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Annual report 2011
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The Fund enters into transactions whereby it transfers
assets recognised on its statement of financial position,
but retains either all or substantially all of the risks and
rewards of the transferred assets or a portion thereof. If
all or substantially all risks and rewards are retained, then
the transferred assets are not derecognised. Transfers of
assets with retention of all or substantially all risks and
rewards include securities lending.
Subsequent measurement
The f inancial assets are subsequent ly measured at
fair value, and any changes in fair value are directly
recognised in other comprehensive income, until the
financial asset is derecognised or impaired. At this time,
the cumulative gain or loss previously recognised in equity
is recognised in the profit or loss.
Interest on AFS debt securities and other fixed income
securities is calculated using the effective interest meth-
od and is recognised in the profit or loss. Capital re-
payments on equity investments are recognised in the
profit or loss when the Fund’s investment cost is fully
reimbursed.
Impairment of financial assets
EIF assesses at each statement of financial position date
whether there is objective evidence that a financial as-
set or a group of financial assets is impaired. For equity
securities, a significant and/or prolonged decline in the
fair value of the security below its cost is considered in
determining whether the securities are impaired. If any
such evidence exists for financial assets, the cumulative
loss – measured as the difference between the acquisi-
tion cost and the current fair value, less any impairment
loss on that financial asset previously recognised in the
profit or loss – is removed from equity and recognised in
the profit or loss. Impairment losses on equity instruments
previously recognised in the profit or loss are not reversed
through the profit or loss. In contrast, if in a subsequent
year, the fair value of a debt instrument classified as AFS
increases and the increase can be objectively related to
an event occurring after the impairment loss was recog-
nised, the impairment loss is reversed through the profit
or loss.
2.3.2 Shares and other variable income securities
Investments in private equit y funds are included in
“Shares and other variable income securities”. They are
acquired for a long term in the normal course of the
Fund’s activities.
a) Fair value considerations:
Under the valuation technique, the fair value of private
equity (PE) funds is achieved by applying the aggregated
Net Asset Value (NAV) method. This valuation method
implicitly assumes that if the NAVs of underlying funds
can be considered as equivalent to the fair value as de-
termined under IAS 39, then the aggregation of the NAVs
of all funds will itself be equivalent to the fair value as
determined under IAS 39. If IAS 39 rules have not been
followed, other guidelines might be acceptable (for ex-
ample the International Private Equity and Venture Capital
valuation guidelines, IPEVC Guidelines, as published by
the European Venture Capital Association “EVCA”) and
more detailed monitoring and review will be required.
In accordance with this method, the PE funds are internally
classified into three categories:
■
Category A – funds that have adopted the fair value
requirements of IAS 39 or IPEVC Guidelines.
■
Category B – funds that have adopted other valuation
guidelines (such as the former 2001 EVCA) or stand-
ards that can be considered as in line with IAS 39.
■
Category C –funds that have not adopted the fair
value requirements of IAS 39 or any other valuation
guidelines in line with IAS 39.
Although it is assumed for category A and B that the
NAV is a reliable estimation of the fair value and specific
review is performed, it must be stated that underlying in-
vestments have been estimated in the absence of read-
ily ascertainable market values. Because of the inherent
uncertainty of valuation and current market conditions,
actual results in the future could differ from the fund man-
ager’s estimate of values and the difference may be ma-
terial to the financial statements.