We strive to ensure a good return for investors and for that purpose work together with financial market participants.
Information for those who would like to invest in the State Aid Fund for BusinessWe strive to ensure a good return for investors by working together with financial market participants.
Key information for investors
The Republic of Lithuania is investing €500 million in the State Aid Fund for Business (through UAB Valstybės Investicinis Kapitalas): €100 million was allocated upon creation of the Fund and €400 million will be allocated for bonds that are issued.
The Fund also plans to attract institutional investors to invest, through the Fund, another €500 million or more in Lithuanian companies’ loans, debt securities, equity and hybrid instruments.
It will be possible to invest not only in the Fund, but also in bonds with a state guarantee. When initially offered, the bonds will be distributed to professional investors. Later (in approximately six months), they will be listed on the NASDAQ Vilnius stock exchange and become available to all. After their listing, redemption of the bonds is planned under an ECB programme.
Benefits for investors
State Aid Fund for Business governance framework
An agreement on the establishment of the State Aid Fund for Business was reached with the European Commission in May 2020 through the efforts of the Bank of Lithuania. It was the first scheme approved in the European Union under the prolonged State Aid Temporary Framework, which enables Member States to recapitalise non-financial enterprises facing economic difficulties due to the COVID-19 outbreak.
The State Aid Fund for Business (PVF) was formed as a limited partnership (KŪB) with limited partners (investors) and one general partner – VIVA.
About investing in the fund managed by the State Investment Management Agency
How to become a Fund investor?
After the launch of the Fund, a public selective call for institutional investors will be published, selecting institutional investors by way of a public, transparent and non-discriminatory procedure: all institutional investors having good reputation can apply during the period of signing investment agreements. International financial institutions will also be invited to invest.
The Commission for the Coordination of Protection of Objects Important for Ensuring National Security will conduct national security screenings of the selected institutional investors. The first 3 investors will be subject to a discounted management fee.
How is investment risk managed?
Investment decision making
The Fund’s management structure ensures proper representation of investors’ interests, transparent, sustainable, and independent funding activities. Investment decisions are made by the Fund’s Investment Committee composed of independent investment experts.
The total remaining outstanding (unsold) value of instruments for one company undersigned investment agreements may not exceed 10% of the Fund’s total assets, thus diversifying investments between the sectors of economic activity affected by COVID-19 and the investment instruments provided for in the investment policy.
Requirements for companies
When making investment decisions, the Fund shall carefully evaluate companies’ condition and prospects applying for financial aid. Companies shall provide detailed information about their financial situation, outstanding liabilities, also any encumbrances or restrictions imposed on the company’s assets. The safeguards in place ensure that the companies that have received financial aid use it purposefully, for example, providing a clear purpose for the use of financing or the financial indicators that the company must achieve using the aid.
How to distribute waterfall?
Cash flows from the Fund shall be paid in the following sequence:
- the Fund’s managers management fee;
- Repayments to limited partners in proportion to their investment as long as the total amount distributed is equal to the initial capital invested with interest (from now on – the minimum hurdle rate), except for the private and additional public investment equivalent p. The minimum hurdle rate shall be calculated according to the ICE BOFA BB Euro High Yield Index (HE10), having received aid from the Fund
- The State shall be returned the part of the total investments of limited partners Z plus the same minimum hurdle rate. Part Z shall be calculated according to the formula Z = p/(1 + p). For example, if p = 20 %, Z = 1/6 of the total investments of limited partners;
- Any excess return, which exceeds the minimum hurdle rate shall be divided between the Fund Manager and investors (both institutional investors and the State): the Fund Manager acquires 10% of exclusive rights to a profit share if the annual performance of the Fund is above 0% (e.g. if the Fund can receive a return higher than 4% when the minimum hurdle rate is 4%), and 20%, if the Fund’s annual performance is more than 25% (e.g. if the Fund can receive a return of more than 5% when the minimum hurdle rate is 4%). Investors shall share the excess return in proportion to the capital invested.
What is the Fund management fee?
The Fund Manager shall be entitled to a management fee (from now on – the management fee) from the Fund for each investor calculated as follows:
- till the end of the investment period:
- 2% of the capital investment per year – up to EUR 100 million,
- 1% of the capital investment per year – more than EUR 100 million;
- at the end of the investment period:
- 1.0% of the capital investment per year, at the beginning of each quarter of the respective accounting period, if the investment capital is up to EUR 100 million;
- 0.75% of the capital investment per year, at the beginning of each quarter of the respective accounting period, if the investment capital ranges from EUR 100 million to EUR 200 million EUR;
- 0.5% of the capital investment per year, at the beginning of each quarter of the respective accounting period, if the investment capital exceeds EUR 200 million.