10 th 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

Types of Financial Engineering Instruments
Financial Engineering Instruments grid and what can be suitable for ETC
Purpose
SME
Instrument
Urban
Development
Energy saving/ renewable energy use
Loan Mezzanine Equity Guarantee
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4

Financial Engineering Instrument Decision Tree
Financial
Engineering
Instrument
What kind of Fund should ETC set up?
Singular Fund Holding Fund
Who should set up and manage the fund?
How do you need to proceed?
Managing
Authority
Do it yourself
Public
Financial
Institution
Award contract
Private
Financial
Institution
Call for tender
5

1
2
3
4
5
Phases in establishing and operating FEI
Ex-ante Assessment
• Identify market failures or sub-optimal investment situations, and investment
• Avoid any crowding out of the private sector
Planning and Design
• Financial Instrument
• Financial Engineering Instrument
• State Aid
Implementation
• invest in the capital of existing or newly created legal entities
• entrust implementation tasks to EIB-Group, International
Finance Institution, public or private body
• Undertake implementation directly
Carrying Out
Ex-post Evaluation
6

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

FEI in ETC
• 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