In assessing each applicant‟s proposed financial terms, CfEL will consider how different internal rates of return at the level of the underlying investments would translate into financial returns to the Government. This assessment will take account of the prioritisation of loan repayments, the Government‟s fixed profit share, the level of fund manager remuneration and the proposed ratio of public to private capital. All else being equal, CfEL will prefer proposals where the financial terms deliver higher returns and lower risk to the Government.
Guidance for Prospective ECF Managers
Applicants must demonstrate that their proposed financial terms are consistent with the distribution „waterfall‟ set out in Part 3(iv). They must also provide projected budgets to demonstrate the level of costs that will be involved in managing the ECF. These projections must satisfy CfEL that the management costs will not be excessive, but that sufficient provision has been made to enable the fund to be managed effectively.
Primary assessment criteria
CfEL will consider the arrangements specified for the sharing of loan repayments between the Government and the private investors, and the ratio specified for sharing of profits between the Government and the private investors.
The assessment will pay attention to the desired ratio of public to private funding. Lower ratios will be preferred, as they will allow a given amount of public funding to lever in more private funding.
CfEL will also consider the level, structure and timing of management fees, carried interest and any other remuneration to the fund manager and other charges or fees to be levied either on the fund itself or on investee businesses. It will be a negative feature if the proposed level of charges or fees does not appear commercially appropriate, or appears to be to the detriment of either the fund or its portfolio companies.
CfEL will also have regard to the strength of the link between the financial performance of the fund and the remuneration of those individuals responsible for taking the investment decisions and otherwise managing the fund.