Germany: Recent Developments On The German Law Implementing The AIFMD

After the final consultation of the Financial Committee of the German Federal Parliament, some - partly very welcome - amendments to the governments draft of the AIFM-D implementing law (in future: "KAGB") (see our client information dated December 13, 2012) have been formally applied for.

We discussed such amendments (amongst others) at the Funds Forum Frankfurt with MR Uwe Wewel, Dr. Stephanie Kremer (BaFin), Dörte Höppner (EVCA), Christoph Stresing (BVK), Gilles Dusemon (Arendt & Medernach) and Patricia Volhard (P+P) under moderation of Prof. Dr. Andreas Cahn (ILF). Wehave summarized hereafter the most important amendment proposals submitted by the Financial Committee of the Parliament.

I. Grandfathering

A very welcome amendment regards the grandfathering rule for closed-ended funds:

Existing funds which no longer invest after July 22, 2013 are not required to comply with the provisions of the KAGB, even if the manager ("AIFM") of such funds also manages funds ("AIF") which still make investments. The current draft of the KAGB foresees that an AIFM only benefits from the grandfathering rule if it only manages such "old funds" (i.e. no longer investing funds).

BaFin and the Commission seem to be taking the view that principally the entering into a contractual legal obligation is crucial, so that, for example, in case of fund of funds, which make capital contribution to satisfy capital calls by target funds would not be seen as an investment activity (at least insofar as the fund-of-funds does not control the target funds); however, the subscription of a capital commitment in target funds would be an investment activity.

II. De-Minimis Exception

The above mentioned amendment would have the consequence that for purposes of calculating the value of the portfolio managed by the AIFM (e.g. for purposes of de minimus exception, see below) old funds which no longer invest would not be included.

But also with respect to the requirement that the AIFM may exclusively manage so called "Spezial-AIFs" in order to benefit from the de-minimis rule, such amendment would have a positive impact: old funds (i.e. no longer investing fund) which would not qualify as "Spezial-AIF" would not infect the AIFM (i.e. the "exclusively" only referring to investing funds).

III. Possibility of cross-border marketing by registered EU-AIFM

According to the current KAGB-draft small AIFM being below the de-minimis threshold, which are registered in their home country as "small AIFM", are not allowed to market to professional or other investors in Germany. In this context, the introduction of a provision has been proposed pursuant to which registered small EU AIFM may market to professional and semi-professional investors in Germany on a cross-border basis, provided they fulfill the conditions of Art. 3 para. 2 AIFMD. Hence, small AIFM could market in Germany to professional and semi-professional investors, if

  1. the EU-AIFM has been registered in its Home Member State;
  2. marketing of AIF managed by "small AIFM" is allowed under the rules of the Home Member State and is not linked to higher requirements than those as set up in the KAGB and
  3. the EU-AIFM has notified the intended marketing to BaFin.

IV. Definition of "semi-professional investor" / Spezial-AIF

The definition of semi-professional investors shall be further extended by investors who agree to invest at least 10 million Euro; it is not required for such investor to demonstrate a certain level of expertise. In addition, also members of the management board of the AIF shall be deemed to be semi-professional investors irrespective of how much they invest.

Finally, to qualify as Spezial-AIF the time of the acquisition of the interests in the AIF by professional or semi-professional investors shall matter. The current draft provides that an AIF only qualifies as a Spezial-AIF in case its interests "are held" only by professional or semi-professional investors.

V. Permissible legal forms for AIF of small AIFM

The proposed amendments foresees that AIF of small AIFM may only established in the legal form of

  1. a legal person or
  2. a commercial partnership in which the general partner must only be a limited liability company, and
  3. additional funding obligations for the investor are excluded.

VI. Closed-ended retail-AIF

Less encouraging is the proposal to ban German Public-Feeder-AIF. The current draft of the KAGB already provides for non-German Master-Feeder-Structures that they may not be marketed to private investors. According to the amendment proposal, this would also apply to German Master-Feeder-Structures.

VII. Delegation

With regard to the delegation of portfolio management or risk management by the AIFM to an outsourcing company that does not have a portfolio management or AIFM permission it is proposed to introduce a period of four weeks within which BaFin must approve (or not) the intended delegation. This is intended to provide legal certainty to the AIFM which must know within reasonable time whether the intended approval is permitted.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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