Executive Summary

German insurance companies and other institutional investors which are subject to German insurance company regulation (e.g. pension funds) (together "German Insurance Company Investors") are an important group of investors for private equity, infrastructure and comparable funds. For these investors, eligibility of their investments for their restricted assets is of major relevance.

However, the German Investment Regulation (Anlageverordnung), the most relevant source of law regarding investments by German Insurance Company Investors, has not yet been adapted to the new German Capital Investment Act (Kapitalanlagegesetzbuch – "KAGB"). This has resulted in uncertainty as to whether German Insurance Company Investors can continue to use the so-called equity-quota for their investments in closed-end funds.

The German regulator (BaFin) has now taken the position that this is still possible. With regard to investments in open-end funds, BaFin distinguishes between funds for which KAGB provides an extended scope of allowed investments and funds for which the investment spectrum remains the same.

I. Administrative Practice Pending the Adjustment of the German Investment Regulation (Anlageverordnung)

According to current information, an adaption of the German Investment Regulation is not expected to enter into force before January 2014. The German Insurance Association ("GDV"), which is the umbrella organization for private insurers in Germany, has discussed the issue with BaFin during the last weeks. Based on these discussions, GDV expects that, until the German Investment Regulation will have been adapted, BaFin will apply the following basic rules in deciding whether a fund investment is eligible for the restricted assets:

1. Open-end Funds

Units in open-end funds which have been established in accordance with the rules of the abolished German Investment Funds Act (Investmentgesetz) and are adapted to the KAGB remain eligible for the restricted assets if the adaption does not result in any new investment opportunities becoming allowed under the adapted terms of the fund ("one-to-one adaption").

In case of the adaption of an existing fund to, or the establishment of a new fund under, the KAGB, the units are not considered to be or remain to be eligible for the restricted assets if their terms provide extended investment options as compared to the old law.

2. Closed-end Funds

Interests in closed-end funds which have so far been eligible assets qualifying for the so-called equity-quota remain eligible under the same conditions even under the KAGB. The same applies to closed-end funds which are established as new funds under the KAGB as long as the existing requirements under insurance company supervisory law applying to investments for the
equity-quota are met.

II. Foreign Funds

Based on its discussion with BaFin, GDV has not expressed any view regarding the question whether the above does not only apply to domestic funds, but also to foreign funds. In our opinion, there are good reasons not to make any distinction between domestic and foreign funds in this regard.

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.