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51
Financial statements 2011
b) Impairment considerations:
Shares and other variable income securities are assessed
for objective evidence of impairment. Impairment losses
are incurred only if there is objective evidence of impair-
ment as a result of one or more events that have occurred.
On each official reporting date, EIF analyses unrealised
losses so as to determine whether they should be rec-
ognised as impairment losses in the profit or loss or as
changes in the fair value reserve.
In addition EIF defines quantitative thresholds for assess-
ing what is significant and what is prolonged which allows
the classification of the funds as follows:
■
funds with no indication of impairment;
■
funds with an indication of potential impairment which
are reviewed for impairment by the Investment & Risk
Committee;
■
funds showing objective evidence of impairment
Investments belonging to category C are valued at cost
less impairment. When an investment falls under this cat-
egory, the amount of impairment is calculated based on
a matrix of fixed impairment percentages in tranches of
25 % depending on the operational and performance
grading of the respective funds.
The fair value is determined by applying either the Fund’s
percentage ownership in the underlying vehicle to the net
asset value reflected in the most recent report or, where
available, the precise share value at the same date,
submitted by the respective Fund Manager. In order to
bridge the interval between the last available NAV and
the year-end reporting, a subsequent event review pro-
cedure is performed and if necessary the reported NAV
is adjusted.
2.3.3 Debt securities and other fixed income securities
Securities held by the Fund are all quoted on an active
market. Consequently, the fair value of financial instru-
ments is based on bid prices at the statement of financial
position date.
Premiums paid over the maturity value, discounts received
in comparison to the maturity value of securities and inter-
ests on securities are calculated using the effective interest
method and are recognised in the profit or loss.
2.3.4 Interests in Joint Ventures and associates
EIF complies with conditions to use the private equity and
similar entities exemption in IAS 28 and IAS 31 and does
not use equity accounting on, or proportionately consoli-
date investments in joint ventures. Upon initial recognition,
holdings in the joint ventures or associates are designated
as at fair value through the profit or loss, and measured
subsequently at fair value in accordance with IAS 39, with
changes in fair value recognised in the profit or loss during
the year of the change.
Joint ventures are contractual agreements whereby EIF
and other parties undertake an economic activity that is
subject to joint control. Joint control is the contractually
agreed sharing of control over an economic activity, and
exists only when the strategic financial and operating
decisions relating to the activity require the unanimous
consent of the parties sharing the control (the venturers).
The participations acquired by EIF for its own account
or on behalf of its mandate providers typically represent
investments in private equity or venture capital funds. Ac-
cording to industry practice, such investments are generally
investments jointly subscribed by a number of investors,
none of whom is in a position to individually influence the
daily operations and the investment activity of such fund.
As a consequence, any membership by an investor in a
governing body of such fund does not in principle entitle
such investor to influence the day-to-day operations of the
fund. In addition, individual investors in a private equity
or a venture capital fund do not determine policies of a
fund such as distribution policies on capital repayments
or other distributions. Such decisions are typically taken
by the management of a fund on the basis of the share-
holders agreement governing the rights and obligations
of the management and all shareholders of the fund. The
shareholders’ agreement also generally prevents individual
investors from bilaterally executing material transactions
with the fund, interchanging managerial personnel or ob-
taining privileged access to essential technical information.