REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the common provisioning fund in 2023
Date: 2024-06-25
Institutions: Directorate-General for Budget, European Commission
Subjects: EU budget, budgetary reserve (EU), financial management, fund (EU), investment, multiannual financial framework, provision, reserves

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   EUROPEAN COMMISSION  Brussels, 25.6.2024  COM(2024) 180 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the common provisioning fund in 2023 {SWD(2024) 161 final}  
 
 
TABLE OF CONTENTS 

INTRODUCTION ........................................................................................................................................................ 2 

Part 1: Key milestones in 2023 ....................................................................................................................... 3 

1.1. General overview ................................................................................................................................ 3 

1.2. Compartment structure ................................................................................................................... 3 

1.3. Guarantee calls and payment claims ....................................................................................... 5 

1.4. Effective provisioning rate ............................................................................................................. 7 

Part 2: Investment strategy, portfolio composition and performance ........................................ 8 

2.1. Composition and characteristics of the portfolio ............................................................... 8 

2.2. Environmental, social and governance (ESG) footprint ................................................ 10 

2.3. CPF performance in 2023 ........................................................................................................... 10 

CONCLUSIONS ....................................................................................................................................................... 12 

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INTRODUCTION 

This is the third annual report on the common provisioning fund (CPF) (1), covering the period 
from  1  January  2023  to  31 December  2023.  It  outlines  key  developments  related  to  the 
functioning of the CPF in 2023, presents the main financial and risk parameters, as well as 
the fund’s annual performance. It also presents the results of actions the Commission took 
to enhance the fund’s longer-term performance through introducing a diversified investment 
universe. 

The CPF, established under Article 212 of the Financial Regulation (FR), holds all provisions 
set aside by the EU budget or contributed by participating Member States and EFTA countries 
to cover risk of losses on operations guaranteed by the internal (2) and external (3) guarantees 
implemented by the European Union. In addition to budgetary guarantees, provisions are held 
in  the  CPF  in  respect  of  most  of  the  macro-financial  assistance  (MFA)  loans  to  third 
counties (4). The provisions held in the CPF constitute the capital reserve from which funds 
are drawn to meet guarantee calls on supported operations and other outflows. 

The CPF became operational in January 2021. At the end of 2023 its market value stood at 
EUR 18.8  billion,  making  it  the  largest  investment  portfolio  directly  managed  by  the 
Commission. 

Thanks to its prudent positioning, the CPF navigated well the market volatility seen in 2023 
and was well placed to profit from strong market performance late in the year. In particular, 
the CPF posted an absolute return of +5.21%, helping it to claw back part of the 2022 losses 
(-8.9%) and to replenish provisioning of guarantees. Looking ahead, the present higher and 
positive interest rate environment offers a solid foundation for  returns over the medium-
term. 

This report focusses on issues related to the management of CPF assets. The evolution of 
contingent liabilities arising from budgetary guarantees and EU lending, against which CPF 
assets are held as provisions, will be discussed in a separate report under Article 250 of the 
Financial Regulation. 

(1) Pursuant to Article 214 of the Financial Regulation (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,  the 
Commission shall report annually to the European Parliament and to the Council on the common provisioning 
fund.  The  Asset  Management  Guidelines  of  the  CPF  (Commission  Decision  of  25.3.2020  on  the  Asset 
Management Guidelines of the common provisioning fund (C(2020) 1896 final, OJ C 131, 22.4.2020, p. 3–
11) provide further guidance on the contents of this report. 

(2) European Fund for Strategic Investments (EFSI) and InvestEU. 

(3) External lending mandate (ELM), European Fund for Sustainable Development (EFSD) and European Fund for 

Sustainable Development Plus (EFSD+). 

(4) Except MFA+ loans granted to Ukraine in 2023. 

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PART 1: KEY MILESTONES IN 2023 

1.1. General overview 

As in the previous years, the fund was managed in line with procedures under its established 
governance structure (5), and without operational incidents. 

As at 31 December 2023, the value of net assets (6) was EUR 18.8 billion, representing an 
increase of EUR 4.4 billion on end-2022 (a 30% increase over the year).  In 2023 the CPF 
received  EUR  3.53  billion  of  net  contributions  from  the  EU  budget  or  contributed  by 
participating Member States and EFTA countries. The remainder of the increase in portfolio 
value (EUR 880 million) results from the increased market value of existing assets.  

Figure 1: Evolution of CPF’s net asset value (EUR billions) 

More  information  on  the  financial  statements  is  available  in  the  staff  working  document 
accompanying this report. 

1.2. Compartment structure 

While the assets of the CPF are managed in accordance with a unique investment policy, they 
are  held  in  different  compartments  linked  to  the  individual  budgetary  guarantees  and 
financial assistance programmes. 

(5)  The governance structure was presented in the CPF annual report for 2021, EUR-Lex - 52022DC0213 - EN 

- EUR-Lex (europa.eu). 

(6) The net asset value (NAV) of the CPF is determined by the value of the total assets, less the liabilities, at the 

respective NAV calculation date. 

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The provisioning held by the CPF is earmarked per budgetary guarantee/financial assistance 
programme, in line with their respective legal frameworks (7). The amounts assigned to each 
budgetary guarantee are booked in distinct compartments to allow provisoning levels to be 
tracked relative to the levels set by the instrument establishing the guarantee. If provisions 
fall below certain levels, replenishments can be funded from the envelopes of the respective 
programmes.  

In 2023, two new InvestEU Member State compartments were added (8) compared to 10 in 
2022. The evolution of compartments over preceding years is described in more detail in the 
CPF reports for 2021 (9) and 2022 (10). 

On 31 December 2023 the CPF was composed of 16 compartments, with 13 of them being 
fully operational and containing funds. The remaining compartments will be activated upon 
reception of the corresponding first inflows. 

Table 1: CPF compartments as at 31.12.2023 

Compartment 

Market value in EUR as at 31.12.2023 

Compartments opened in 2021 

EFSI 

GFEA (11) 

EFSD (12) 
InvestEU (13) 

Compartments opened in 2022 

EFSD+ 

Post-2020 MFA 

Exceptional MFA Ukraine (14) 

Post-2020 Euratom loans 

Repurposed ELM loans Ukraine 

InvestEU Guarantee Romania 

9,224,784,078.06 

2,776,909,740.77 

735,238,609.90 

3,357,374,936.75 

2,222,070,436.62 

105,403,883.94 

- 

- 

- 

80,817,782.06 

(7) In line with e.g. Articles 212.2, 212.4, 213.1 and 213.4 of the Financial Regulation. 

(8) For Malta and Bulgaria. 

(9) EUR-Lex - 52022DC0213 - EN - EUR-Lex (europa.eu) 

(10) EUR-Lex - 52023DC0288 - EN - EUR-Lex (europa.eu) 

(11) Guarantee Fund for external actions (GFEA), holding the provisions for the external lending mandate (ELM), 

legacy (macro-financial assistance - MFA) and Euratom programmes. 

(12) European Fund for Sustainable Development. 

(13)  EU Compartment. 

(14)  Under  Decision  (EU)  2022/12018  and  Decision  (EU)  2022/1628  providing  exceptional  macro-financial 

assistance to Ukraine. 

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Compartment 

Market value in EUR as at 31.12.2023 

InvestEU Guarantee Czech Republic 

InvestEU Guarantee Finland 

InvestEU Guarantee Greece 

InvestEU Blending Operations 

Compartments opened in 2023 

InvestEU Guarantee Bulgaria 

InvestEU Guarantee Malta 

TOTAL 

28,505,258.04 

25,499.598.46 

31,241,677.26 

161,082,630.28 

41,334,023.23 

6,352,640.21 

18,796,615,295.58 

Figure 2: CPF compartments size as at 31.12.2023 

1.3. Guarantee calls and payment claims 

The liquidity management of guarantee calls and payment claims is facilitated by a liquidity 
buffer,  as  provided  for  in  the  CPF  Asset  Management  Guidelines  (AMGs) (15).  The  liquidity 
buffer is constituted by limited reserves of cash held at the Commission’s Central Treasury 
to  cover  the  cash  outflows  expected  to  materialise  over  a  3-month  period  based  on 
notifications from implementing partners.  

(15) Commission Decision of 25.3.2020 on the Asset Management Guidelines of the common provisioning fund 

(C(2020) 1896 final, OJ C 131, 22.4.2020, p. 3–11. 

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The buffer started 2023 with a balance of EUR 342 million. During the year it received inflows 
of  EUR  114  million (16),  while  a  net  amount  of  nearly  EUR  351  million  was  paid  out  in 
2023 (17). At the end of 2023, the remaining balance of the liquidity buffer amounted to EUR 
106 million. 

The 2023 calls on the CPF provisions by the respective budgetary guarantees (18), as well as 
other demands on the resources held by the CPF compartments, are summarized below (19). 

Table 2: CPF outflows in 2023, detailed overview 

Compartment 

in EUR mln 

Nature of outflow 

EFSD 

EFSD+ 

GFEA 

EFSI 

InvestEU 

InvestEU Romania 

Total outflows 

0.60 

0.04 

127.57 

0.06 

127.63 

115.60 

guarantee calls 

guarantee calls 

guarantee calls 

legal expenses 

total 

net calls and value adjustments of equity 
portfolios 

22.40 

SMEW expenses and calls (net of 
replenishments) on guarantee products 

55.90 

expenses (funding and recovery costs) 

193.90 (20) 

25.915 

1.585 

27.50 

1.20 

350.9 

total 

expenses (fees, negative interest, funding 
and administrative costs) 

guarantee calls 

total 

call under hedging cost reserve 

(16)  Out  of  EUR  114  million  which  are  inflows  coming  from  CPF  redemptions,  EUR  60.7  million  are  ELM 

recoveries. 

(17) Compared to EUR 222 million in 2022. 

(18) Individual guarantee calls are mentioned in a separate report under Article 41(5) of the Financial Regulation 

(FR). 

(19) It is important to mention that payments may arise in 2024 or later, which may require ex post adjustment 

of the 2023 accounts. 

(20) Out of which EUR 14.7 million referring to 2022 calls, due to the fact that one of the payment transactions 

covered the period from 01/06/2022 to 30/11/2023. 

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Figure 3: 2023 CPF outflows per compartment (EUR millions) 

1.4. Effective provisioning rate 

Article  213  of  the  Financial  Regulation  provides  that  the  provisioning  of  budgetary 
guarantees and financial assistance to third countries in the CPF will be based on the Effective 
Provisioning Rate (EPR) as defined in that Article. The EPR takes into account that the pooled 
management of the CPF – as opposed to the management of separate guarantee funds – 
could  result  in  potential  diversification  if  calls  on  the  different  compartments  are  not 
correlated in time or intensity. 

The EPR is the ratio between 

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• 

the required amount of cash and cash equivalents in the joint-management set-up of 
the CPF, and 

the  sum  of  the  required  amounts  of  cash  and  cash  equivalents  in  case  each 
compartment would be managed separately. 

By law, the EPR should be set between 95% and 100%, with a figure below 100% pointing 
at a diversification effect. Following calculations based on the established methodology (21) 
and  given  the  prevailing  macro-economic  and  geopolitical  uncertainties  (some  of  the  CPF 
compartments  being  highly  dependent  on  the  evolution  of  the  situation  in  Ukraine),  the 
Commission proposed that the EPR for  2023 remain at 100% due to the absence of any 
observed diversification between calls on the provisions of the different compartments. This 
approach was confirmed in the adopted Annual Budget 2024.  

(21)  Commission  Delegated  Decision  (EU,  Euratom)  C(2020)7684  supplementing  Regulation  (EU,  Euratom) 
2018/1046 of the European Parliament and of the Council with detailed conditions for the calculation of 
the effective provisioning rate of the common provisioning fund (OJ L 42, 5.2.2021, p. 12). 

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PART  2:  INVESTMENT  STRATEGY,  PORTFOLIO  COMPOSITION 
AND PERFORMANCE 

The  general  principles  and  considerations  informing  the  CPF  investment  strategy  are 
established by the CPF Asset Managment Guidelines and further described in the first CPF 
annual  report  for  2021 (22).  Based  on  the  conservative  approach  enshrined  in  its  Asset 
Management Guidelines, and low risk-tolerance, the CPF is managed in a way that should, at 
least,  deliver capital  preservation over its investment horizon (9 years) (23). Reflecting this 
prudent investment policy, the assets in which CPF can invest are limited to highly liquid and 
highly  rated  fixed  income  securities.  The  bulk  of  the  CPF  has  been  to  date  restricted  to 
investment in Euro- and US Dollar-denominated investment-grade fixed income securities 
(bonds).  The  Asset  Management  Guidelines  were  modified  in  2022  to  allow  some  limited 
investment 
in  equity  Exchange-Traded  Funds  to  provide  additional  diversification 
opportunities for the CPF. 

2.1. Composition and characteristics of the portfolio 

As  per  its  Asset  Management  Guidelines,  the  CPF  maintains  a  liquid  diversified  portfolio, 
primarily investing in highly-rated debt instruments, such as bonds issued by governments, 
supra-nationals, state agencies and corporates. 

The CPF portfolio at year-end was well diversified across the different asset classes in the 
eligible  fixed  income  universe,  including  some  limited  exposure  to  non-euro  denominated 
securities (USD), equity ETFs and cash or cash equivalents. Currency gains or losses on non-
euro securities and transactions were largely offset by opposite changes in foreign exchange 
derivatives used as hedges. 

The credit quality of the CPF portfolio was high, with an average rating of A, suggesting a 
negligible default probability (24). 

Over 36% of the portfolio’s market value was invested in AAA securities (25), with the rest 
distributed across the investment-grade scale. 

USD-denominated  investments  represented  6.6%  of  the  portfolio’s  market  value (26),  with 
currency risk hedged using forward contracts. 

Equity represented 5.5% of the portfolio’s market value at the end of 2023. 

(22) EUR-Lex - 52022DC0213 - EN - EUR-Lex (europa.eu) 

(23) Article 2(1) of the Asset Management Guidelines. 

(24) 0.04% default probability over a one year horizon. 

(25) Compared to over 35% in 2022. 

(26) Compared to 3.5% in 2022. 

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As of December 2023, about 15.2% of the portfolio consisted of short-term liquid assets (27), 
providing for a source of ready-to-hand liquidity in case of large outflows exceeding the size 
of the liquidty buffer described above (28). 

Figure 4: CPF portfolio allocation at year-end (2023) 

(27) Compared to 18% in 2022. 

(28) On top of liquidity buffer described in Section 1.5. 

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2.2. Environmental, social and governance (ESG) footprint 

In 2023 the ESG footprint of the portfolio remained strong, with 14.6% share of ESG-labelled 
bonds (29),  compared  to  14.0%  in  2022.  The  proactive  approach  to  ESG  investing  favours 
ESG-labelled bonds, provided they align with risk management criteria and overall investment 
strategy. In 2023 the Commission continued to reinforce the ESG footprint in the CPF’s new 
investment strategy, as explained in the CPF annual report for 2022 (30). 

2.3. CPF performance in 2023 

In  2023,  market  volatility  remained  significant  (see  Box).  In  the  last  couple  of  months  of 
2023, however, inflationary pressure began to recede, leading to market expectations that 
cetral banks would start cutting interest rates in 2024. These expectations of pending rate 
cuts led to a partial reversal of the dynamic seen in 2022, and lent a positive impulse to the 
value  of  outstanding  bonds  owned  by  CPF.  Further  details  on  market  developments  are 
provided in the box below. 

Against this background, the CPF achieved an annual return of +5.21% (31), in line with its 
portfolio benchmark (+5.40%). The newly introduced equity portion (on average about 3.1% 
during  2023)  contributed  +0.38  %  to  the  total  return  of  the  portfolio.  When  looked  at  in 
isolation, the equity investment returned about +12.5%, which is more than twice the return 
of the fixed income portion in 2023. 

(29)  In  assessing  whether  bonds  are  classified  as  ESG-labelled  for  the  purposes  of  CPF  allocation,  the 
Commission  relies on  the  published  assessment  of  the  ‘use  of  proceeds’  of  the  asset  in  question  by  the 
analytics and data providers which the Commission uses for its asset management function.  

(30) EUR-Lex - 52023DC0288 - EN - EUR-Lex (europa.eu) 

(31)  The cumulative return of CPF from inception to end-2023 is -5.22% reflecting the following sequence of 
annual returns: 2023 5.21%, 2022: -8.85%, 2021: -1.17%. Regarding the objective of capital preservation 
over the investment horizon (estimated at 9 years), this  remains a fully achievable objective, especially 
considering that,  post-2022, yield levels are firmly in positive territory,  contrary to the negative or zero 
yield environment that prevailed when CPF was established. 

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Market developments in 2023 

Inflation data and respective action from central banks were the main market drivers in 
2023. Through early 2023, the European Central Bank (ECB) continued to raise its policy 
rates  at  every  Governing  Council  meeting  until  September,  when  it  paused,  having 
reached a level of 4% for the deposit facility rate (from 2% to start the year). While some 
uncertainty regarding its sustainable return to the target level of 2% remained, inflation 
in Europe steadily decreased from its high starting point. In January, headline inflation 
stood at 8.6%. It had fallen to 2.4% in November, before slightly increasing, to close at 
2.9% in December.  

In the USA, headline inflation also receded, from 6.4% in January to 3% in June, before 
stabilizing and closing the year at 3.1%. The Federal Reserve Bank raised its key policy 
rate by a total of 1%, to a target range of 5.25% - 5.50%. The rate has remained at this 
level since July. 

Besides hiking policy interest rates, major central banks kept signalling for most of the 
year that policy rates would not be reduced any time soon and would have to stay ‘high 
for longer’ to ensure inflation converges back to target. In this backdrop, bond yields were 
also gradually increasing during the first 9 months of the year and the 10 Year German 
government bond peaked at 2.96% in early October, from 2.44% at the start of the year.  

In Q4, data releases showing lower than expected inflation allowed major central banks 
to pivot their communication in a less ‘hawkish’ direction and start to countenance the 
possible  timing  of  the  first  policy  rate  cuts.  This  prompted  markets  to  quickly  price  a 
substantial  number  of  interest  rate  cuts  in  2024,  driving  bond  yields  lower  and, 
consequently,  bond  prices  and  returns  higher.  The  10  Year  German  government  bond 
closed the year at 2.02%.  

Moreover, economic growth defied negative forecasts that were prevalent at the start of 
the  year,  especially  in  the  US,  which  posted  a  very  strong  growth  rate,  while  Europe 
avoided a recession. The job market was also very strong, and the unemployment rates 
remained near record lows on both sides of the Atlantic. 

The  combination  of  resilient  growth  in  the  face  of  aggressive  interest  rate  hikes  and 
receding inflation extended the market rally to most asset classes. Besides government 
bonds, corporate bonds performed very well too. Likewise, equity markets posted a very 
strong rebound. STOXX Europe 600 index was up 12.7%, while USA’s S&P 500 was up 
24.2%. 

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CONCLUSIONS 

The CPF posted a return of +5.21%, helping it to claw back part of the 2022 losses (-8.9%) 
and to replenish provisioning of guarantees. Looking ahead, the present higher and positive 
interest rate environment offers a solid foundation for returns over the medium-term. This is 
reflected  in  the  portfolio’s  average  yield-to-maturity,  which  remained  at  around  3%  per 
annum at the end of 2023.  

The challenging market situation encountered during 2022 underlined the risks of exclusive 
reliance  on  fixed  income  investments.  To  reduce  dependency  on  bond  markets,  the  CPF 
investment  strategy  was  diversified  in  2023  through  investment  in  broad  pan-European 
equity indices. The first year of experience with this new asset class was positive. The limited 
exposure to equity has shown its capacity to enhance returns consistent with the low level of 
risk.  The  CPF  is  well  positioned  to  sustain  its  recovery  trajectory  and achieve  longer-term 
stability and growth, in line with its investment objectives. 

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