Magazine article European Business Forum

Funding Europe's Future: EFB Talks to Francis Carpenter, Chief Executive of the European Investment Fund

Magazine article European Business Forum

Funding Europe's Future: EFB Talks to Francis Carpenter, Chief Executive of the European Investment Fund

Article excerpt

European Investment Fund (EIF) was created in 1994 as the European Union's specialist vehicle to support innovation and small and medium-sized enterprises (SMEs) across the EU and in Central and eastern Europe.


Located in Luxembourg, EIF is a unique public-private partnership whose shareholders include the European Investment Bank (59.5 per cent), the European Community (30 per cent) and some 32 public and private banks and financial institutions (10.5 per cent).

EIF specialises in two complementary instruments, venture capital investments and SME portfolio guarantees, using either its own funds or those available from substantial mandates entrusted to it by the European Investment Bank, the European Community, and the German Federal Ministry of Economics and Labour. In its operations, EIF aims to pursue EU objectives for innovation and SME finance while generating an adequate return on equity. As a third activity, EIF also actively provides strategic and technical advice to public and private counterparts. EIF currently manages a portfolio of [euro]9.5 billion, which includes close to [euro]7 billion granted in 140 guarantees and some [euro]2.5 billion invested in 195 venture capital funds, making EIF one of the largest fund-of-funds in Europe.

EBF The general investment climate in Europe over the past three years has not been easy. How badly have you been affected?

Carpenter In terms of our own operations, obviously we were affected by the economic climate to the extent that we seek co-investors and co-guarantors in order to carry out our activity. The poor market conditions meant that we deliberately slowed down the number of new venture capital commitments last year, particularly in the seed capital and early-stage segment. But our responsibility is to help ensure an adequate level of investment resources for the venture capital industry in Europe, and we have maintained a fairly constant level of disbursements. One response was to broaden our investment policy to include mid and later stage funds. For example, early in 2004 we have signed several substantial investment agreements with expansion capital and buy-out content. This has been a positive development.

EBF What is the near future likely to hold for the European venture capital sector?

Carpenter This year we have seen the market beginning to pick up, although fund-raising is still not evident, particularly for funds active in high-tech sectors or with a limited track record. We hope that the positive signs continue and that reluctant investors will be encouraged to become more actively involved in venture capital and in private equity. In the near future, we expect the highest growth will occur in dynamic industries such as biotech and ICT. Certain regions will also grow faster than others, and we expect that the new EU member states and the accession countries--Bulgaria, Romania and Turkey--will catch up progressively.

Regarding other developments, we would very much like to see more consistency of fund reporting, disclosures and valuations across Europe. Our own background, operating across Europe, gives us much experience here, and we are using that experience to promote best industry practice in areas such as terms and conditions, fund governance and structure. But much more needs to be done in this area.

EBF What are the main threats to European competitiveness over the next decade, and how can EIF help to meet them?

Carpenter In my opinion, one of the main threats to European competitiveness is market fragmentation which leads to inefficiencies. As a Europe-wide operator, EIF, like other investors, already experiences delays due to legal and structural differences. With such diversity, it may be difficult to promote a pan-European market. In order to remedy this, I believe we must actively promote the idea that there are lessons certain markets can learn from others, while understanding of course that not all those lessons can be applied locally. …

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