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 2019
Date: 2020-08-18
Institutions: Directorate-General for Budget, European Commission
Subjects: European Fund for Strategic Investments, European Investment Bank, European Investment Fund, financial control, operation of the Institutions

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 18.8.2020  COM(2020) 385 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 2019 {SWD(2020) 162 final}  
 
 
TABLE OF CONTENTS 

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

3. 

Financial accounts and significant budgetary transactions in 2019 ................................................................ 3 
Financial statements of the EFSI GF as at 31 December 2019 .............................................................. 3 

3.1. 

3.2. 
3.3. 

EFSI operations under the EU Guarantee .............................................................................................. 3 
Provisioning of the EFSI GF ................................................................................................................. 4 

3.4. 

Calls and use of the EU Guarantee ........................................................................................................ 4 
4.  Management of the EFSI GF in 2019 ............................................................................................................. 5 

4.1. 
Financial Management .......................................................................................................................... 5 
4.2.  Market developments in 2019 ............................................................................................................... 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 

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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").  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, 
20 December 2018, 27 March 2020 and 27 April 2020. 

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 fifth report on the EFSI GF. For previous reports, see COM(2016)353 final, 
COM(2017)326 final,  COM(2018)345 final and COM(2019)244 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. 

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

According to Article 12(4) of the EFSI Regulation, 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 

2019 

Financial information concerning EFSI is presented below, broken down in four sections: (1) 
the financial situation of the EFSI GF as at 31 December 2019, (2) the EFSI operations under 
the EU Guarantee carried out by the EIB Group as at 31 December 2019, (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 2019 

The  total  assets  of  the  EFSI  GF6  stood  at  EUR 6 688 million  as  at  31  December  2019.  The 
investment  securities  portfolio,  classified  as  available-for-sale 
assets  comprised 
(EUR 6 654 million), an FX forward sale of USD with positive net present value, classified as 
financial assets at fair value through surplus and deficit (EUR 3 million), and cash and cash 
equivalents (EUR 31 million). 

the 

In terms of the 2019 statement of financial performance7, the EFSI GF ended the year with an 
economic result of EUR 21.7 million. The main contribution came from a postive net interest 
revenue  of  EUR 18.3 million  and  net  gains  from  sales  of  available-for-sale  securities8 
(EUR 17.1 million).  This  was  offset  by  a  negative  foreign  exchange  revaluation  result  of 
EUR -13.1  million9.  The  remaining  net  expense  of  EUR -0.6  mainly  consisted  of  custodian 
fees. 

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 17.7 billion, as at 31 December 2019, out of the  net available 

6  

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 18.5 million and losses of EUR 1.4 million. 

7  
8 
9   After hedging the currency risk of the USD-denominated portion of the portfolio. 

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legal commitment10 of EUR 25.8 billion of EU guarantee. The amount of EUR 17.6 billion is 
recorded as a contingent liability in the notes to the 2019 financial statements of the EU, while 
a provision has been recognised for the remaining amount of 0.1 billion (74 million). 

In  2019,  EFSI  operations  managed  by  the  EIB  under  the  Infrastructure  and  Innovation 
Window  generated  a  net  revenue  of  EUR 299.5 million  for  the  EU11.  Of  this  amount,  a  net 
receivable of the Commission from the EIB as at 31 December 2019 of EUR 50.8 million was 
recorded in the 2019 EU financial statements. 

For the EFSI operations under the SME Window, the EU incurred cost of EUR 109.9 million 
in  201912.  Out  of  this,  EIF  fees  and  costs  of  EUR 37.9 million  recorded  in  the 
2019 EU financial statements are payable to the EIF after 31 December 2019. 

3.3. PROVISIONING OF THE EFSI GF 

A  total  budgetary  appropriation  of  EUR 357 million  was  committed  in  2019  relating  to  the 
provisioning of the EFSI GF. Of this amount, a budgetary appropriation of EUR 167 million 
was  committed  through  Commission  Decision  C(2019)  87513.  Additional  commitment 
appropriations for an amount of EUR 190 million were committed as assigned revenue. 

A total amount of EUR 1 166 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 163 million was recovered as assigned revenue (EUR 136 million from EFSI 
revenues and EUR 27 million from  Connecting Europe Facility  revenues) and an amount of 
EUR 3 million  was  transferred  as  additional  payment  appropriations  at  the  end  of  the 
budgetary year. 

3.4. CALLS AND USE OF THE EU GUARANTEE 

In  2019,  in  accordance  with  Article  8.1(a)  of  the  EFSI  Agreement,  the  EU  Guarantee  was 
called for an amount of EUR 3.5 million related to one defaulted equity-type operation under 
the  Infrastructure  and  Innovation  Window.  In  addition,  an  amount  of  EUR 1.4 million  was 
called  for  EIB  funding  costs14,  EUR 27.3 million  for  value  adjustments15  and  EUR 0.14  for 
recovery  costs16.  Under  the  SME  Window,  there  was  one  call  for  an  amount  of 
EUR 8.1 million for non-euro hedging. 

All calls have been paid from funds available on the EFSI Account. There were no calls paid 
from the EFSI GF. 

11 

10   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.  
This amount includes EUR 135.0 million of unrealized revenue derived from upward movement of the IIW 
equity portfolios’ fair value at 31 December 2019 compared to 31 December 2018. 
This amount includes EUR 69.5 million of financial provisions in respect of the SMEW debt portfolios, as 
well as EUR 4.3 million of unrealized expenses derived from downward movement of the SMEW equity 
portfolios’ fair value at 31 December 2019 compared to 31 December 2018. 

13  Commission  Decision  of  11.02.2019  on  the  adoption  of  the  annual  work  programme  for  2019  for  the 

12 

Directorate General for Economic and Financial Affairs, serving as a financing decision. 

14   See Article 8.1(d) of the EFSI Agreement. 
15   See Article 8.1(b) of the EFSI Agreement. 
16   See Articles 8.1(d) and 11.7 of the EFSI Agreement. 

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4.  MANAGEMENT OF THE EFSI GF IN 2019 

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 2019 

Fixed  income  markets  saw  noticeable  fluctuations  in  2019,  with  the  10-year  German  bond 
(bund) moving between 0.27% (in January) and -0.72% (in August) for a range of about 1%. 

The  year  began  with  markets  expecting  an  improving  economy  and  rising  inflation.  The 
European Central  Bank (ECB) was projected to  start hiking interest rates, while the Federal 
Reserve  was  expected  to  continue  its  hiking  cycle.  The  protracted  trade  deal  negotiations 
between the US and China, however, triggered a lot of uncertainty with episodes of rapid  and 
unexpected  tariffs  increases  from  both  sides  and  no  viable  solution  on  the  horizon. 
Uncertainty in Europe remained elevated as well, due to threats of tariffs imposed by the US 
on  major  industries,  most  notably  the  car  industry.  Consequently,  global  supply  chains 
suffered, hurting the manufacturing sector and capital expenditures started being postponed. 

All of this pushed demand for safe assets higher and bonds across all asset classes performed 
well while yields moved steadily lower until they bottomed out in August. By that time global 
growth has slowed down and inflation in Europe was hovering just above 1%. To support the 
economy, the Federal Reserve had started cutting interest rates in July and the ECB followed 
suit in September, together with a revival of their asset purchase program. 

Another  positive  development  was  the  overall  resilience  of  the  services  sector  across  major 
economies. Towards the end of the year, it appeared very likely there would be a partial trade 
deal between the US and China. Market sentiment improved and coupled with lower liquidity 
and some year-end rebalancing/profit taking, yields rebounded and the bund closed at around 
-0.20%. 

Overall, spreads of other European Government Bonds (EGBs) to the bund tightened, in the 
cases of Italy and Spain, by up to 110 basis points at the 10-year maturity point. Other fixed 
income sectors such as supranational, sub-sovereign and agencies debt together with covered 
and corporates bonds also performed well during the year. 

4.3. COMPOSITION AND KEY RISK CHARACTERISTICS OF THE PORTFOLIO 

On 31 December 2019, the investment portfolio was made predominantly of securities issued 
by Sovereigns, Sub-sovereigns, supranationals and agencies (SSA) and foreign governments 
(47%  of  market  value  against  59%  for  the  benchmark)  and  covered  bonds  (18%  of  market 
value  against  20%  for  the  benchmark).  The  remainder  was  mainly  allocated  to  unsecured 

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bonds issued by corporates and financial institutions. About 6% 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  2019,  the  exposure  of  the 
portfolio to  bonds  complying with  environmental, social  and  governance  criteria was  above 
6%, 5 times higher when compared to its benchmark. 

The portfolio duration17 at the end of 2019 was 3.07 years. Average credit rating is BBB+. 

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 continued to grow significantly 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  1.239 %  in  2019.  This  return  is  in  line  with  the  annual 
performance of the EFSI benchmark (2.302 %). 

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

OF THE EFSI GF 

total  cumulated  signatures  under  EFSI  amounted 

As  of  31  December  2019, 
to 
EUR 68.7 billion  covering  28  Member  States,  of  which  EUR 49.2 billion  was  signed  under 
the IIW (532 operations) and EUR 19.5 billion was signed under the SMEW (630 operations). 
Overall,  this  represents  a  significant  increase  compared  to  2018,  at  the  end  of  which  total 
signatures amounted to EUR 53.6 billion. 

As  of  31  December  2019,  the  overall  outstanding  disbursed  exposure  covered  by  the  EU 
Guarantee amounted to EUR 17.7 billion (16.1 billion for IIW and 1.6 billion for SMEW) up 
from EUR 15.8 billion in 2018. 

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 21.9 billion (18.3 billion 
for IIW and for 3.6 billion for SMEW). 

Under  the  IIW,  the  outstanding  disbursed  exposure  covered  by  the  EU  Guarantee  was 
EUR 16.1 billion,  of  which  EUR 15.2 billion  for  debt-type  operations  and  EUR 1 billion  for 
equity-type operations18. 

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 

17   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. 

18   Due to rounding of the two figures for debt-type and equity-type operations, they add up to 16.1 bn instead 

of 16.2 bn 

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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. 

As of 31 December 2019, under SMEW, the total outstanding disbursed exposure covered by 
the  EU  Guarantee  was  EUR 1.6 billion,  of  which  EUR 1.2 billion  for  guarantee  operations 
and EUR 0.4 billion for equity operations19. 

Should there be any losses due to the SMEW guarantee 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 Products, any losses would be covered 
by the EU Guarantee under the EFSI and the InnovFin Equity First Loss Piece (in the case of 
Equity Product Sub-window 2). 

The  target  amount  of  the  EFSI  GF  has  been  set  at  35%  of  the  total  EU  Guarantee 
obligations20.  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. 

19  As  evidenced  in  the  financial  statements  of  the  EU  as  at  31  December  2019,  not  including  guarantee 

contracts whose availability period starts in 2020. 

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

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