Francesco Battazzi explains how the European Funding Fund is deploying investments to help and develop the inexperienced economic system throughout Europe
Established in 1994, the European Funding Fund (EIF) is a part of one of many world’s largest multilateral growth banks, the European Funding Financial institution (EIB). It’s also one of the vital lively buyers in Europe’s personal credit score sector.
As head of the fund’s personal credit score division since January 2019, Francesco Battazzi (pictured) is liable for investments in senior personal credit score funds specialising in asset-based, senior and unitranche financing to small- and medium-sized enterprises (SMEs) and mid-market corporations throughout Europe.
In keeping with Battazzi, the EIF has made commitments to roughly 170 personal credit score funds, totalling round €6.7bn (£5.6bn) since 2007. Thus far, these investments have offered new financing to greater than 8,500 SMEs and mid-market corporations, primarily inside the EU.
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“Personal credit score funds are crucial gamers within the monetary ecosystem, providing risk-based, non-dilutive and tailored financing options that cater to the distinctive progress wants of companies, not like conventional financial institution financing,” Battazzi explains. “The EIF has maintained a long-term funding method, persevering with to allocate funds throughout difficult durations, such because the Covid-19 disaster and the macroeconomic turbulence that adopted the Ukraine struggle, which disrupted allocations to different investments”.
Battazzi, who joined the EIF in 2009 as head of analytics and new merchandise earlier than turning into a number one member of the personal debt crew in 2015, positions the EIF as a number one and distinctive investor in Europe, which actively helps European personal credit score funds to develop, diversify, and attain their remaining shut.
“Our participation as a AAA-rated cornerstone investor in chosen funds is essential for basic companions of their fundraising efforts, we encourage different personal buyers to enter this market,” he says. “In 2022, we invested in 23 personal credit score funds and round 20 in 2023, regardless of a difficult fundraising surroundings the place 70 per cent of funds safe solely 20 per cent of general fundraising volumes, in response to Preqin information.
“With a long-standing funding monitor file as a fund-of-funds investor within the decrease mid-market, the EIF is well-equipped to supply invaluable steering, particularly to new or first-time groups and techniques in addition to in new geographies. Investing in pan-European funds and exploring alternatives in rising areas aligns with our mission, bolstered by our distinctive experience throughout varied jurisdictions.”
The inexperienced agenda
Battazzi says the present funding technique sees the EIF spend money on round 20 credit score funds, with commitments usually starting from €20m to €40m. It targets commingled funds that concentrate on offering danger financing to SMEs and small mid-cap corporations.
The EIF’s geographical scope is proscribed to Europe by statute. Particularly, to the member states of the EU, candidate international locations, potential candidate international locations, and European Free Commerce Affiliation international locations.
In its personal debt funding actions, the fund encompasses a variety of methods, together with basic senior debt, unitranche, progress debt and asset-based financing, in addition to subordinate and hybrid debt-equity devices, primarily beneath the InvestEU programme which goals to mobilise €145bn in investments.
“Whereas generalist funding methods are important for a aggressive capital market, the EIF has more and more targeted its allocations on specialised fund managers,” Battazzi says. “Appearing as an anchor investor, the EIF helps new thematic funds targeted in areas crucial to environmental sustainability and vitality transition.
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“A rising portion of EIF investments are devoted to selling sustainability and inexperienced transition inside the European personal debt market, with many funds qualifying as Article 9 monetary merchandise beneath the Sustainable Finance Disclosure Regulation, concentrating on environmentally sustainable funding targets.”
These funds usually present non-dilutive financing for companies pursuing sustainable inexperienced investments or requiring capital expenditure financing for the inexperienced transition. In help of those targets, the EIF has established the EIF Local weather Motion and Environmental Sustainability Standards, that are designed to foster the transition to a climate-neutral economic system.
“These standards prioritise initiatives that fight world warming, specializing in vitality transition, local weather adaptation, and mitigation. They function the muse for all EIF investments, guiding expectations on the dedication stage and facilitating ex-post portfolio monitoring and reporting,” he provides. “An more and more vital space of curiosity is innovation, we contemplate personal credit score as a way to supply non-dilutive financing choices for European cleantech and deeptech corporations.”
Battazzi emphasises that the EIF’s personal credit score exercise is proscribed to investments in funds. “In sure cases, these personal credit score funds originate from peer-to-peer platforms, which we seek advice from as market lenders,” he says. “Whereas market lenders present a financing channel of crucial significance for small companies, they signify a marginal portion of EIF’s general funding exercise.”
The primary purpose, he explains, is because of buyers’ reluctance to faucet into the very small finish of enterprise financing. Battazzi says it has been troublesome for them to fundraise amongst institutional buyers and attain goal fund dimension.
Enterprise and progress
Requested what standards the EIF makes use of for choosing personal debt funds and what due diligence course of it employs, Battazzi factors to the fund’s 30-year historical past as a fund-of-funds investor within the European decrease mid-market.
The EIF employs a complete due diligence course of,” he says. “Choice is grounded in detailed and thorough industrial, compliance, and authorized assessments, contemplating varied elements comparable to technique, crew, monitor file, market situations, and fund phrases. This course of consists of authorized negotiations and the implementation of related coverage targets, primarily aimed toward supporting entry to finance for European SMEs and small mid-caps, whereas additionally addressing different vital coverage targets associated to gender equality, sustainable economic system, and market growth.”
By way of the place funding is targeted, Battazzi says the fund is more and more targeted on supporting the enterprise and progress debt market, together with accelerating innovation and digitalisation, in addition to selling developments in cleantech and agri-food expertise.
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“In February 2022, the EIF revealed the EIF ESG Ideas, which define the insurance policies and procedures relating to the consideration of environmental, social, and governance (ESG) facets in its transactions and operations, specializing in the evaluation, administration, and reporting of ESG elements,” Battazzi says.
He says these rules are central to the EIF’s actions and are supported by varied frameworks, together with the Sustainable Improvement Targets (SDGs). The EIF addresses a variety of SDGs, comparable to entry to respectable jobs, innovation and infrastructure, decreasing inequality, and combating local weather change.
“The EIF maps its contributions to those targets by way of alignment with the general public coverage targets, enabling efficient monitoring of its help for attaining them. Moreover, the EIF emphasises local weather motion and environmental sustainability, reinforcing its dedication to sustainable practices.
“It aligns with the Paris Agreements by defining excessive greenhouse gasoline emission sectors and proscribing financing to those property until they meet particular sustainability standards. An ESG questionnaire assesses administration corporations’ insurance policies relating to local weather points, and people with property beneath administration exceeding €500m are required to reveal climate-related info following the suggestions of the Process Drive on Local weather-Associated Monetary Disclosures.”
On high of this, the EIF incorporates a local weather danger evaluation mannequin in its funding selections, contemplating each bodily and transition dangers to information its selections.
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