EIF is the largest fund-of-funds player in European venture capital
With 40 billion euros in assets under management, the European Investment Fund (EIF) has become one of the most important players on the private capital markets over the years. In the European venture capital scene in particular, there is hardly a portfolio manager who has not approached the EIF for their debut fund. „We are definitely the largest fund-of-funds investor in Europe,“ says Uli Grabenwarter in the private markets podcast „Betting Billions“.
As a fund of funds, the European Investment Fund invests equity via intermediaries in various private markets funds. Not just in venture capital, but across all private asset classes. „We are active in venture capital, we do private equity, we invest in infrastructure funds, and we also make private credit investments via debt funds,“ says Grabenwarter.
EIF invests 7 billion euros annually in private markets
He is responsible for the EIF's fund investments. „Our annual investment capacity is in the region of 7 billion euros,“ says Grabenwarter. This year, around 1.7 billion has been channelled into private equity funds. In the venture capital sector, EIF involvement is in the order of 3 to 3.5 billion euros. Around 1.5 billion euros were allocated to infrastructure investments, and the remainder to the private credit business.
Our annual investment capacity is in the region of 7 billion euros.
Uli Grabenwarter, European Investment Fund
Grabenwarter explains the current preponderance of venture capital with the „European Technology Champions Initiative“ launched in 2022, with which the EIF aims to support the financing of fast-growing technology companies. „These are funds with the ambition to invest at least 1 billion euros in the market.“
EIF must deliver competitive returns
The manager describes the European Investment Fund as a catalytic investor. „This means that we should use our own activities to demonstrate to the private sector that it is not only possible to pursue political or social objectives in these asset classes in Europe with a sensible investment strategy, but also to generate attractive financial returns.“
The fact is that we have consistently generated solid double-digit returns in venture capital and private equity over the last few years.
Uli Grabenwarter, European Investment Fund
With its investments, the EIF therefore aims to deliver mainstream returns to the private sector. „The fact is that we have consistently generated solid double-digit returns in venture capital and private equity over the last few years,“ says Grabenwarter. These net returns are absolutely competitive in the current interest rate environment. He describes the other private asset classes as more defensive, which is why the returns there are not in the high double-digit range, but certainly in line with the market.
EIF funds partly come from institutional investors
In contrast, Grabenwarter describes the fundraising of the European Investment Fund as a „highly complex matter“. On the equity side, the EIF has around 60 investment mandates from various donors. In addition to the European Investment Bank and the European Commission, these also include around 30 European financial institutions, which are represented in the EIF's share capital.
The EIF has a whole range of investment mandates from these parties. „And since 2017, we have also had mandates that we manage for the private sector,“ says Grabenwarter. These are institutional investors who want to invest in the European venture capital landscape via a fund of funds structure with the European Investment Fund. In fundraising, the EIF is thus theoretically competing with the private market funds in which it invests as a fund-of-fund manager.
In practice, however, this competition hardly exists, according to Grabenwarter. The supply of capital in Europe is smaller than the demand for venture capital in particular. This is also the reason why the EIF has moved into this field. „We didn't initiate this ourselves – we were approached by institutional investors,“ he explains.
When we talk about a successful institutional VC manager in Europe today, there is a very high probability that we were invested in the first generation of funds.
Uli Grabenwarter, European Investment Fund
Grabenwarter estimates that the European Investment Fund has placed between 30 and 33 billion euros in capital on the market since the turn of the millennium. The EIF is very selective in its choice of fund managers. On average, only one out of ten funds is invested in. Manager selection has become the EIF's speciality to a certain extent, he says. ‘’When we talk about a successful institutional VC manager in Europe today, there is a very high probability that we were invested in the first generation of funds. Grabenwarter estimates the EIF's market share in the European VC market at around 20%.
EIF is above regulation
Yet the European Investment Fund differs from institutional investors from the private sector in some respects. According to Grabenwarter, the EIF must always take economic policy components into account when selecting investments, despite the competitive returns. „This can be innovation, it can be employment, but it can also be sustainability and the environment.“
This is a luxury that an investor from the private sector does not have.
Uli Grabenwarter, European Investment Fund
A big advantage, however, is that the EIF to a certain extent operates above regulation. For example, the EIF has no allocation limits for asset classes. „This is a luxury that an investor from the private sector does not have,“ says Grabenwarter. After the interest rate turnaround, for example, investors suffered greatly from the fact that the relative share of their illiquid assets shot up with the devaluation of their liquid assets. A problem that the EIF does not have.
