The European Commission has this week adopted the legislative proposal to set up the European Fund for Strategic Investments (EFSI) as part of its Investment Plan for Europe that will unlock €315 billion in public and private investments in the EU economy.

The investment offensive follows the launch of the Plan in November last year. The process to set up the new Fund for Strategic Investments will now be fast-tracked  by the European Parliament and the Council with the aim of bringing it into force by June 2015.

The main aim is to provide greater risk-bearing capacity through public money in order to encourage project promoters and attract private finance to viable investment projects which would not have happened otherwise.

At EU level, this will be done by establishing the new European Fund for Strategic Investments to provide risk support for long-term investments and ensure increased access to risk-financing for SMEs and mid-cap companies. At national level, the Commission said more strategic use of the European Structural and Investment Funds would make a significant difference.

The Fund for Strategic Investments (EFSI) will be set up in partnership between the Commission and the European Investment Bank (EIB) within the EIB-Group.

To establish the Fund a guarantee of €16bn, will be created under the EU budget to support the Fund, and the EIB will commit € 5bn. The Commission said that overall, if the Fund is set up rapidly with the initial €21 bn contribution, it has the potential to yield approximately €315 billion of additional finance over three years.

The European Commission estimates that the Fund could reach an overall multiplier effect of 1:15 in real investment - €315 billion - in the economy, based on historical experience from EU programmes and the EIB. Examples include the capital increase of the EIB in 2012 which had an estimated multiplier effect of 1:18 and the current Loan Guarantee Facility for SMEs under the COSME programme, where every €1 bn of funding results in at least €20 bn capital for SMEs, the equivalent of a multiplier effect of 1:20.

Compared to existing structures, the Fund will have a different risk profile, provide additional sources of risk-bearing capacity and will target projects delivering higher societal and economic value. 

Member States, directly or through their  National Promotional Banks (NPBs) or similar bodies, will have the opportunity to contribute to the Fund in the form of capital - the Commission said it will take a “favourable position “ towards such capital contributions to the Fund. Private investors can also join at the level of the Fund.

The role of the Fund is to ensure enhanced risk-bearing capacity and mobilise extra investment, essentially from private sources, but also public sources, in specific sectors and areas.

Projects will be validated by an independent Investment Committee based on their viability and making sure that public support does not exclude or crowd out private investment.

Project promoters and investors will be able to rely on the professional advice, experience and support of the EIB-Group. The EIB-Group will also contribute with dedicated staff in areas such as product development, pipeline origination and structuring, technical assistance, funding capacity, treasury management, asset-liability management, guarantees, portfolio management, accounting and reporting.

New Fund to support long-term investment projects

The Commission said the European Fund for Strategic Investments will support strategic investments of European significance in infrastructure, notably broadband and energy networks, as well as transport infrastructure, particularly in industrial centres; education, research and innovation; and renewable energy and energy efficiency. There will however be no thematic or geographic pre-allocations In order to guarantee that projects are chosen on their merits and maximise the added value of the Fund, there will be no thematic or geographic pre-allocations. 

EFSI should have the possibility to finance not only individual projects but also support private fund structures such as European Long-Term Investment Funds set up by private investors and/or NPBs. This would create an additional multiplier effect and maximise the impact on the ground.

New Fund will also support investment by SMEs and mid-cap companies

The Fund will also support risk finance for SMEs and mid-cap companies across Europe, relying on the European Investment Fund (EIF, part of the EIB-Group) for  operational implementation. The Commission said this should help them to overcome capital shortages by providing higher amounts of direct equity, as well as additional guarantees for high-quality securitisation of SME loans.

The EIB-Group will start activities using its own resources as of early 2015, with the aim of giving the Plan a flying start.

Click here for more information on the Investment Plan for Europe