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Financial statements 2011
Expected Loss breakdown
6%
5.8%
5.1%
1.1%
3.5.3.2.B. Portfolio Guarantees & Securitisation
As of end 2011, 82.0 % of exposure at risk (49.3 % of ex-
pected loss) was in EUR. Due to the underperformance of
two Danish transactions in the EIF portfolio, the exposure
to DKK in terms of expected loss is higher than in terms
of exposure at risk.
Own Risk Port folio breakdowns by currency at 31 De-
cember 2011:
Exposure at risk breakdown
82%
EUR
GBP
PLN
SEK
DKK
EUR
GBP
DKK
Others (PLN, SEK)
49.3%
8.2%
42.4%
0.1%
EIF is monitoring its non-euro exposure and performs
regular stress tests with regard to currency risk and the
impact on unexpected loss. Additional capital charges
on non-euro exposures are assumed and the outcome is
compared with the available margin.
3.5.3.2.C. Treasury
Foreign currency risk is not applicable regarding EIF’s
debt securities portfolio, as all investments in debt securi-
ties and other fixed income securities are denominated
in EUR.
3.5.3.3. Market risk: other price risk
Other price risk is the risk that the fair value of the financial
instrument will fluctuate as a result of changes in market
prices (other than those arising from interest rate risk or
currency risk), whether caused by factors specific to an
individual investment, its issuer or factors affecting all in-
struments traded in the markets.
3.5.3.3.A. Private Equity
The specific characteristics of the PE asset class make it
difficult to apply traditional approaches to risk analysis.
Market risk analysis requires an estimation of the correla-
tion between the asset class assessed and the changes
in market risks other than those arising from interest rate
risk or currency risk. This can be done based on the
capital asset pricing model. This model uses the beta,
i.e. a measure of risk relative to the market, which is esti-
mated by regressing returns on an asset against a public
market index.
While public market managers can rely on reliable sta-
tistical data to support their analysis, such data is lacking
for PE and in particular Venture Capital. Analysis of PE
returns, volatility and correlations is limited by the relatively
short time series of the publicly available data, which is
not fully representative of the market. In particular, data
does not fully capture the uncertainty of the asset class.
Furthermore, as the IRR, the standard performance meas-
ure used for PE funds, is capital-weighted, while for public
market assets it is traditionally time-weighted, it is not pos-
sible to analyse the correlation between PE and other
asset classes without significant adjustments and therefore
potentially large biases.