The European Investment Fund (EIF) is one of the bigger and more unusual European LPs. It invests up to €2 billion a year in Europe-focused infrastructure funds of all kinds through mandates from the European Commission, the European Investment Bank, some of the EU’s 27 member states as well as private investors such as insurers and pension funds. It even invests a little of its balance sheet too.
“We’re the largest investors in venture capital in Europe, and one of the largest in lower mid-market private equity, private credit and infrastructure,” says Gabriele Todesca, head of infrastructure investments at EIF.
Infrastructure is a comparatively new string on the EIF bow as this asset class only transferred from the EIB to EIF about three-and-a-half years ago, when the yearly investments averaged €500 billion.
Owned by the EIB, the European Commission, and some private and public institutions, “effectively, we’re a public-private type of partnership, and we pursue policy objectives using market instruments”, says Todesca.
There is a particular slant to the type of managers the EIF will consider. Mega funds need not apply, but smaller funds such as the Rive Infrastructure Impact Fund, Omnes’ Capenergie 5 or the Eiffel Transition Infrastructure Fund have all received commitments in the past couple of years. And the EIF is currently assessing a few funds seeking more than €1 billion of capital. Newer strategies are welcome too.
“We have an objective of developing the market, which also means investing in first-time teams, emerging managers, etc. We do that to a larger extent than most other investors,” Todesca adds.
How to spend it
The source of the EIF’s commitments is less than ordinary as the European Commission and the EIB mandates represent the bulk of the funding in most years. Therefore, Todesca argues, the EIF is no ordinary investor. “There is nothing which is purely policy or purely market. Everything that we do is a mix of the two elements.
“There might be some competition with other fund of funds or asset allocators, but the bulk of what we do is policy-driven. Even when we’re raising capital from private investors, our angle is slightly different from a purely financially-driven investor. And we differentiate ourselves this way.”
This differentiation extends to the way the EIF invests across verticals. “When we look at the different sub-sectors within infrastructure, we do have specific policy interests that touch each of them,” he says.
“Roughly half of what we do is related somehow to energy transition. That’s the core policy objective. In addition to that, we are quite active in social infrastructure, digital infrastructure, transport infrastructure and others. If you want a common thread, it is probably sustainability,” Todesca, who will speak on that topic in September’s Infrastructure Investor Network Investor Forum, in London, explains. “But it’s not the only one,” he adds.
When it comes to social infrastructure, the policy objective is to increase the overall welfare and economic inclusion of European societies, with housing as a key consideration. And for digital, strategic autonomy – meaning Europe’s ability to not rely on non-European players for all data centres, towers, and fibre networks – is an important consideration.
“One of our target areas is ‘space infrastructure’, which we don’t consider part of digital, but often it’s a matter of labels,” says Todesca. This focus may well be prescient as space-related infrastructure is on the rise and the EU has committed to a satellite system called IRIS².
Achieving ‘policy alpha’
The focus on something beyond monetary return is changing how EIF invests.
“Progressively, we’re trying to move towards more specialisation. We’re trying to achieve what we call policy alpha, ie the excess ability of a specific manager to deliver policy objectives relative to other [managers]. Policy alpha is a strong component of our assessment. Often we perceive a specialist manager to be able to deliver a higher policy alpha than a generalist manager,” says Todesca.
This move towards a more specialised approach has been going on for a couple of years, he says, adding that this mimics developments elsewhere in private markets. “Leaving aside the policy alpha, which is quite specific for us, the logic of getting the best team for a strategy and having specialists to manage your money is quite compelling. Eventually, it will work its way through this asset class as it did in the others. That said, you still have private equity generalists, you still have venture capital generalists. But there is a big macro trend towards specialisation. And we’ve been focusing on that as well.”
He is keen to stress that EIF still invests in generalist funds too, “but whenever we find good specialists in areas that are considered key or interesting from our policy perspective, we would definitely take a look at it”.
Keeping it together
The European Union, large as it is, contains multitudes in terms of levels of economic development, which the EIF and its mandate providers are alert to.
“One of our policy objectives is ‘cohesion’, which is making sure that there is a fair and equal development across all areas of the European Union. For instance we try, to the extent possible, to invest either in Central and Eastern Europe-focused funds or funds that include Central and Eastern Europe as part of their strategy.”
As more of these are emerging, there is little doubt that difficulties remain in attracting investments to the region. “The fact that these are smaller markets, obviously, means there are perhaps fewer opportunities and less room for growth. This is part of the risk that has to be factored into an investment. But they’re not intrinsically better or worse [than investments in more developed European countries]. I wouldn’t think that that is the case,” says Todesca.
He points to renewables as the path of least resistance to CEE investments, and EIF has invested both in Modus Asset Management’s CEE-focused Clean Energy Infrastructure and in Taaleri SolarWind III which has a substantial focus on CEE.
“Energy, I think, is probably the easiest entry point in Central and Eastern Europe because first, it’s a large segment. Second, the technology you’re using is the same. And third, there’s a need,” Todesca says. “There are also fewer local investors. Or if there are investors, they’re not able to invest in this asset class or not to the extent that would be needed.”
With public-ish money available, there may be fewer incentives to cater to private investors in markets where such sources of funding exist, but Todesca is adamant that the EIF’s commitments should be in addition to private investments, not instead of them.
“We’re positioning ourselves as a complement to the private market. We’re not replacing private investors, and always need to co-invest with private investors,” he says. However, he sees EIF as having an important role in supporting the market where it exists, especially now that private commitments have dried up somewhat.
“Our role in Western Europe is that of accompanying and trying to support the development of the market, particularly in certain areas that are, from a policy perspective, specifically interesting for us,” he says. “Some very established fund managers can raise funds relatively easily, but those are really very few. Most of the managers we see have some challenges in their fundraising activity, and with our investment we can fill that gap.”
