Page 81 - Annual Report 2010

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Financial Statements

„„ Impairments of investments: as stated in note 3.1, the IRC decides on the transaction impairment.

„„ Classification of funds: depending on the outcome of the monitoring outlined above, funds are classi -fied into three categories as described in note 2.3.2.

EIF has developed a set of tools to design, monitor and manage portfolio of PE funds. This set of tools is based on an internal process and model, the Grading-based Economic Model (“GEM”), which allows EIF to systemati-cally and consistently assess and verify funds’ operational quality, valuations and expected performances. This effort

supported by the development of a proprietary Informa-tion Technology (IT) system and integrated software (front to back) improves the investment decision process and the management of portfolio’s financial and liquidity risks.

EIF’s internal grading methodology allows RMM PE to determine the monitoring coverage and intensity, as well as the range for the expected performance. Twice a year each fund is benchmarked against industry statistics and significant deviations between the benchmarking and the expected performance grades are investigated.

The grades are defined as follows:

3.2.2 Portfolio overview

At the end of 2010, total PE own risk investments in terms of net commitments (i.e. commitments made to un-derlying funds minus capital repayments) amounted to EUR 388.9m (2009: EUR 341.4m).

EIF maintains a balanced portfolio with a focus on tech-nology-oriented early-stage and general mid- and later-stage funds. EIF does not directly acquire participations in companies, but instead invests in selected PE funds, with private sector investors providing at least 50% of the capital. All investments are made on a pari passu basis with other investors, granting them no specific rights (or obligations) to EIF. All of EIF’s risk stemming from its own-risk PE operations is fully covered by shareholders’ equity.

Expected performance grade

P - A The fund’s performance is expected to fall into the first quartile of the benchmark. P - B The fund’s performance is expected to fall into the second quartile of the benchmark. P - C The fund’s performance is expected to fall into the third quartile of the benchmark. P - D The fund’s performance is expected to fall into the fourth quartile of the benchmark.

Operational status grade

O - A No adverse signals so far.

O - B Some adverse signals, but not expected to have a material impact on the fund’s valuation.

O - C Adverse signals; without changes/improvements likely to lead to a material impact on the fund’s valuation. O - D Critical events that had a material adverse impact on the fund’s valuation.

As a sub-ceiling, PE net commitments may not exceed 50% of equity, excluding fair value reserve, equivalent to EUR 1 046.8m. Hence, the EUR 388.9m of net com-mitments at year end 2010 was below the EUR 520.6m limit. Of the EUR 490.5m of own-risk funds committed at year end 2010, EUR 321.0m had been disbursed (includ-ing equalisation fees). PE investments are valued quarterly according to the industry valuation guidelines. Using the methodology described in note 3.2.1, EIF records value adjustments on a line by line basis, either through the prof-it or loss in the case of impairment or through equity. Con-sequently, net disbursed own-risk funds (at cost and using the closing exchange rates prevailing at the reporting date of the financial statements) of EUR 219.4m (2009: EUR 194.7m) are valued at EUR 194.4m in EIF’s 2010 statement of financial position (2009: EUR 165.0m).