European Investment Fund: Investing in Czech Republic and CEE

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European Investment Fund: Investing in Czech Republic and CEE
European Investment Fund:
Investing in Czech Republic and CEE
Marco Natoli
Prague, 20th October 2016
1
The leading EU developer of risk
financing for SMEs and mid-caps
Section One
2
EIF: committed to EU policy objectives
and financial sustainability
“
We provide risk financing
to stimulate entrepreneurship and innovation
in Europe
”
Key shareholders
 59.9% European
Investment Bank (EIB)
 28.1% European
Commission
 12% 30 public and
private financial
institutions
Strong capital base
of EUR 4.5bn
AAA-rated
Over 20 years
by the three major
rating agencies
of market experience
in SME financing
3
EIF’s counterparts:
600+ PE funds, 400+ banks and alike
“
We work with a wide range of
counterparts to support SMEs
and mid-caps
Resources and
mandators
 European Investment
Bank
 EIF own resources
 European Commission
 Member States/regions
 Managing authorities
 Corporates/private
 Public institutions
 Other third parties
”
Intermediaries /
counterparts
 Fund managers
 Commercial banks
 Development and
promotional banks
 Guarantee institutions
 Leasing companies
 Corporates
 Business angels
 Microfinance
institutions
Final
beneficiaries
MicroMicroenterprises,
enterprises,
SMEs
PMEs
and
et(small)
les small
midmid-caps
caps
4
Strategic Challenges
EIF Current
Investment Focus
EIF’s equity investments:
Supporting the whole business cycle
Technology
Transfer
Technology Transfer
Proof of Concept
Business Angels
Seed Stage
Provide instruments to
stimulate innovation,
competitiveness and
cross-border
investment
Investing in
VC funds
Investing in
Growth Capital
Growth Capital
Lower Mid-Market
Lower
Hybrid funds
Mid-Market
Debt funds
Co-investments
Business Angels
Early Stage
Late Stage
Fill funding gap
left by
institutional
investors
Lower mid-market
Equity and debt
Improve Access
to Finance for
SMEs and midcaps, especially
at Growth stage
Catalyse
Quasi-Equity
and Private
Debt for SMEs
and mid-caps
Business development
5
The impact of EIF’s equity investments:
Measuring the leverage effect
In 2015 only, EIF’s operations reached a total of 1,873 businesses at all development stages.
6
EIF’s equity instruments
Section Two
7
EIF-managed resources:
EUR 18.6bn for equity investments
Revolving Mandates - Total: EUR 9.0bn
RCR: EUR 9,000m
EU Funded Programmes – Total: EUR 2.6bn
COSME: EUR 546m
INNOVFIN: EUR 1,018m
EFSI SMEW: EUR 1,050m
Equity Fund-of-Funds - Total: EUR 4.4bn
Holding Funds Supported by Structural Funds
(JEREMIE & ESIF) - Total: EUR 1.3bn
Other Mandates - Total: EUR 1.3bn
Total specifically dedicated to CEE:
c. EUR 1.2bln
8
EIF’s mandates focused on CE:
Central Europe Fund-of-Funds (“CE FoF”)
National or Revolved Structural Funds
Country
A
Managed
by EIF
Country
B
Country
C
….
IIB
EIF
Negotiations
ongoing
CE FoF (target Fund size EUR 100-120m)
Geography focus:
Private Equity
Funds
Venture Capital
Funds
*Incl. Südtirol
Austria (+Südtirol)
Czech Republic
Hungary
Slovakia
Slovenia
Institutional Investors, HNWIs
Min 50% from Private Investors
9
EIF’s mandates focused on CE:
ESIF Equity Fund-of-Funds (under development)
Early Stage Investments
EUR 62.5m
Financed by Czech OPs (ESIF): 2014 – 2020: 50m
Co-financed by EIF: 12.5m
Private
investors
and
HNWIs
Private
investors
and
HNWIs
€4050m
€1020m
Venture Capital
Accelerator and/or
Seed fund
Min. EUR 85m invested
in Czech SMEs
SMEs
10
EFSI SME Window:
Positive fit expected for CEE
EFSI SME Window
EUR
1.27bn
To be invested by 2020
in 60-80 Expansion and
Growth Stage Funds.
Expected leverage effect: 12x
CEE initiatives are expected to show
a good fit with EFSI
value-added indicators
Value-added indicators
Multi-country
strategies
EU28 Country 
PE/GDP < EU Avg
Value creation
based on
internationalisation
11
EIF’s investment activity:
impact on the CEE market
Section Three
12
The CEE market in 2015:
Stable investments, difficult fundraising



Key indicators 2014 vs. 2015 (EURm)
Investment and divestment activity
confirms the positive trends of the
last two years.
However, generally still below EU
average (few exceptions).
Fundraising back to unsatisfactory
levels, after one exceptional year
influenced by two large closings.
Investments
1,317
Divestments
1,267
Fundraising
+24%
1,631
-2%
1,237
418
1,569
-74%
Source: Invest Europe
0.010%
0.02%
0.030%
0.090%
0.090%
0.090%
0.100%
0.130%
0.140%
0.140%
0.150%
0.150%
0.160%
0.180%
0.210%
0.220%
0.220%
0.300%
0.310%
0.320%
0.340%
0.380%
0.380%
0.450%
0.480%
0.500%
0.500%
0.630%
0.700%
All PE investments as % of GDP in 2015
13


Since 2001, EIF invested in 51 funds (37 GPs), both with pan-regional and domestic focus.

Significant increase of the amounts committed since 2010 (2010-2016YTD represents 73%
of the total amounts committed).
Out of c. EUR 1.0bn committed, c. 62% had been drawn as at end of Q3 2016, resulting
in EUR 612m of invested capital.
160
60
140
50
120
# of funds
EUR Millions
EIF’s commitments to CEE* funds:
Increasing volumes in recent vintages
40
100
80
30
60
20
40
10
20
0
0
2001
2002
2003
2004
2006
2007
2008
Commitment
Source: EIF; data as of September 2016
2009
2010
2011
# funds (cumulative)
2012
2013
2014
2015
2016
*by signature date
(*) Data in this slide exclude Turkey
14
EIF’s position in CEE*:
An impactful investor of reference
CEE Fundraising & EIF’s market share
5,000
30.07%
30%
4,000
25%
EURm
20.60%
17.44%
3,000
20%
15%
10.22%
2,000
6.48%
1,000
35%
0.49% 0.81%
7.04%
3.69%
-

EIF has developed a crucial role in
the CEE region and in Czech
Republic, often acting as a
countercyclical investor.
10%
5%
0%
Total funds raised
EIFs market share
Fundraising by source (5Y average)
Together account for more than 50%

IFIs and government agencies represent
a key component of the Private Equity
market in CEE.
Government agencies
Fund of funds
Pension funds
13.60%
7.77%
Banks
5.52%
Sovereign wealth funds
5.36%
private individuals
5.50%
Insurance companies
corporate investors
Other asset managers
Other sources
Source: Invest Europe CEE Presentation and EIF
38.60%
3.24%
4.13%
5.57%
10.71%
(*) Data in this slide exclude Turkey
15
EIF’s impact in the CEE1 market:
A catalyst for first closings
1
2
Excluding Turkey. Including Technology Transfer, Venture, Growth, Buy-out and Mezzanine. Excluding funds funded under the JEREMIE program.
For 2015 and 2016, only funds where the EIF invested at first closing are considered; co-investments (including with business angels) are excluded.

As a large first closing investor, EIF has enabled funds to reach critical mass by
validating the proposals and attracting other public and private investors.

EIF’s support is particularly crucial for first-time managers and/or during difficult vintage
years, allowing a stabilization of the market landscape.
Source: EIF; data as of September 2016
16
CEE investment activity:
Continuing the recovery trend

Annual investments in CEE (EURm)
2015 recorded the highest level of
activity since the financial crisis;
3,000
2,500
EURm
2,000
1,500
1,000
500
-
Investments by country
2014
HU
17.2%
2015
RO HR
7.9% 4.2%
Other
15.2%
PL
25.3%
RO
8.8%
HU
9.7%
CZ
0.9%
CZ
30.2%
Source: Invest Europe CEE Presentation and EIF

RS
14.0%
Other
12.2%

Poland confirmed as the most
active market.
Volumes invested in Czech Republic
still erratic over vintage years.
PL
54.4%
17
CEE divestment activity:
Substantial cash returned to investors

Annual divestments in CEE (EURm)
2,000

EURm
1,600
1,200
Divestments constantly exceeding
EUR 1bn in the last 5 years.
Some success stories reaching the
market help re-build investors’
interest.
800
400
-
Divestments by country
2014

Divestment activity proportionally
reflecting investments by country.
HU
12.9%
CZ
18.5%
2015
SI
6.8% BG
6.4%
BG
14.5%
Other
13.6%
PL
41.8%
Source: Invest Europe CEE Presentation and EIF
PL
64.7%
HU
5.7%
RO
5.3%
Other
8.2%
CZ
1.7%
18
EIF’s underlying portfolio in CEE*:
Broad coverage of the whole region
Poland represents the largest exposure, followed by Bulgaria, Romania
and Czech Republic.
200
225
180
EIF’s equity operations
in CEE reached a total
of c. 600 businesses
160
140
200
175
# of companies
EUR Millions

150
120
125
100
100
80
75
60
50
40
20
25
0
0
Bulgaria Croatia
Czech Estonia
Republic
Latvia
Lithuania Hungary Poland Romania Serbia
Amount invested (EIF share)
Source: EIF; data as of September 2016
Slovakia Slovenia
Other
Number of companies
(*) Data in this slide exclude Turkey
19
EIF’s underlying portfolio in CZ:
Reflecting country development
2008
2005
2011
2016
2014
9
5
8
4
7
4
6
3
5
3
4
2
3
2
2
1
1
1
0
# of companies
EUR Millions
2002
0
2002
2003
2004
2005
2006
2007
2008
2009
Amount invested (EIF share)
2010
2011
2012
2013
2014
2015
2016
Number of companies
Source: EIF; data as of September 2016
20
EIF’s CEE portfolio performance:
Keeping up with total EIF’s portfolio

Although reducing during the financial crisis, EIF’s CEE portfolio performance since
2007 is positive and in line with the performance of the overall EIF portfolio.
180.0
160.0
140.0
120.0
100.0
80.0
60.0
40.0
CEE Portfolio
Source: EIF; data as of September 2016
EIF Portfolio
21
EIF’s role in the region:
concluding remarks
Section Four
22
EIF’s position in CEE:
A reference investor for GPs and other LPs

A reference for GPs:
 Countercyclical action; resources to ensure presence also in difficult fundraising periods.
 Cornerstone investor catalysing first closing.
 Supporting first-time managers with appropriate characteristics.
 Balancing commercial returns and developmental objectives.

A reference for other LPs:
 Long-standing and continued presence in the market.
 Thorough due diligence process, resulting in a recognised validation effect of supported
proposals.
 Active monitoring ensuring the highest governance standards.
 Mitigation of the first-mover risk.

Crowding-in effect for additional investments in the region.
23
Q&A
Marco Natoli
Head of Lower Mid-Market,
Northern, Eastern & Southern Europe
24

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