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MONITORING, EVALUATING AND REPORTING JEREMIE FINANCIAL ENGINEERING INSTRUMENTS –
CHALLENGES / CONTRAINTS TO ATTRACT PRIVATE INVESTORS – A FRENCH FINANCIAL INTERMEDIARY APPROACH
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JEREMIE AUVERGNE ORGANIZATION
1 JEREMIE Steering Committe 2 Initiative Management
Funding Agreement
ERDF grant to Regional
Council€18 million
+Additional
counterparty
€7,2 million
€3 4
Holding Fund JEREMIE AUVERGNE
€25,2 million on the period 2007-2013
Financial intermediaries selected by call for expression of interest 5
To support Innovation
To supporttraditionnal
SME activites
To strengthen private equities
Enterprises beneficiaries
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JEREMIE AUVERGNE – FINANCIAL ENGINEERING INSTRUMENTS
JEREMIE Auvergne is composed of three main axes :
1.Financial support for starting up or taking over a business (SME’s traditional or innovating) by the granting of loans on trust (medium term credit granted to a person without personal or real guarantees and without interests).
• 11 LOCAL or REGIONAL STRUCTURES of FINANCING SELECTED
2.Financial support for the innovation, in the form of venture capital with the innovating companies in seed period.
• JEREMIE INNOVATION 1 FCPR LP (under French regulation)
3.Financial support for SME via a reinforcement in equities in the form of investment capital or mezzanine debt.•JEREMIE MEZZANINE FCPR LP (under French regulation)
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I. FINANCIAL ENGINEERING INSTRUMENTS - SELECTION
Instructions based on capital investment and microfinance criterias
• Human ressources (with track record) ;• Governance• Network, providers• Material ressources : internal and external control tools, reporting, management and information system ; • Quality of services : market, geographical coverage, products and services, methodology to manage and follow the portfolio: modalities of loan approval, risks evaluation, recovering policy ;• Portfolio situation : composition, quality, sustainability ;• Financial analysis : balance sheet analysis; debt analysis, efficiency and productivity, sustainability ; • Activities forecasts• Management fees
Participation fund approach in proposals instruction
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• Opportunities of this approach to attract private investors :- transparency in the procedures,- professional practises of selection ,- financial and technical assistance evaluation,
• Contraints of the JEREMIE initiative to attract experimented management companies : - limited geographic coverage (french region) to have a diversified dealflow,
- regulation contraints on management fees justification, not used in the capital investment sector.
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Participation fund approach in proposals instruction
I. FINANCIAL ENGINEERING INSTRUMENTS - SELECTION
II. FINANCIAL ENGINEERING INSTRUMENTS – MONITORINGA monitoring approach based on professional and commercial practises
1. Capital Investment Funds:
• Non-coordinated Investment capital instruments are managed by management companies with investment teams approved by the Financial Markets Authority : professional and regulated practices used.
•Analysis of investment opportunities with a private approach:–Detecting companies with high growth and appreciation potential–Drafting an accurate appraisal of the company, of its management, of its environment, and of its strategy –Putting together suitable financial engineering–Drafting a clear social pact with the management, defining each party's commitments–Developing an active partnership alongside the directors while maintaining proximity–Enhancing the investment
Commitment committees are composed of entrepreneurs and bankers, business managers, JEREMIE AUVERGNE representatives (every member has the right to vote)
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2. Structures of financing :
• Located in Expansion Committee, Chamber of Trade and Industry, to be in contact with enterprises, with their own employees or personal at the association’s disposal.
• Association affiliated to national networks : France Initiative, Réseau Entreprendre
•Analysis of investment opportunities by the personal on commercial criterias (nb: a loan on trust must be associated with a bank loan)
• Commitment committees are composed of private investors, business managers, financings representatives, JEREMIE AUVERGNE representatives (only with consulative vote)
• Wide network of leaders to support enterprises followed
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II. FINANCIAL ENGINEERING INSTRUMENTS – MONITORINGA monitoring approach based on professional and commercial practises
• Opportunities in terms of monitoring practises to attract private investors :
– The concept of recycling the funds permit the implementation of professional practices (on the monitoring and selection of investments by local structures of financing).
– The use of non-coordinated Investment capital instruments managed by management companies approved by the Financial Markets Authority are a guarantee of transparency and professional practises
• Contraints in terms of monitoring practises to attract private investors :
– The rules of State Aids applied to the operations of capital investment are relatively complex, and the incidence of these rules on the other and future financings of profit innovative SME is not easily foreseeable and identifiable.
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II. FINANCIAL ENGINEERING INSTRUMENTS – MONITORINGA monitoring approach based on professional and commercial practises
1. Capital investment instruments :
Half-yearly reporting to JEREMIE AUVERGNE based on :
Legal reporting based on the EVCA rules (European Private Equity and Venture Capital Association)
- Fund reporting : a fund overview that includes mains of the following criterias :
- Current and new investments, ‐ Significant changes to the management company , ‐ Changes in portfolio or fund strategy, material risks for the performance of the fund, ‐ Notification of annual meeting, ‐ Total commitment, total drawdowns, fair value of the portfolio, distributions, total assets, liabilities, net asset value,
gross IRR, multiples, total invested in portfolio companies, additional committed to porfolio companies and planned for follow-on investments, leverage of funds inclunding debt, guarantees…, potential drawdowns for next reporting period, cash flows
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III. FINANCIAL ENGINEERING INSTRUMENTS – EVALUATION / REPORTING
‐ Portfolio reporting: statement of realisations, to include the mains following details for each transaction:
‐Legal or trading name of the portfolio company‐Location of head office or management‐Stage of initial investment‐Brief description of the business‐Total amount invested by the fund, percentage owernership‐Fair value of the investment‐Comments on significant events and issues, brief analysis during the reporting period and anticipated events
‐ Capital account: each individual investor receive a statement of his own capital account together with the statement for the fund
‐ Fees : statement of related party transactions, benefits and fees, broken down into principal categories (net management fees, depositary bank fees, auditors fees,…)
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III. FINANCIAL ENGINEERING INSTRUMENTS – EVALUATION / REPORTING
2. Structures of financing :
Half-yearly reporting to JEREMIE AUVERGNE based on :
The evolution of human, material and financing ressources
- Human ressources- Composition of Governance- Evolution of material ressources - Audit relized by national networks- Others financings received during the semester
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III. FINANCIAL ENGINEERING INSTRUMENTS – EVALUATION / REPORTING
The performance indicators for microfinance institutions (technical guide MicroRate & Inter-American Development Bank)
- Portfolio situation : composition, quality, sustainability
Main indicators:• Portfolio growth : number and amount of loans financed on Jeremie, and the global porfolio (engaged and paid)• Average amount of a loan• Portfolio at risk : (Outstanding balance on Arrears over 30 (90, 180, +180) days + Total Gross Outstanding Refinanced (restructured) Portfolio)/ Total outstanding Gross Portfolio)• Provision Expense Ratio: (Loan Loss Provisioning Expenses/Average Gross Portfolio)• Risk Coverage Ratio: (Loan Loss Reserves/ (Outstanding Balance on Arrears over 30 days + refinanced loans)• Write-off Ratio: Value of Loans Written-off/average Gross Portfolio• Sustainaibilty of financed projects
- Financial analysis : balance sheet analysis; debt analysis, efficiency and productivity, sustainability
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III. FINANCIAL ENGINEERING INSTRUMENTS – EVALUATION / REPORTING
3. ERDF reporting obligations concerning :
- Justification of payment for each investissment: - justification of commitment fund for each investment ( Each Commitee Minutes)- state aids declaration for each investment- justification of the disbursement of funds for each investment (Bank receipt)
- Justification of management fees : - personnal remuneration justification ( contract, time sheet/ attendance sheet, mission letter, salary
advice)- invoices /justification and proof of disbursement
- Characteristics on each borrower and projects financed by JEREMIE (and also the others in the portfolio) for statistics :
beneficiary name; company name, activities, investment amount (engaged and paid); level effect, date of disbursement, guarantee amount, investment duration, reimbursment of borrower, numbers of new employees or employees preserved , age of leader, gender, professional situation of leaders before the financing, new arrivals on the territory, maturity of the project.
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III. FINANCIAL ENGINEERING INSTRUMENTS – EVALUATION / REPORTING
• Opportunities of reporting practices to attract private investors :• Closed following of the financial intermediaries• Implementation of professional practices
• Contraints of reporting practices to attract private investors : :• The manager of financial engineering instrument can claim at the payment for the expenditures carried out until December 31st, 2015, that is to say for approximately half of life of the funds of capital risks. • The rules of fees justification (notably for the working time), are, in particular for private actors, heavy constraints compared to their usual practices.
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III. FINANCIAL ENGINEERING INSTRUMENTS – EVALUATION / REPORTING
A monitoring approach based on professional practises
CHALLENGES FOR A BETTER MOBILIZATION OF PRIVATE INVESTORS
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1.To attract private funds in Co-investments of JEREMIE funds Investment fund of proximity (FIP LP) (under French regulation)Other private or banking fundsIncidence of rules of state aids on co-financings operation 2.To manage JEREMIE like a private initiative(non-coordinated investment capital instruments managed by management companies approved by the Financial Markets Authority: professional and regulated practised used: instruction, monitoring, reporting (EVCA))
3. To promote the evolution of JEREMIEExtension of geographical coverage (multiregional program)To widen the targets (new tools: ex guarantee funds) To adapt rules of fees justification for private management companies
Contact :
FCPR JEREMIE AUVERGNE :Audrey RODDIER, Investment Analyst, SOFIMAC Partnerse-mail : [email protected]
FCPR JEREMIE INNOVATION 1 :Cécile THEBAULT, Portfolio Manager, SOFIMAC Partnerse-mail : [email protected]
FCPR JEREMIE MEZZANINE 1 :Yan TRICHARD, Investment Analyst, SOFIMAC Partnerse-mail : [email protected]
Tel : 00 33 4 73 74 47 97
STRUCTURES OF LOANS ON TRUST :Marie-Hélène SAVY, Chief of the Service Anticipation and Financial Engineering, CCIR [email protected] : 00 33 4 73 60 46 53
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