European Investment Fund 2011 docx

European Investment Fund
Primary Credit Analyst:
Leila Butt, London (44) 20-7176-2138;
Secondary Contact:
Benjamin Young, London (44) 20-7176-3574;
Table Of Contents
Major Rating Factors
Rationale
Outlook
Structure And Shareholders
Capitalization
Operations
Own-Risk Guarantee Portfolio
Own-Risk Private Equity Participations
Financial Performance
Related Criteria And Research
October 31, 2011
www.standardandpoors.com/ratingsdirect 1
906713 | 301664923
European Investment Fund
Major Rating Factors
Strengths:
• A solid financial profile, including a debt-free balance sheet.
• Strong shareholder support.
• In our opinion, prudent statutory and policy controls.
• 'AAA' rated callable capital equaling 223% of shareholders' equity.
Counterparty Credit Rating
Foreign Currency
AAA/Stable/A-1+
Weaknesses:
• High embedded risk in EIF's portfolio of loan guarantees and venture capital investments.

Rationale
The European Investment Fund (EIF) is a Luxembourg-based financial institution of the European Union (EU). At
Dec. 31, 2010, EIF's shareholders were: the EIB with a 61.2% shareholding; the EU, represented by the European
Commission with a 30.0% shareholding; and 28 financial institutions from the enlarged EU with a combined 8.8%
shareholding.
The EIF's mandate is to promote the creation, growth, and development of micro and SMEs in the enlarged EU and
candidate countries. The mandate is pursued in two ways:
• EIF guarantees financial institutions' SME loan portfolios in exchange for a fee; and
• EIF participates in private equity (PE) funds, including venture capital (VC) funds.
The EIF, in effect, operates in two different capacities: it has an own-risk portfolio, but also acts as an agent for
other supranationals (primarily the EIB and EU) and national and provincial governments (for instance, Germany,
Spain, and Bavaria). The risk that the EIF incurs in this capacity is borne by these entities. At year-end 2010, 93% of
the EIF's €5.4 billion private equity (PE) investments were of this type and the remainder was at the risk of the EIF's
own account. Similarly, nearly 83% of the EIF's €14.7 billion in outstanding guarantees at year-end 2010 was
mandated by the EU, with the remainder at the EIF's own risk.
During 2009–2010, the EIF increased its participation in PE funds and its issuance of guarantees to SMEs to meet
the challenges of reduced availability of market-based funding. The new PE commitments have increased by 50%
since 2008 this includes a 22% increase in commitments at the EIF's own risk. Overall, new-guarantee
commitments have increased by nearly 20% since 2008, but the proportion at the EIF's own risk decreased to
17.5% in 2010, from just over 31.0% of total guarantees in 2008. The growth in overall guarantees stemmed from
an increase in guarantee trust activity that the EIF manages on behalf of the EC, its member states, and the EIB.
The EIF's key shareholders remain firmly committed to its mandate and operations, and we believe that the EIF is an
integral part of the EIB group and its future strategy. As evidence of shareholder support, in 2007 shareholders
agreed to increase subscribed capital to €3 billion from €2 billion by end-2010, with €200 million of the increase to
be paid in, most of which was to come from the EIB. As a result of the capital increase, retained earnings, and
statutory reserves, The EIF's shareholders' equity stood at €1,016 million at year-end 2010, from €693 million at
Standard & Poors | RatingsDirect on the Global Credit Portal | October 31, 2011 2
906713 | 301664923
year-end 2006.
Funding for the EIF's activities for its own account comes entirely from shareholders' equity; under its agreement,

EIF cannot borrow for these purposes, although it maintains a €25 million treasury facility for bridging purposes,
and we believe funding from EIB would be available if necessary.
The EIF's operations require lower liquidity relative to total assets than other multilateral lending institutions
(MLIs), since it does not lend or borrow, and outflows of funds result from the undisbursed PE commitments and
payments under guarantees. Liquid assets, including securities, benefit from implicit liquidity support from the EIB.
Liquid assets decreased to 6.2% of total balance-sheet assets in 2010, compared with 35.6% at year-end 2008, as
cash assets have been progressively invested in debt securities and other fixed income securities.
We believe the EIF's statutory and policy controls are prudent, and the sum of own-risk PE commitments (valued at
cost) may not exceed 50% of shareholders' equity (excluding the fair value reserve), while guarantee exposure
cannot exceed three times the amount of subscribed capital. We would expect 'AAA' rated callable capital to
comfortably cover this in a stressed scenario.
The EIF is exempt from income taxes, like other MLIs. Unlike most other MLIs, it normally pays a cash dividend to
its shareholders. However, the dividend was suspended for the 2009 fiscal year in light of EIF's €7.4 million loss, the
first since the EIF began operations. The loss primarily reflected higher provisions for losses on guarantees and some
impairments on PE investments. The fund recorded a profit of €7.2 million in 2010, and a minimum amount of €1.4
million in dividend payments is expected to be made in 2011.
Outlook
Standard & Poor's Ratings Services expects the EIF's capacity to meet its financial obligations to remain extremely
strong in the medium term despite suffering from the effects of the global market downturn. The fund's conservative
business approach, together with prudent statutory and policy controls, effectively limits its exposure to risks from
its operations. Shareholder support remains robust, due to the important role the fund continues to play for both of
its main shareholders.
Table 1
European Investment Fund Financial Indicators
Mil. € 2010 2009 2008 2007 2006 2005
Total assets 1,196 1,158 1,076 1,024 771 739
Liquid assets 74 106 384 292 53 73
Debt securities and other fixed income securities 864 832 496 522 517 504
PE investments (valued at lower of cost or attributable NAV) 194 165 159 168 134 105
PE investments (valued at cost) 228 206 191 168 139 120

Subscribed capital 3,000 2,940 2,865 2,770 2,000 2,000
AAA' callable capital 2,266 2,228 2,239 2,095 1,515 1,522
Paid-in capital 600 588 573 554 400 400
Shareholders' equity 1,016 1,029 1,014 985 693 668
Off balance sheet: SME guarantees at EIF risk (exposure at risk) 2,580 2,893 3,838 3,607 3,050 2,978
www.standardandpoors.com/ratingsdirect 3
906713 | 301664923
European Investment Fund
Table 1
European Investment Fund Financial Indicators (cont.)
Profit and loss
Income from investments in shares and other variable income securities 10.9 0.9 4.6 6.7 6.9 1.9
Commission income 37.1 26.8 23.4 29.1 26.3 17.9
Administrative expenses 43.6 36.4 30.0 26.1 21.6 16.0
Net interest and similar income 31.5 28.6 38.5 30.2 23.6 22.8
Profit 7.2 (7.4) 35.1 50.4 48.6 36.7
Value adjustments in respect of investments in venture capital enterprises N/A N/A N/A N/A N/A N/A
Key Financial Ratios
Shareholder Equity/Assets (%) 85.0 88.8 94.3 96.2 89.8 90.3
Liquid Assets/Total Assets (%) 6.2 9.2 35.6 28.5 6.9 9.9
Liquid Assets/Shareholder Equity (%) 7.2 10.3 37.8 29.6 7.6 11.0
Liquid assets plus fixed income securities/Total assets (%) 78.3 81.1 81.7 79.5 73.9 78.1
Gearing¶ (%) 107.1 118.0 151.1 151.8 167.2 127.0
Drawn SME guarantees (exposure at risk)/equity (%) 253.8 281.2 378.5 366.1 440.4 445.9
Return on shareholders' equity (%) 0.7 (0.7) 3.6 7.5 7.5 5.8
Return on assets (including guarantees) (%) 0.1 (0.1) 0.3 0.4 0.4 0.4
Commission Income/profit (%) 513.7 (364.1) 66.7 57.7 54.1 48.8
Income from VC investments/profits (%) 150.4 (12.6) 13.1 13.2 14.2 5.2
Commission Income/Administrative Expenses (%) 85.2 73.8 78.0 111.3 121.7 112.1
Structure And Shareholders

The EIF, established in 1994 and based in Luxembourg, is a financial institution of the EC. It has a tripartite
shareholder structure, comprising the EIB (61.2% at Dec. 31, 2010), the EU represented by the European
Commission (30%), and 28 financial institutions (8.8% in total). EIF's shareholding structure and operations were
reformed in 2000, following an initiative by the EIB to make the EIF an integral part of the EIB Group. The EIB
became the majority shareholder of EIF by purchasing the remaining unallocated shares in the fund, buying shares
from other financial institutions, and reducing the number of smaller shareholders.
The EIF's mandate is to promote the creation, growth, and development of SMEs, in accordance with a strategy to
turn the EU into a dynamic, knowledge-based economy, as set out by the 2000 Lisbon European Council. This is
outlined in Article 2 of the Fund's statutes, which determines the EIF's tasks in contributing to the pursuit of
European Community objectives. The EIF's statutes also require it to act independently and commercially, seeking a
return for shareholders.
To pursue its objectives, the EIF is authorized to provide loan portfolio guarantees (guarantees of other institutions'
loans to SMEs) and to acquire PE fund participations in private equity funds targeting SMEs. The fund's investments
aim to leverage both its own funds and those that are available through mandates (resources that the EIF manages
on behalf of the EIB and EU). Mandates from the EIB include the Risk Capital Mandate (RCM) and the Mezzanine
Facility for Growth (MFG), while those from the EU include the Competitiveness and Innovation Framework
Programme (CIP) and the Joint European Resources for Micro to Medium Enterprises (JEREMIE). For example, the
JEREMIE initiative started in 2005 to facilitate SMEs' use of EU structural funds over the period 2007-2013. The
Standard & Poors | RatingsDirect on the Global Credit Portal | October 31, 2011 4
906713 | 301664923
European Investment Fund
EIF also began to scale up its microfinance activity in 2010 and launched the European Progress Microfinance
Facility (EPMF) in that year, which serves as an umbrella initiative for the fund's microfinance activities. This
focuses on micro-borrowers, micro-entrepreneurs, and groups with limited access to the conventional banking
system.
The fund's key shareholders are firmly committed to the EIF's objectives and operations. The EIF plays an integral
role in the operation of its majority shareholder, the EIB, acting as the EIB's specialist arm for PE and SME
guarantee operations under the umbrella of the EIB group. Following the reform of the fund in 2000, overlaps in the
operations of EIB and EIF were removed by transferring the EIF's portfolio of guarantees under the trans-European
transport, telecommunications, and energy networks to the EIB. In return, the EIB transferred management of its

SME PE portfolio to the EIF and gave the fund a mandate for future operations on behalf of the EIB. In addition,
certain tasks previously carried out within the EIF, such as treasury management and internal auditing, were
outsourced to the EIB.
The EU, represented by the European Commission, is the EIF's second-largest shareholder and plays a specific role.
Not only was the EU the initial driver behind the EIF's creation , it also sets the EU objectives to which the EIF is
committed through its statutes. The EIF represents the most important platform for SME projects from the EU
budget, providing specialized expertise in SME financing while at the same time ensuring effective use of EU budget
resources.
At Dec. 31, 2010, the EIF's third group of shareholders was made up of 28 financial institutions that generally have
expertise and a commercial interest in SME finance, comprising national development and commercial banks. Many
of these institutions are not only shareholders, but cooperate with the EIF at the operational level, as demonstrated
by guarantee operations carried out with KfW (AAA/Stable/A-1+), Caisse Des Depots Et Consignations
(AAA/Stable/A-1+), and a number of commercial banks.
Capitalization
The EIF's subscribed capital was €3 billion at end-2010, of which 20% has been paid in, amounting to €600
million. Callable capital from 'AAA' rated shareholders was 223% of shareholders' equity. Given that the sum of
own-risk PE commitments (valued at cost) may not exceed 50% of shareholders' equity (excluding fair value
reserve), while guarantee exposure must not exceed three times the amount of subscribed capital, 'AAA' rated
callable capital of €2.3 billion at end-2010 should suffice to cover all potential payment obligations even under the
most severe stress scenarios. At end-2010, EIF own-risk guarantees amounted to €2.6 billion, less than a third of the
statutory limit of €9 billion, while net PE commitments totaled €389 million, below the €523 million statutory limit.
Shareholders' equity therefore covered one-third of the EIF's own-risk guarantees and PE operations in 2010
(shareholders' equity was more than twice own-risk PE operations).
Callable capital may be called by a general meeting, on a proposal of the board of directors, to meet the fund's
liabilities to creditors. Payments are required be made within 90 days. This explicit deadline for the capital pay-in is
unusual among supranationals. Considering also that almost all of the EIF's 'AAA' rated callable capital comes from
its two main shareholders, capital calls should be implemented fairly swiftly. If the EIF required liquidity at shorter
notice than provided for by callable capital procedures, however, we would expect the EIB to act as a lender of last
resort and to provide interim credit.
www.standardandpoors.com/ratingsdirect 5

906713 | 301664923
European Investment Fund
Given the previous growth rates of the EIF's business, the board of directors approved a 50% capital increase from
€2 billion to €3 billion for subscribed capital in 2007. The amount of paid-in capital was also increased by 50%, or
€200 million, and was fully paid in 2010. Any potential capital increase requires an 85% majority at the general
meeting; in other words, it requires the votes of both the EIB and the EC, which together hold just over 91% of the
EIF's shares. EIF management does not expect another increase in the near future, however.
The ongoing capital increase throughout 2010 (which amounted to €21 million) and the related increase of €9
million in the share premium account resulted in EIF shareholder equity of €1,016 million at the end of 2010 (€693
million at end-2006).
EIF statutes require the appropriation of at least 20% of net income toward the statutory reserve as long as reserves
are less than 10% of subscribed capital. However, the appropriation requirement was not implemented in 2010 on
the basis of the net loss of €7.4 million in 2009, the first since the EIF began operations. The loss primarily reflected
higher provisions for losses on guarantees and some impairments on PE investments. The fund recorded a profit of
€7.2 million in 2010, and a minimum of €1.4 million in dividend payments is expected to be made in 2011.
Operations
The EIF uses two instruments to promote and support SMEs: portfolio guarantees and PE participations. It also
operates in two different capacities: it has an own-risk portfolio, but also acts as an agent for other supranationals
(primarily the EIB and EU) and national and provincial governments (for instance, Germany, Spain, and Bavaria).
The risk that the EIF incurs in this capacity is borne by these entities.
During 2009–2010, the EIF increased its participation in PE funds and its issuance of guarantees to SMEs to meet
the challenges of reduced availability of market-based funding.
Total outstanding guarantees at year-end 2010 amounted to €14.7 billion (see table 2). These have increased by
nearly 20% since 2008, but the proportion at the EIF's own risk decreased to 17.5% in 2010, from just over 31%
of total guarantees in 2008. The growth in overall guarantees therefore stemmed from an increase in guarantee trust
activity that the EIF manages on behalf of the EC, its member states, and the EIB.
Total PE commitments have increased by 50% since 2008 this includes a 22% increase in commitments at EIF's
own risk. At year-end 2010, 93% of the EIF's €5.4 billion PE investments were of this type and the remainder was
at the risk of the EIF's own account. The total number of PE funds was 351 at end-2010, of which 189 were at the
EIF's own-risk.

Table 2
European Investment Fund Guarantees And Venture Capital Commitments
Mil. € 2010 2009 2008 2007 2006
Guarantees 14,701 13,594 12,334 10,919 10,385
Of which own risk 2,580 2,893 3,838 3,607 3,050
Of which Mandates (EC) 12,121 10,701 8,496 7,312 7,335
Venture capital* 5,367 4,103 3,534 3,480 3,274
Of which own risk 389 340 317 331 287
Of which Mandates 4,978 3,763 3,217 3,148 2,987
*Sum of drawn (minus capital repayment) and undrawn commitments. EC European Commission. EIB European Investment Bank. N/A Not applicable.
Standard & Poors | RatingsDirect on the Global Credit Portal | October 31, 2011 6
906713 | 301664923
European Investment Fund
On the guarantee business, the EIF manages a mandate on behalf of the European Commission, whereby the
Commission guarantees part of the expected losses of SME portfolios to local financial institutions. The EIF is
responsible for managing the latest version of this program, the High Growth and Innovative SME Facility (GIF)
under the Competitiveness and Innovation Framework Programme (CIP), which covers the period 2007-2013. Total
resources for guarantees under this program amount to €550 million.
Meanwhile, for PE investments, apart from using its own resources, the EIF manages resources under mandate from
its shareholders. This includes a Risk Capital Mandate (RCM), which the EIF has operated on behalf of EIB since
2000, when the fund became responsible for all EIB Group VC investments in Europe. The €4 billion available
under this facility account for the majority of EIF's VC investments. In addition, under a Joint European Resources
for Micro to Medium Enterprises (JEREMIE) with the EC, the EIF facilitates SMEs' use of EU structural funds
through financial institutions and intermediaries.
The EIF also manages third-party mandates with funds-of-funds from non-shareholders. The EIF generally
co-invests its own resources alongside these third-party resources. However, these mandates are not included in the
EIF balance sheet. For example, the EIF manages Dahlia, a pan-European fund-of-funds of €300 million launched
jointly with Natixis Private Equity, Paris, with an EIF contribution of €75 million committed under the RCM
mandate and EIF own resources in 2008.
The EIF supports SMEs, not through direct investments but through equity investments in private equity funds,

particularly those that are early-stage and technology-oriented. In return for managing the respective portfolios
under mandate, the EIF receives management fees, and, in the case of PE mandates, a performance fee.
Funding for EIF activities for its own account comes entirely from shareholders' equity; under its agreement, the EIF
cannot borrow for these purposes, although it maintains a €25 million treasury facility for bridging purposes, and
we believe funding from EIB would be available if necessary. This capital is used to credit enhance tranches of SME
loan or lease-securitization transactions placed on the capital market transactions. The fund also provides credit
insurance for SME loan and lease portfolios to financial institutions.
Generally, the EIF aims to leave a certain amount of headroom to provide an additional cushion. EIF's operations
are restricted to activities within the EU, and in accession countries. We believe the EIF's statutory and policy
controls are prudent as the sum of own-risk PE commitments (valued at cost) may not exceed 50% of shareholders'
equity (excluding fair value reserve), while guarantees cannot exceed three times the amount of subscribed capital.
At end-2010, the EIF's net PE commitments (commitments made to underlying funds less capital repayments)
totaled €389 million, below the €523 million statutory limit, while own-risk guarantees totaled €2,580 million, less
than total subscribed capital of €3,000 million and therefore well below the statutory limit. We would expect 'AAA'
rated callable capital to comfortably cover total own-risk commitments in a stressed scenario.
All prospective guarantees and PE transactions undergo comprehensive due diligence before, and ongoing
monitoring after, completion by the respective operational departments. A separate and independent risk
management and monitoring division provides a second opinion on the risk assessments of the operational
departments.
www.standardandpoors.com/ratingsdirect 7
906713 | 301664923
European Investment Fund
Own-Risk Guarantee Portfolio
Statutes limit the amount of guarantee exposure extended by the EIF at its own risk to 3x the amount of subscribed
capital, which is equivalent to €9 billion under the current arrangement, in line with the approved capital increase.
This limit is in relation to €2.6 billion in net guarantee exposure at risk at end-2010. The halt in the securitization
market during 2009 and the maturing of some guarantees has led to the decline in overall guarantees extended from
€4.3 billion in 2007.
The present policy, which requires shareholders' equity to fully cover both capital allocation for guarantees and PE
commitments fully at all times for the EIF's own-risk portfolio, ensures that the level of guarantees will not

approach the present statutory limit for the foreseeable future.
The EIF uses its capital to credit enhance SME loan tranches or lease securitization transactions placed on capital
market transactions. It also provides credit insurance cover for SME loan and lease portfolios to financial
institutions.
Credit enhancement accounted for about 95% of total own-risk guarantee exposure (€2.4 billion) as of end-2010.
The EIF provides an unconditional, irrevocable guarantee on principal and interest to noteholders to enhance the
credit quality of bonds backed by a securitized portfolio, or acts as a credit-default-swap counterparty, usually for
mezzanine tranches.
There are two other subportfolios that the EIF is focusing on less and less. These are credit insurance and
reinsurance, and structured investment vehicles, which at end-2010 accounted for 5.3% (€135.5 million) and 0.2%
(€6.3 million) of all own-risk outstanding guarantees, respectively.
Table 3
European Investment Fund Own-risk Guarantee Portfolio, December 2010
(Mil. €) Outstanding
Proportion of total
outstanding (%)
Gross capital
charge
Proportion of total gross
capital charge
Average capital
allocation, %
Credit Enhancement 2,438.4 95.1 522.1 99.4 21.7
Credit Insurance and
Reinsurance
135.5 4.8 1.0 0.2 0.8
Structured Investment
Vehicles
6.3 0.1 2.0 0.4 57.3
Defaulted 0.0 0.0 0.0 0.0 0.0

Total 2,580.2 100.0 525.1 100.0 20.7
At year-end 2010, called guarantees relating to the EIF's own-risk portfolio had reached a cumulative €16 million
over 2005-2010 (of which €6.7 million fell in 2010). This figure is low in relation to the amount of guarantees
extended (€3.2 billion in 2010). Provisioning for such calls amounted to €107.5 million in 2010 and a call of €6.7
million from two transactions were made in 2010.
In terms of the outstanding amount of own-risk guarantees at end-2010, 18.1% were to pan-EU projects, 40.3%
were in countries which had a 'AAA' sovereign rating, then Italy (12.8%), Spain (7.2%), and Ireland, Portugal, and
Greece at a combined 8.4%.
Standard & Poors | RatingsDirect on the Global Credit Portal | October 31, 2011 8
906713 | 301664923
European Investment Fund
Guarantees trust activity
The EIF is extending and managing a portfolio of guarantees on behalf of, and at the risk of, the EC. At year-end
2010, committed guarantee facilities under the EC mandate were €11.7 billion, up by a third from 2008.
Own-Risk Private Equity Participations
At year-end 2010, own-risk PE commitments on a net basis amounted to €389 million, with 189 funds. The EIF
maintains a balanced portfolio with a focus on technology-oriented, early-stage, and general mid- and later-stage
funds. It does not directly acquire participations in companies, but instead invests in selected PE funds, with a view
to private-sector investors providing at least 50% of the equity. Co-investors sometimes come from financial
institutions holding shares in EIF.
All risk to EIF from its own-risk PE operations is fully covered by shareholders' equity. As a subceiling, PE
commitments may not exceed 50% of shareholders' equity (excluding the fair value reserve), equivalent to €523
million at year-end 2010. By comparison, net commitments at end-2010 stood at €389 million. Of the €490.5
million of own-risk funds committed in 2010, €321 million has been disbursed. Following the IFRS methodology,
EIF records value adjustments on a line-by-line basis either through the profit and loss in case of impairment or
through the fair value reserve, which forms part of the EIF's shareholder's equity. Consequently, net disbursed
own-risk funds (at cost) of €219.4 million are valued at €194.4 million in EIF's 2010 balance sheet.
For the PE portfolio, 61% was in countries that had a 'AAA' sovereign rating, then Italy (5%), Spain (8%), with
Ireland, Portugal, and Greece at a combined 5%.
The EIF usually insists on a no-fault divorce clause in the funds in which it invests, allowing a qualified majority of

investors to remove the manager of the respective PE fund. In addition, the EIF usually has a representative on the
advisory boards of the PE funds in which it invests, and seeks cooperation with other investors to ensure prudent
management of the fund and monitor its investments more closely. After investment, the performance and status of
the respective PE fund, based on expected performance, operational status, and contractual compliance, are
monitored regularly.
Venture-capital trust activity
EIF's PE investments from own-risk funds are relatively small when compared with the PE portfolios EIF manages
on behalf of, and at the risk of, EIB, EC and other entities. For example, at year-end 2010 EIF had net disbursed
amounts and undrawn committed investments of €3.8 billion from EIB resources under the EIB risk capital
mandate, €217 million under the Multiannual Program for Enterprise and Entrepreneurship (CIP) and €59 million
from EU funds under the ETF start-up facility. The composition of the overall PE portfolio is in many respects
similar to the own-risk portfolio, due to an initial co-investment agreement with EIB that required EIF to co-invest
its own resources into PE funds to which it committed capital under the EIB risk capital mandate. Remuneration for
these PE operations is based on actual use.
Financial Performance
Due to the adverse financial environment during 2009 overall European private equity fundraising dropped by 85%
from 2008 levels and securitization markets were adversely affected and filtered through to EIF's overall
performance. Impairments on EIF's fund portfolio increased from 22% to 23.6% of total funds from 2008 to 2009
www.standardandpoors.com/ratingsdirect 9
906713 | 301664923
European Investment Fund
and provisions for guarantees increased from €8.5 million in 2008 to €65 million in 2009 (as a result of which
overall net income from guarantees totaled a loss of €20 million from a profit of €18 million in 2008). Overall, the
EIF made a loss of €7.4 million as a result. Until 2009, the fund had generated a profit in every year of its existence,
although profits in early years were almost exclusively due to income from the treasury.
Impairments on the fund portfolio continued to rise in 2010, owing to the still difficult operating environment in
that market, and stood at 25.2% of the EIF's portfolio based on committed funds, while provisions on guarantees
reached €107 million (as a result of which overall net income from guarantees generated a loss of €25 million).
Despite this, the EIF realized profit of €7.2 million in 2010, due to higher gains from equity and guarantee income.
In recent years, the EIF core business has increasingly surpassed treasury as the main income provider. However,

total income has fallen since 2008, owing to a fall in net income from guarantee operations, usually a large
component of the core business. Commission income and net interest and similar income are now the largest
components of total income. At the same time, staff costs have increased due to increased staffing intended to
bolster ongoing surveillance efforts.
EIF's operations are almost exclusively based on shareholders' equity, which is the basis for PE investments and
capital allocation for guarantees. Consequently, EIF does not borrow funds. Liquidity is less important for EIF's
operations than for multilateral lending institutions, because outflows of funds stem only from committed but
yet-to-be-disbursed PE and potential payments on called guarantees. EIF's liquidity position benefits from implicit
liquidity support from the EIB. However, liquidity, which was generally high, fell sharply in 2009-2010; cash assets
as a percentage of total balance-sheet assets fell to 6.2% in 2010 from 35.6% in 2008, as liquid assets have been
progressively invested in debt securities and other fixed income securities.
EIF's treasury financial assets are restricted to a list of eligible instruments (money-market, long-term debt, and
foreign exchange instruments). Any currency arbitrage not directly required to carry out EIF's operations is ruled
out by the statutes. Treasury management has been outsourced to EIB under a treasury management agreement
signed by both parties, and is carried out according to EIF treasury guidelines. The financial assets of EIF are held in
two different portfolios, besides cash or equivalent:
• The operational portfolio consists of liquid, highly rated (minimum short-term rating of 'A-1'), short-term
instruments. Treasury guidelines prescribe that no less than €30 million of total treasury funds should be kept in
the operational portfolio.
• The investment portfolio (available for sale portfolio) consists of long-term debt instruments, and floating- and
fixed-rate instruments. According to treasury guidelines the investment portfolio needs to be sufficiently
diversified by issue, issuer, and share of corporate bonds.
The EIF has altered its purpose-related exposure in line with achieving its objectives of enhancing its position as
Europe's leading developer of risk financing for entrepreneurship and innovation. It has liquidated most of its
asset-backed securities (ABS) holdings (at year-end 2010 it had three ABS positions with a total nominal value of
€22.1 million, or 2.4% of the nominal portfolio), compared with €88 in 2008. It still holds a proportion of covered
bonds, which have performed better than the ABS. It has also limited the amount of sovereign bonds that they can
purchase, which are now contingent upon the maintenance of a rating at the 'BB+' level. However, the downgrade
of Greece to below this rating in 2011 means that this requirement has been breached.
By May 2011, 32.7% of debt and other fixed income securities had an 'AAA' rating, 35.9% were in the 'AA'

Standard & Poors | RatingsDirect on the Global Credit Portal | October 31, 2011 10
906713 | 301664923
European Investment Fund
category, 2.9% were in the 'A' category, 17.6% were in the 'BBB' category and 5.6% was sub-investment grade
(this exposure was to Greece). Exposure to the weaker euro zone countries is high: in May 2011, total treasury
portfolio exposure to Spain and Italy was 16.5% and 20.7%, respectively, while to Greece, Ireland and Portugal it
was 23%.
Return on average shareholders' equity (ROE) in 2009 was negative 0.7%, down from the return achieved in 2008,
reflecting the loss as a result of the adverse economic and financial environment. EIF has been paying dividends to
its shareholders since the second year of its existence. Allocation of net income is usually split 40% towards
dividends, 40% towards statutory reserves, and 20% to profit brought forward. However, given that there was no
net income in 2009, no dividends were paid nor were there transfers to the statutory reserves. Return on equity was
0.7% in 2010 and dividends are again to be distributed in 2011 a minimum amount of €1.4 million is required to
be appropriated in 2011.
Related Criteria And Research
• Criteria For Rating Multilateral Aid Agencies, July 6, 2009
• Group Methodology, April 22, 2009
Ratings Detail (As Of October 31, 2011)
European Investment Fund
Counterparty Credit Rating
Foreign Currency AAA/Stable/A-1+
Counterparty Credit Ratings History
01-Jul-2003 Foreign Currency AAA/Stable/A-1+
*Unless otherwise noted, all ratings in this report are global scale ratings. Standard & Poor's credit ratings on the global scale are comparable across countries. Standard
& Poor's credit ratings on a national scale are relative to obligors or obligations within that specific country.
Additional Contact:
Sovereign Ratings;
Additional Contact:
Sovereign Ratings;
www.standardandpoors.com/ratingsdirect 11

906713 | 301664923
European Investment Fund
S&P may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right
to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and
www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party
redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result,
certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the
confidentiality of certain non-public information received in connection with each analytical process.
Credit-related analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact or
recommendations to purchase, hold, or sell any securities or to make any investment decisions. S&P assumes no obligation to update the Content following publication in any
form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or
clients when making investment and other business decisions. S&P's opinions and analyses do not address the suitability of any security. S&P does not act as a fiduciary or
an investment advisor. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or
independent verification of any information it receives.
No content (including ratings, credit-related analyses and data, model, software or other application or output therefrom) or any part thereof (Content) may be modified,
reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of S&P. The Content
shall not be used for any unlawful or unauthorized purposes. S&P, its affiliates, and any third-party providers, as well as their directors, officers, shareholders, employees or
agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or
omissions, regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is
provided on an "as is" basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING
WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any
party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without
limitation, lost income or lost profits and opportunity costs) in connection with any use of the Content even if advised of the possibility of such damages.
Copyright © 2011 by Standard & Poors Financial Services LLC (S&P), a subsidiary of The McGraw-Hill Companies, Inc. All rights reserved.
Standard & Poors | RatingsDirect on the Global Credit Portal | October 31, 2011 12
906713 | 301664923