Francesco Battazzi explains how the European Funding Fund is deploying investments to help and develop the inexperienced financial 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 probably the most lively buyers in Europe’s non-public credit score sector.
As head of the fund’s non-public credit score division since January 2019, Francesco Battazzi (pictured) is answerable for investments in senior non-public credit score funds specialising in asset-based, senior and unitranche financing to small- and medium-sized enterprises (SMEs) and mid-market corporations throughout Europe.
Based on Battazzi, the EIF has made commitments to roughly 170 non-public credit score funds, totalling round €6.7bn (£5.6bn) since 2007. So 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 essential 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 strategy, persevering with to allocate funds throughout difficult intervals, such because the Covid-19 disaster and the macroeconomic turbulence that adopted the Ukraine conflict, which disrupted allocations to different investments”.
Battazzi, who joined the EIF in 2009 as head of analytics and new merchandise earlier than changing into a number one member of the non-public debt group in 2015, positions the EIF as a number one and distinctive investor in Europe, which actively helps European non-public 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 normal companions of their fundraising efforts, we encourage different non-public buyers to enter this market,” he says. “In 2022, we invested in 23 non-public credit score funds and round 20 in 2023, regardless of a difficult fundraising atmosphere the place 70 per cent of funds safe solely 20 per cent of total fundraising volumes, in keeping with Preqin information.
“With a long-standing funding observe file as a fund-of-funds investor within the decrease mid-market, the EIF is well-equipped to supply useful steering, particularly to new or first-time groups and methods 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 sometimes starting from €20m to €40m. It targets commingled funds that target offering threat 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 nations, potential candidate nations, and European Free Commerce Affiliation nations.
In its non-public debt funding actions, the fund encompasses a spread of methods, together with traditional senior debt, unitranche, progress debt and asset-based financing, in addition to subordinate and hybrid debt-equity devices, primarily underneath 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 centered its allocations on specialised fund managers,” Battazzi says. “Appearing as an anchor investor, the EIF helps new thematic funds centered in areas essential 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 non-public debt market, with many funds qualifying as Article 9 monetary merchandise underneath the Sustainable Finance Disclosure Regulation, focusing on environmentally sustainable funding aims.”
These funds sometimes present non-dilutive financing for companies pursuing sustainable inexperienced investments or requiring capital expenditure financing for the inexperienced transition. In help of those objectives, the EIF has established the EIF Local weather Motion and Environmental Sustainability Standards, that are designed to foster the transition to a climate-neutral financial system.
“These standards prioritise initiatives that fight international warming, specializing in vitality transition, local weather adaptation, and mitigation. They function the inspiration for all EIF investments, guiding expectations on the dedication stage and facilitating ex-post portfolio monitoring and reporting,” he provides. “An more and more essential space of curiosity is innovation, we think about non-public credit score as a way to supply non-dilutive financing choices for European cleantech and deeptech corporations.”
Battazzi emphasises that the EIF’s non-public credit score exercise is proscribed to investments in funds. “In sure cases, these non-public credit score funds originate from peer-to-peer platforms, which we confer with as market lenders,” he says. “Whereas market lenders present a financing channel of essential significance for small companies, they signify a marginal portion of EIF’s total funding exercise.”
The principle motive, he explains, is because of buyers’ reluctance to faucet into the very small finish of enterprise financing. Battazzi says it has been tough for them to fundraise amongst institutional buyers and attain goal fund measurement.
Enterprise and progress
Requested what standards the EIF makes use of for choosing non-public 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 reminiscent of technique, group, observe file, market situations, and fund phrases. This course of consists of authorized negotiations and the implementation of related coverage aims, primarily aimed toward supporting entry to finance for European SMEs and small mid-caps, whereas additionally addressing different essential coverage objectives associated to gender equality, sustainable financial system, and market growth.”
When it comes to the place funding is targeted, Battazzi says the fund is more and more centered 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 printed the EIF ESG Ideas, which define the insurance policies and procedures relating to the consideration of environmental, social, and governance (ESG) elements in its transactions and operations, specializing in the evaluation, administration, and reporting of ESG elements,” Battazzi says.
He says these ideas 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, reminiscent of entry to respectable jobs, innovation and infrastructure, decreasing inequality, and combating local weather change.
“The EIF maps its contributions to those objectives by alignment with the general public coverage objectives, enabling efficient monitoring of its help for reaching 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 limiting financing to those belongings until they meet particular sustainability standards. An ESG questionnaire assesses administration corporations’ insurance policies relating to local weather points, and people with belongings underneath administration exceeding €500m are required to reveal climate-related info following the suggestions of the Activity Power on Local weather-Associated Monetary Disclosures.”
On prime of this, the EIF incorporates a local weather threat evaluation mannequin in its funding selections, contemplating each bodily and transition dangers to information its selections.
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