Financial Engineering Instruments in 2014 – 2020 ETC

10th European Week of Regions and Cities Brussels, 10 October 2012

Content

1) Why Financial Engineering Instruments in European Territorial Cooperation programmes

2) Types of Financial Engineering Instruments

3) Decision tree and phases in establishing and operating Financial Engineering Instruments

4) Governance of Financial Engineering Instruments in European Territorial Cooperation

5) Opportunities and threats of establishing Financial Engineering Instruments in European Territorial Cooperation

2

Why FEI in 2014 – 2020 ETC?

• Lessons learnt from 2007-2013 ETC– Private partners and State aid – Sustainability of project results

• How to reach Europe 2020’s objectives? • Strengths of ETC programmes

– Stability of governance structure – Multi-country scope – Multi-stakeholders involvement

4

Financial Engineering Instruments grid and what can be suitable for ETC

PurposeInstrument

Loan Mezzanine Equity Guarantee

SME ✔ ✔ ✔ ✔

Urban Development

✔ ✔ ✔ ✔

Energy saving/ renewable energy use

✔ ✔ ✔ ✔

Types of Financial Engineering Instruments

5

Financial Engineering Instrument Decision Tree

What kind of Fund should ETC set up?

Who should set up and manage

the fund?

How do you need to proceed? Do it yourself Award contract Call for tender

Phases in establishing and operating FEI

6

2

1

4

3

5

Governance of FEI in ETC

• Fund management team – Business plan and investment strategy– Funding agreement

• Investment strategy – Aligned with ETC programme’s objectives– Designed and monitored by programme’s stakeholders (MC, MA) – Investors’ advisory board and investment committee

• Transnationality– Internationalisation of SMEs– Further development of specific finance markets (that are currently

national or regional) towards a single-market such as SME financing or VC-financing

– Twin- or multi-regions territorial projects such as rural or urban development projects that tackle similar issues and can save resources through cooperation

Opportunities

• Revolving character of funds• Greater catalytic effect and

impact • Possibility of involving private

partners• Force more efficient, business

oriented use of funds • Sustainability of project results • Greater capital volume available

with no threat of State aid• Access to ‘smart money’• Can be combined with grants to

provide tailored assistance reflecting specific needs of an ETC programme

• Critical mass • Administrative and regulatory

complexity in design and implementation: Cannot ‘do it by yourself’

• Lower incentives compared to grants

• Higher management costs • Potential for tension between

complex programme goals and profit oriented focus of financial institutions

• Not 100% clear how FEI fits ETC context

Threats

FEI in ETC