The EBRD’s Equity Participation Fund (EPF) mobilises funds from global institutional investors to take part in our own direct equity investments with the goal of attracting long-term institutional capital into the private sector in the countries where we work.
Investors who participate in the fund will benefit from the EBRD’s reputation, resources and overall equity business and at the same time be able to make sizeable commitments into a diversified portfolio of direct equity investments.
Attracting institutional investors to the EBRD’s equity business is of strategic importance, as highlighted by the 2015-16 Transition Report. It identified the need for equity finance as one of the key priorities for our countries of operations.
Many of those countries are handicapped by underdeveloped capital markets and reduced investment flows as a result of the last decade’s financial crisis.
Equity investments enable the EBRD to support private sector companies, infrastructure and banks and at the same time engage in corporate governance and reform
The EPF’s initial size is €350 million and its launch year is 2016.
The establishment of the EPF allows large institutional investors to participate in 20-30% of all the EBRD’s new eligible direct equity investments above €10 million, signed from the EPF’s first close until the end of its investment period.
The EPF has an innovative fund structure, utilising derivative financial instruments to enable it to acquire an indirect economic interest in the underlying portfolio companies, while allowing the EBRD to remain the shareholder of record.
More specifically, the EPF will enter into a series of equity return swaps, through which the Fund will acquire an economic interest in each of the relevant EBRD portfolio companies.
The structure of the EPF also includes a liquidity sweep option for investors to sell back to the EBRD the equity return swaps linked to investments that have not been divested within the fund’s expected lifetime.
The EBRD will retain 70-80% of each eligible investment, ensuring an alignment of interest between it and the Fund.