EUROPEAN INVESTMENT FUND

Rating Action & Rationale

EthiFinance Ratings affirms the European Investment Fund’s (EIF) long-term credit rating at AAA, maintaining its Stable Outlook.

The AAA credit rating reflects the EIF’s very strong shareholder support from highly creditworthy public institutions, notably the European Investment Bank (EIB) and the European Union, represented by the European Commission (EC). The Fund is strategically important to its shareholders due to its clearly defined mandate to enhance access to finance for small and medium-sized enterprises (SMEs) across Europe and its central role in the implementation of EU public policy objectives. This exceptional level of institutional support results in a one-notch uplift from the EIF’s stand-alone credit profile, which EthiFinance Ratings assesses at AA+.

The EIF operates within a robust and conservative risk management framework, with activities governed by mandates from the EIB, the EC and other contributors. These mandates define clear objectives and risk limits, significantly limiting discretion and ensuring alignment with the Fund’s public mission. In addition, the EIF benefits from high diversification across financial instruments, sectors and geographies, which mitigates concentration risks and supports the resilience of its business and risk profile.

The Fund’s financial profile is very strong, supported by a diversified and largely recurring income base. Commission income remains the main revenue source, accounting for 56% of total income in 2024, complemented by income from private equity investments and interest and similar income. Profitability remains positioned in the upper range of EthiFinance Ratings’ methodology, with a pre-tax margin of 53.4% in 2024 and an EBITDA-to-AUM ratio of 0.34%, reflecting strong operating performance despite some inherent volatility linked to fair value movements on private equity investments.

The EIF’s financial flexibility and capitalisation are assessed as very strong. Liabilities mainly reflect an operational funding line provided by the EIB under the InvestEU Programme, used to finance guaranteed funded operations carried out on behalf of the EU. As loan repayment is secured by cash inflows from the underlying portfolio and ultimately backed by the EU budgetary guarantee, these liabilities do not constitute conventional financial debt and do not materially increase the EIF’s risk profile. Capitalisation remains robust, with a high equity-to-assets ratio and substantial loss-absorbing capacity.

While the EIF’s profitability may exhibit some volatility in adverse economic conditions—particularly if increased SME defaults were to trigger higher guarantee payments—this risk is mitigated by the Fund’s conservative risk framework, very low observed default rates on guarantees, strong capital buffers and the continued support of its shareholders. Overall, the exceptionally strong shareholder support fully supports the uplift from the stand-alone credit profile to the AAA credit rating. 

Executive Summary 

The European Investment Fund (hereinafter, EIF or the Fund) is an integral part of the European Investment Bank Group, the European Union’s lending arm. EIF provides risk finance to small and medium-sized enterprises (SMEs) across Europe. Its shareholders include the European Investment Bank (EIB), the European Union (EU), represented by the European Commission (EC), and various public and private financial institutions. 

Fundamentals 

• Very strong shareholder support from highly creditworthy public institutions, including the EIB and the EU, represented by the EC, whose maximum creditworthiness underpins the EIF’s AAA rating. The strong and demonstrable willingness of shareholders to provide support reflects the Fund’s strategic importance in delivering EU policy objectives and is reinforced by their majority ownership of 89.4% as of end-2024. This shareholder support provides a one-notch uplift over the EIF’s stand-alone credit profile, assessed by EthiFinance Ratings at AA+.
• Clear and policy-driven mandate to enhance access to finance for European SMEs, achieved through the development and deployment of targeted financial instruments offered to a wide range of financial intermediaries, including banks, guarantee institutions and investment funds.
• Key institutional role within the European Investment Bank Group, with the EIF supporting EU public policy objectives through the design, implementation and scaling-up of financial instruments, notably under EU flagship programmes such as InvestEU.
• Robust and conservative risk management framework, with activities governed by mandates from the EIB, the EC and other third parties. These mandates define clear objectives, risk limits and operational guidelines, significantly limiting managerial discretion and ensuring strict alignment with the EIF’s public mission and risk appetite.
• High diversification across instruments, sectors and geographies, supporting SMEs through guarantees, private equity investments and other financial initiatives. As of end-2024, financial guarantees were spread across 40 countries and PE investments were well diversified across funds, strategies and regions, contributing to effective risk dispersion.
• Very strong financial flexibility and limited leverage, with liabilities primarily reflecting an operational funding line from the EIB under the InvestEU Programme used to finance guaranteed funded operations carried out on behalf of the EU. As loan repayment is secured by portfolio cash inflows and backed by the EU budgetary guarantee, these liabilities do not constitute conventional financial debt and do not materially increase the EIF’s risk profile.
• Stable and well-diversified income structure, with commission income remaining the main revenue source. In 2024, commission income accounted for 56% of total income, followed by net income from PE investments (16%) and interest and similar income (15%), supporting earnings resilience.
• Very strong and stable profitability, supported by a diversified and recurring income base. The pre-tax margin increased slightly to 53.4% in 2024 (2023: 52.6%), despite some historical volatility linked to fair value movements on PE investments at FVTPL. EBITDA increased to €313.0m in 2024, and the EBITDA-to-AUM ratio improved to 0.34% (2023: 0.28%). 

Main Ratios

Outlook

The Stable outlook reflects EthiFinance Ratings’ expectation that the EIF will maintain its very strong credit profile, supported by continued strong shareholder backing from the EIB and the EU and its clearly defined policy-driven mandate. The outlook also assumes the preservation of robust capitalisation, very strong financial flexibility, stable asset quality and conservative risk management, despite the ongoing scaling-up of activities under EU programmes. 

Rating Sensitivities

Factors that individually or collectively could impact the rating: 

•          Factors which could lead to an upgrade

Not applicable.

•          Factors which could lead to a downgrade

The rating could be downgraded if the EIF’s strategic role in enhancing access to finance for SMEs in Europe were to weaken materially, resulting in a reduction in the level of support from its shareholders. In addition, a significant and sustained deterioration in the Fund’s financial profile could exert negative pressure on the rating, particularly if financial flexibility were to be impaired through the issuance of conventional financial debt, or if profitability were to decline structurally, with a sustained pre-tax income margin falling below 15% and an EBITDA-to-AUM ratio declining below 0.1%. 

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Company Profile

As part of the European Investment Bank Group, the EIF is a key provider of risk finance to small and medium-sized enterprises (SMEs) across Europe. As of 31 December 2024, the EIB held 59.7% of the shares, the EU represented by the EC held 29.7% and 39 financial institutions held 10.6%. The Fund carries out its activities using either its own resources or those provided by the EIB, the EC, any EU Member States or other third parties. 

Driven by a long-term public policy mandate, the EIF benefits from stable growth in AUM. As of 31 December 2024, total assets under management (AUM), defined as the initial resources and contributions allocated to each mandate, amounted to €91.73bn (2023: €90.88bn). The EIF has deployed €14.4bn during the year (2023: €14.9bn).

The EIF was incorporated on June 14th, 1994, in Luxembourg, as an international financial institution to contribute to the pursuit of the objectives of the EU. Its two main activities include the provision of guarantees and the acquisition, holding, managing and disposal of equity participations of SMEs within the EU and the EFTA countries.

The AAA rating reflects EIF’s strong shareholder support and its strategic role in advancing EU objectives by fostering a sustainable financing ecosystem for SMEs. 

Strong geographic diversification supports the EIF’s risk profile by ensuring a balanced distribution of recipients across countries and sectors. As of 31 December 2024, the EIF’s financial guarantees were spread over 40 countries, with Romania holding the largest share at 14.9% (2023: 15.0%), followed by Poland 12.1% (2023: Spain, 11.4%) and Spain at 11.7% (2023: Poland, 9.1%). 

The EIF’s PE investment activity is mainly focused on Europe, with limited exposure outside the region. As of 31 December 2024, France had the largest weight with 9.7% (2023: 11.4%), followed by the United Kingdom with 8.0% (2023: 8.3%) and Germany with 7.0% (2023: United States, 7.3%).

The EIF operates under a conservative risk management framework, guided by strict standards and controls defined by mandates from the EIB, the EC and other contributors. This framework limits discretion, ensuring alignment with its mission and risk parameters, which EthiFinance Ratings considers a key rating strength.

Credit risk is managed through policies defined in the EIF’s statutes and Credit Risk Policy Guidelines. The statutes of the EIF limit guarantee operations to five times the subscribed capital, amounting to €7.37bn at year-end 2024, as per amendment approved by the Board of Directors. Hence, the €8.96bn exposure at risk, together with the funded exposure of €513.9m in respect of ABS investments was below the statutory limit of €36.85bn. Only 0.1% of the financial guarantees had a rating below investment grade. 

Overall, the EIF’s strong shareholder support, policy-driven mandate and conservative risk framework underpin its very strong creditworthiness and are fully consistent with the AAA rating. 

Financial Profile

Results and Profitability

In 2024, the EIF reported a strong improvement in results, driven by broad-based income growth, reflecting both favourable market conditions and the continued expansion of its mandate-related activities. 

Net interest and similar income increased by 38% to €77.13m (2023: €55.78m), primarily supported by higher returns on debt investments. This included higher interest on the treasury portfolio, microfinance loans and debt investments at FVTPL. Net interest income on bank current accounts also contributed to the increase. 

Net income from PE investments rose by 34% to €86.04m (2023: €64.39m), mainly due to higher dividend income. 

Net result from financial guarantee operations declined slightly by 2% to €59.45m (2023: €60.46m). This result mainly relates to guarantees provided on senior and/or mezzanine tranches of notes issued through SME securitization transactions. 

Commission income remained the EIF’s largest revenue source and increased by 10% to €293.08m (2023: €265.64m), driven by higher activity under EIB mandates, EC mandates, and Regional and Funds of Funds mandates. The composition remained well balanced, with EIB mandates accounting for 27%, EC mandates for 35%, and Regional and Funds of Funds mandates for 38%. 

Net result on financial operations improved to €8.67m, compared to a loss of €2.11m in 2023. This was mainly driven by gains arising from foreign currency transactions and cash positions, partially offset by higher realised losses on debt investments at amortised cost. 

As a result, total income increased by 18% to €524.38m (2023: €444.20m). Total income was primarily composed of commission income reaching 56% of the total, followed by net income from PE investments (16%), interest and similar income (15%), net results from financial guarantee operations (14%) and net result on financial operations (2%). 

Operating expenses increased by 22% to €261.28m (2023: €214.83m), reflecting increased activity levels. The cost/income ratio rose slightly from 48% to 50%, but remained indicative of strong efficiency and compares favourably with previous years. 

Operating profit increased by 15% to €263.10m (2023: €229.37m), supported by strong income growth, which more than compensated for the increase in operating expenses. 

Profitability metrics remained strong. EBITDA rose by 27% to €312.99m (2023: €229.45m), while total AUM increased modestly by 1% to €91.73bn (2023: €90.88bn). Therefore, EBITDA relative to AUM improved from 0.28% to 0.34%, showing the EIF’s strong ability to generate returns on managed resources. 

The result generated by changes in fair value amounted to €16.67m in 2024, up from €4.37m in 2023. This improvement was mainly driven by positive fair value changes in PE investments measured at FVTPL (+€34.28m), partially offset by negative fair value changes in financial guarantees at FVTPL (-€13.55m) and debt investments at FVTPL (-€9.77m). While inherently volatile, this component contributed positively to overall profitability in 2024.

Net profit increased by 20% to €279.77m (2023: €233.74m), reflecting the solid improvement in operating profit and the favourable contribution from fair value movements.

The EIF’s margin before taxes remained exceptionally high, increasing slightly from 52.6% to 53.4%. This highlights the Fund’s ability to sustain very strong profitability despite historical volatility stemming from fair value adjustments. Overall, profitability is assessed as very strong.

Asset Quality and Risk Exposure

As of 31 December 2024, assets totalled €7.79bn, up 19% compared to €6.55bn a year before, reflecting both balance sheet expansion and higher activity under mandate-related programmes. The largest exposures comprised the debt treasury portfolio at amortized cost (31%), PE investments at FVTPL (25%), cash and cash equivalents (15%), guaranteed funded operations at FVTPL (12%) and debt investments at FVTPL (7%).

Liquidity levels strengthened further in 2024. Cash and cash equivalents increased to €1.13bn (2023: €813.80m), supporting a strong liquidity buffer. These were composed of €647.22m in current accounts (57%) and €487.93m in money-market instruments and short-term securities (43%). The effective interest rate on short-term bank deposits declined from 4.78% to 3.71%, reflecting changing market conditions, but remained supportive of income generation.

Financial instruments at amortised cost increased by 4% to €2.48bn (2023: €2.38bn) and mainly comprised the treasury portfolio. Disposals of debt investments remained infrequent and insignificant in volume, consistent with the EIF’s intention to hold these assets to collect contractual cash flows. 

The treasury portfolio increased by 3% to €2.42bn (2023: €2.35bn) and consisted of long-term bank deposits and a diversified long-term debt portfolio across 35 countries, including bonds issued by EU sovereigns and non-EU sovereigns, as well as corporate issuers. Portfolio management has been outsourced to the EIB. The largest country exposures were France, Spain, United States, Germany, and Japan, which jointly represented 43% of total nominal value. In nominal terms, 83.5% of the portfolio had a duration of five years or less, limiting interest rate risk. Credit quality remained high, with all debt instruments rated investment grade. The average yield at cost increased from 0.57% to 1.06%, reflecting higher returns.

Financial instruments at FVTPL increased by 26% to €3.45bn (2023: €2.74bn) and comprised PE investments, guaranteed funded operations and debt investments. 

PE investments increased by 10% to €1.98bn (2023: €1.80bn). The portfolio mainly consisted of investments in PE funds and exposures under the InvestEU Programme through various vehicles. These funds are typically structured as Limited Partnerships, under which the EIF commits capital to be drawn at the discretion of the General Partner. The portfolio was well diversified across investment strategies, including venture capital (39%), infrastructure (21%), private equity (20%), private debt (19%) and generalist strategies via fund-of-funds vehicles (1%).

Diversification within the PE portfolio remained a key risk mitigant. The largest single fund represented only 1.4% of total fair value, while the ten largest funds accounted for 9.3% in aggregate. Geographic exposure was well spread, with France, the United Kingdom, Germany, the United States and Spain jointly representing 36% of total value. From a sectoral perspective, excluding generalist strategies, the largest exposures were to Information and Communication Technologies (17%) and Life Sciences (5%), reflecting the EIF’s focus on innovation-driven sectors.

Guaranteed funded operations at FVTPL increased sharply to €960.14m in 2024, from €401.81m in 2023, reflecting the scaling-up of InvestEU-related activities. These operations include PE investments and capacity-building investment operations carried out by the EIF on behalf of the EU, represented by the EC. The financial assets are fully guaranteed by the InvestEU budgetary guarantee and funded through a credit line provided by the EIB. Fair value fluctuations are fully neutralised by the guarantee, and all risks and rewards ultimately accrue to the EU. As a result, the EIF is not exposed to the underlying credit risk of these operations and only retains residual counterparty risk to the EU, which we consider to have a very strong capacity to meet its obligations.

Debt investments at FVTPL declined slightly by 4% to €513.93m (2023: €534.51m), reflecting net disposals during the year. This portfolio includes financial assets with fixed or determinable payments that are not quoted in active markets.

Financial guarantee contracts represent a core activity of the EIF and require the Fund to compensate the holder of a debt instrument in the event of debtor default. On the asset side, financial guarantees amounted to €21.25m, representing the present value of expected future premium inflows. On the liability side, provisions for financial guarantees stood at €10.46m, reflecting a very low level of observed defaults.

Total exposure at risk from guarantee transactions remained broadly stable at €8.96bn (2023: €8.97bn), with an exceptionally low default rate of 0.1%, unchanged from the previous year. Transactions under review increased to 4.0% (2023: 2.5%), but remain manageable and do not point to a material deterioration in portfolio quality.

Capitalisation and Leverage

As of 31 December 2024, liabilities totalled €2.92bn, up 49% compared to €1.96bn a year before. This increase was primarily driven by the expansion of mandate-related activities under the InvestEU Programme. Liabilities mainly comprised the funding line provided by the EIB under financial liabilities at amortised cost (57%), retirement benefit obligations (17%), and other liabilities such as related party payables, employee benefit payables and trade creditors (26%).

Financial liabilities at amortised cost rose sharply to €1.65bn (2023: €874.45m). This 89% increase exclusively reflects the drawdown of the EIB funding line used to finance investments under the InvestEU Programme classified as guaranteed funded operations. Loan repayment is secured by cash inflows generated by the underlying investment portfolio and ultimately backed by the InvestEU budgetary guarantee. As a result, this funding line is considered operational in nature rather than a conventional form of financial debt. Accordingly, EthiFinance Ratings views the EIF’s financial flexibility as very strong, as the increase in liabilities does not materially weaken its risk profile or constrain its balance sheet.

Capitalisation remained robust in 2024. Equity increased by 6% to €4.87bn (2023: €4.59bn), supported by strong profit generation, higher retained earnings and an increase in the statutory reserve, partially offset by dividend distributions. In line with its statutes, the EIF is required to allocate at least 20% of its annual net profit to the statutory reserve until it reaches 10% of the subscribed capital, which amounted to €7.37bn in 2024. Dividends distributed during the year amounted to €22.94m (2023: €13.17m), reflecting a prudent and conservative payout policy. 

The equity-to-assets ratio declined to 62% from 70% in the previous year, driven by the balance sheet expansion associated with the EIB funding line under the InvestEU Programme. Nevertheless, this level remains very high and continues to reflect the EIF’s strong capital buffer and substantial capacity to absorb potential losses. Overall, capitalisation and leverage metrics remain fully consistent with the EIF’s AAA rating.

Environmental, Social & Governance

The EIF’s activities are inherently aligned with EU policy objectives, particularly in fostering sustainable economic growth, innovation and social cohesion through improved access to finance for SMEs. Environmental considerations are primarily embedded at the programme and mandate level, reflecting EU-wide priorities, while the Fund’s direct environmental risk exposure remains limited. From a social perspective, the EIF plays a key role in supporting employment, entrepreneurship and financial inclusion across Member States. Governance is underpinned by a strong institutional framework, robust oversight mechanisms and high transparency standards, reflecting its ownership structure and close alignment with the European Investment Bank Group.

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Scorecard

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Financial Statements