage 
the feedback from programme implementation to strategy, and to adapt the latter 
in response to the evolving realities and constraints encountered by programmes 
on  the  ground.  This  will  be  vital  to  ensure  that  the  investment  strategy  for  the 
CPF  as  designed  by  the  Commission  properly  reflects  the  true  profile  of  risks 
incurred across all guarantees.  

13   In particular, the Commission will be able to translate the experience regarding such risk factors across 
all the contingent liabilities covered by the CPF into a well diversified portfolio (e.g. in terms of asset 
classes) which exhibit relatively low correlations with the risk factors underlying contingent liabilities. 

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4.2.  Accountability/transparency:  

The  close  linkage  between  the  management  of  the  contingent  liabilities  and  the 
endowment of the CPF is also reflected in the reporting obligations for the Commission 
to the European Parliament and the Council under Art 214 and Art 250 of the Financial 
Regulation. 

As  Financial  Manager  for  the  CPF  the  Commission  must  report  and  account  to  the 
European  Parliament,  the  Council  and  the  Court  of  Auditors  for  management  of  the 
assets in CPF. Direct Commission management increases the ability to account fully and 
promptly for costs and performance to all institutional stakeholders.  

5.  CONCLUSION: 

The  independent  evaluation  finds  that  both  the  Commission  and  EIB  have  long  and 
distinguished track records in managing assets on behalf of the EU. Both have developed 
strong  capacities  and  put  in  place  good  sound  management  processes.  Both  have  the 
systems  and  know-how  to  take  on  responsibility  for  management  of  the  CPF.  The 
analysis of the track record of both the Commission and EIB finds that the Commission 
has  delivered  higher  returns  on  comparable  portfolios  at  lower  cost  to  the  EU  budget. 
Section 4 explains why there is a need for a strong and central role for the Commission at 
the  heart  of  this  system  of  contingent  liabilities  and  related  asset  management.  The 
Commission  needs  to  take  active  and  full  responsibility  for  both  the  design  of  sound 
budgetary guarantees  and the management of the assets that underpin those guarantees. 
This will enhance its ability to account to the Parliament and the Council for its activities 
in this role. 

This decision should also be seen in the wider context of the allocation of responsibilities 
between the different actors in the sphere of EU public finance. In this regard, the EIB 
group has a special role for the implementation of budgetary guarantees under InvestEU 
and as a leading partner for external guarantees.  

This is why the Commission has concluded that the best course of action is for it to retain 
direct  responsibility  for  setting  the  investment  policy  and  managing  the  assets  of  the 
CPF.  Article  317  of  TFEU  confers  to  the  Commission  responsibility  for  implementing 
the  budget  of  the  European  Union,  a  task  which  includes  also  treasury  and  asset 
management; therefore, no legislative act is needed to entrust the Commission with the 
management the CPF assets. 

6.  NEXT STEPS: 

The  CPF  must  be  ready  to  start  investing  assets  once  resources  are  pooled  from  the 
contributing  policies  under  the  new  MFF.  The  Commission  is  therefore  planning  and 
preparing so  that the legislative and  operational  arrangements for managing CPF are in 
place in good time. 

Alongside this Communication, the Commission is also adopting the asset management 
guidelines which will frame a prudent and stability-oriented investment objective for the 
CPF,  and  establish  robust  decision-making  and  reporting  provisions  to  govern  its 
operations. This foresees the preparation of an investment strategy, comprising a strategic 
asset  allocation  to  provide  guidance  on  the  target  composition  of  the  portfolio  and  a 

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related benchmark for the purposes of comparative performance, all to be delivered in the 
second half of 2020. 

Later  this  year,  the  Commission  will  adopt  a  Delegated  Act  to  set  the  Effective 
Provisioning  Rate  for  the  CPF  (in  accordance  with  Article  213(2)  of  the  Financial 
Regulation). 

Alongside this work, the Commission is building consistent risk management approaches 
and reporting systems for InvestEU and EFSD+ guarantee programmes to ensure that the 
management of the liabilities and of the CPF assets go hand in hand. This parallel work 
on risk management methodologies and processes will generate the forecasts of inflows 
and outflows that are needed to construct and adapt a well-calibrated investment strategy 
and suitable benchmark for the CPF. 

Given the importance of the CPF, as the largest portfolio of EU assets and as the anchor 
for  the  system  of  liabilities,  the  Commission  will  report  on  progress  in  building  this 
framework  by  end-2020.  From  mid-2021  onwards  the  Commission  will  produce  an 
annual  report  on  the  sustainability  of  the  system  of  liabilities  created  by  the  financial 
instruments, budgetary guarantees and financial assistance foreseen by Article 250 of the 
Financial Regulation. 

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