Management structure of the State Aid Fund for Business
The state will invest in the State Aid Fund for Business via UAB Valstybės Investicinis Kapitalas (VIK). The plan is to invest the total of EUR 500 million, EUR 100 million of which will be disbursed at the beginning of the establishment of the Fund and the remaining EUR 400 will be invested in issued bonds. The Fund will also seek to attract institutional investors to invest in loans, debt securities, shares and hybrid instruments of Lithuanian companies through the Fund, aiming to raise more than EUR 500 million this way.
Investments can be made not only into the Fund, but also in bonds issued by VIK, which come with a state guarantee. During the initial distribution, these bonds will be distributed to professional investors. Later (after about 6 months) they will be listed on the NASDAQ Vilnius stock exchange. This is when they will become available to the public. The plan is to have these bonds redeemed under the ECB’s programme after their listing.
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.
Investment risk management
Investment decision making
The Fund’s management structure ensures proper representation of investors’ interests, transparent, sustainable and independent activities of the Fund. 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 under signed investment agreements may not exceed 10% of the total assets of the Fund, thus aiming to diversify 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 the condition and future prospects of companies applying for financial aid. Companies shall provide detailed information about their financial condition, 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 for a clear purpose for the use of financing or the financial indicators which the company must achieve using the aid.
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 (hereinafter – 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 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.
Fund management fee
The Fund Manager shall be entitled to a management fee (hereinafter – the management fee) from the Fund for each investor calculated as follows:
1. 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;
2. 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.
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