On December 12, 2017, the German Federal Financial Services Supervisory Authority published the final version of the long-awaited new investment circular for pension funds (the "Circular": Circular 11/2017 [VA], internet: https://www.bafin.de/SharedDocs/Veroeffentlichungen­/DE/Rundschreiben/2017/rs_1711_hinweise_anlage_sicherungsvermoegen_va.html

The new version of the investment circular which is of relevance for all investors which are subject to the German Investment Ordinance (Anlageverordnung) (in particular pension funds) had been prepared in a public consultation of a draft circular (the "Draft"; cf. our client information dated 22 December 2016, https://www.pplaw.com/sites/default/files/publications/2016/12/161222-ci-kapitalanlagen­rundschreiben-entwurf-draft-circular-investments-german-pension-funds.pdf).

This information is intended to give you a brief overview of substantial aspects of the final Circular.

  1. Adjustments regarding Leverage of Private Equity Funds

Notwithstanding the Draft, regarding private equity funds investing directly, the final Circular does not provide a strict borrowing limit, but explicitly allows the incurring of debt for purposes of bridging of capital calls. A time limit is also no longer included.

At the level of private equity fund-of-funds, a short-term inclusion of borrowed capital of up to 10 % of the value of the fund-of-funds will be allowed. This distinction is more practical than the one envisaged in the draft and eliminates existing legal uncertainty in a number of cases. As a result, a significant potential obstacle to the acquisition of a large part of the currently offered private equity funds should have been resolved.

  1. Private Equity-Fonds Remain Eligible for German Special Funds

The circular now contains a clarification that direct investments in closed private equity funds by special funds, which are relevant for institutional investors, are still eligible. Affected investors can thus continue to invest up to 20 % of the value of their special funds in private equity funds without hereby burdening the quota for alternative investments. It remains unclear in what extend this also applies to other closed funds (e.g. infrastructure, private debt).

  1. No Improvements for Debt Funds

For debt funds, the delimitation between the participation quota and the quota for alternative investments, which was already included in the draft, remains the same. Thereafter, geographical requirements, which continue to make the access to US credit funds for pension funds more difficult, as well as the requirement of a full regulation within the meaning of the AIFM directive apply for debt funds that invest directly in non-subordinated receivables, in addition to the charge to the 7.5 % quota for alternative investments.

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.