Management and operational structure

Managing authorities had a range of operational structures open to them in establishing financial instruments: whether or not to use holding funds; whether to procure fund managers or entrust; whether to establish funds as a separate legal entity or as a block of finance within an existing institution. In terms of outcomes, no obvious patterns emerge in organisational arrangements – four of the stakeholder countries do not use holding funds; the remaining eight use a mix of holding funds and specific funds outside holding funds; some holding funds comprise large numbers of specific funds; some, surprisingly, only one; some countries operate both national and regional level holding funds; and there is EIF involvement in several holding funds, but not in most, in spite of the large number of gap analyses undertaken by the EIF.

Table 15: Number of holding funds and specific funds in the stocktake countries

MS Holding Funds Specific Funds under

Holding Funds Specific Funds (non-Holding Fund) BE 9 CZ 2 DE 36 DK 3 ES 2 2 7 FR 2 17 101 HU 1 168 1 IT 12 14 68 LT 2 23 1 PL 9 128 74 PT 2 36 9 UK 7 22 26

Source: Own calculations from2015 Summary Report.

There are a number of potential advantages to using holding funds to manage FIs. These include increased flexibility, the scope for a more strategic view and a portfolio approach to diversifying risk, securing match funding at the level of the holding fund at a sufficient scale to attract EIB funds and the pooling or delegation of some administrative tasks at holding fund level. Use of holding funds also has disadvantages. It can involve an additional layer of management fees and a higher level of overheads due to the need

for extra monitoring and scrutiny to mitigate ‘objective drift’. This raises questions about

the efficiency of models where there are holding funds containing only a single specific instrument. Among participants at the stakeholder seminar, opinion on the usefulness of holding funds was divided. Many MAs were strongly in favour, due to their flexibility and the option of moving funds between instruments, scale factors, and the expertise and knowledge a holding fund manager can bring. At the same time, other MAs remained sceptical of the potential benefits, citing the additional layer of costs and reporting, and the potential loss of control – especially as it is the MAs which ultimately remain answerable to the Commission.

There is no obvious link between the types of FI and the type of management structure chosen, and as there are many combinations across Member States and regions, this implies that choices have been driven by a complex range of factors, conditions and assumptions.

The case studies illustrate how widely the simple governance model for implementation of co-financed FIs has been translated ‘on the ground’, with complex arrangements reflecting national (or regional) support structures. Where these are weak or new (OP Languedoc-Roussillon (FR), OP Enterprises & Innovation (CZ)), structures tend to be less complicated, whereas with well established, strong national support structures (already using FI) this regularly leads to more complex structures for implementation of EU co- financed FIs (Bavaria (DE), North East England (UK), Małopolskie (PL), OP COMPETE (PT)).

The complexity of the approach chosen also reflects the degree of centralisation of Structural Funds management and implementation. Although it might be expected that smaller countries and regions would apply simpler governance structures, this is not generally the case: sub-regional structures are integrated in the delivery mechanisms of some regional OPs (Bavaria (DE), North East England (UK), Małopolskie (PL)); however, in most national programmes, the regional delivery mechanism (i.e. how final recipients are reached) does not much affect the governance structure (OP Enterprises & Innovation (CZ), OP Technological Fund (ES), OP Economic Development (HU), OP Economic Growth (LT), OP COMPETE (PT)). Delivery of FI to final recipients is done either through regional entities with a strong (direct) link to the MA or holding fund (OP Economic Development (HU), OP COMPETE (PT)) or directly from the (specific) fund.

Most fund managers (below holding fund level) were selected through a competitive process (public procurement or call for applications). In only two cases (OP Enterprises & Innovation (CZ), OP Technological Fund (ES)), public bodies were directly appointed to manage the FIs. In three case studies, the fund managers are all public (OP Enterprises & Innovation (CZ), OP Technological Fund (ES), Małopolskie (PL)), in three they are all private (Languedoc-Roussillon (FR), North East England (UK), OP Economic Growth (LT)) and in the remaining three they are mixed private/public. Beneficiaries (fund managers) tend to be (a) banks or other financial institutions, private and publicly owned; (b) venture-capital companies (including business angel entities), all private; and (c) regional or sectoral support institutions, predominantly public.

Table 16: Case study management structures OP Name Total No of FIs (excl HF) No of FM No of HF Funding agree’ts (inc HF) FM select ion * Legal Status of FM Public Private DE: OP Bavaria 4 4 0 4 DA X X FR: OP Languedoc- Roussillon 3 3 1 4 PP X

UK: OP North East England 8 5 2 10 PP X CZ: OP Enterprises & Innovation 4 1 0 4 DA X PL: OP Małopolskie 14 9 0 14 CA X LT: OP Economic Growth 24 16 2 26 PP X PT: OP COMPETE 27 ~9 1 28 PP X X ES: OP Technological Fund 3 3 0 3 DA X HU: OP Economic Development 11 137 1 138 CA X X

Note: DA= direct appointment; PP = public procurement; CA = call/applications

Ownership /type and background of fund manager also varied widely. The seven holding funds covered in the case studies were predominantly managed by public (or semi-public) institutions. In the case of North East England (UK), two private limited companies were entrusted with managing the holding funds and the EIF has managed holding funds in another two cases (Languedoc-Roussillon (FR), OP Economic Growth (LT)). Most of the public holding fund managers were comparatively new institutions or even only set up for the purpose of implementing the 2007-13 FIs.

Fund manager ownership and type for specific funds is much more mixed among the case study OPs. Only for guarantee instruments is there a clear dominance of public institutions, mostly specialised organisations with majority public ownership. Loan instruments are managed equally by private and public fund managers and in most cases they co-exist within the same OP. For equity FIs, managers from the private sector predominate (VC companies, business angel associations), although a considerable number of public entities are also involved. Taking all three types of FIs together, there are only three OPs where there is no (truly) private fund manager involved in FI implementation (CZ, PL, ES).

Regional development goals played a significant role in selection of fund managers in the

OP Małopolskie (PL). All nine fund managers were selected from regional institutions in a

competitive, transparent procedure of calls for applications. All fund managers are public (or equivalent to public) bodies and had previous experience with EU co-financed FIs. Delivery of the FIs is based on the distribution of resources between the fund managers located in all the sub-regions of Małopolska. In this way, the resources are made

available to the final recipients locally and reach businesses in the sub-regions, through financial intermediaries that are closely linked to local communities and SMEs.

The regional development orientation is also evident in the OP Bavaria (DE). The FIs are managed by two public and two semi-private bodies with long-standing experience. The institutions are decentralised with a strong presence in the weaker regions such as (Bayern Kapital in Landshut or S-Refit in Regensburg). Further, the LfA funding bank is represented by the local banks in the regions. The fund managers have sufficient knowledge of the regional and local product and financial markets. The links with regional cluster initiatives help to identify suitable investments. In the case of the Risk Capital Fund I, start-ups are mobilised through a regional cluster initiative focused on biotechnology.