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Annual report 2011
68
3.5.2
Liquidity risk
The liquidity risk is closely related to the Fund’s solvency
and to the confidence that creditors have in the Fund to
meet its commitments. The treasury is managed in such a
way as to protect the value of the paid-in capital, ensure
an adequate level of liquidity to meet possible guarantee
calls, PE undrawn commitments and administrative expend-
iture and earn a reasonable return on assets invested with
due regard to the minimisation of risk (for further details on
market risk for treasury, please refers to note 3.5.3.1.C).
3.5.2.A. Private Equity
The PE market is illiquid by nature as the vehicles are
closed-end funds typically with a 10-year lifespan. After
the first closing, it is dif ficult for an investor to of fload
their position, needing to find a buyer in the secondary
market. However, given the closed-ended nature of most
funds, the beginning of the divestment process is pre-
defined. This results in a continuous stream of reflows,
the magnitude of which mostly depends on the market
conditions and the proportion of the portfolio that is in
its divestment phase.
The total net commitments to PE funds amount ing to
EUR 406.4m in 2011 (2010: EUR 388.9m) are limited to
50 % of shareholders’ equity. EIF’s portfolio is diversified
in terms of vintage years, which has a smoothing effect
on its cash flows (see EIF’s own resource portfolio broken
down by vintage year in note 3.2.3).
The table below shows the Fund’s PE undrawn amounts
(commitments minus disbursements and excluding equali-
sation fees) of EUR 173.8m (2010: EUR 169.9m) classi-
fied into relevant maturity groupings based on the remain-
ing period to the expected maturity date. It is presented
using a prudent expectation of maturity dates.
3.5.2.B. Portfolio Guarantees & Securitisation
The nature of EIF’s capital structure and the capital charge
limits defined in the EIF Credit Risk Policy Guidelines en-
sure a high degree of liquidity to cover unexpected losses
arising from the G&S activity.
At year end 2011, the total Fund’s G&S exposure at risk
amounted to EUR 2 879.8m (2010: EUR 2 580.2m).
However, for liquidity risk management purpose, G&S
exposure at risk is analysed with reference to its expected
maturity date and per the total expected loss.
At the year end 2011, the total expected losses for all
G&S own risk transactions stood at EUR 190.2m (as
EUR
Private Equity
Not more than
3 months
3 months to
1 year
1 year to
5 years
More than
5 years
As of 31.12.2011
5 024 901
2 489 617
24 097 520 142 226 385
As of 31.12.2010
5 603 117
3 810 771
10 994 729 149 555 041
EUR
Guarantees
Not more than
3 months
3 months to
1 year
1 year to
5 years
More than
5 years
As of 31.12.2011
190 234 342 189 899 757 172 043 863
11 081 794
As of 31.12.2010
142 300 863 140 122 579 123 651 246 42 999 690
shown in the table below). The expected losses may
materialise anytime until the tranches’ expected maturity
dates. However, EIF does not expect to receive guaran-
tee calls for the amount of EUR 190.2m within the next
3 months as most of the G&S transactions follow a debt
service guarantee framework, meaning the guarantee
covers timely payment of interest and ultimate (i.e. at the
legal maturity date) payment of principal. It is not uncom-
mon to have legal maturity dates for these instruments set
20 – 30 years after the expected maturity dates.
Within the Q1 2012 tranches with a sum of expected losses
of EUR 0.3m will reach their expected maturity dates. There-
fore, repayments of tranches will decrease the total expect-
ed losses of the current outstanding G&S own risk portfolio.