GERMANY Law and Practice Contributed by: Tarek Mardini, Antonia Puglisi and Enzo Biagi, POELLATH
2. Funds 2.1 Types of Alternative Funds and Structures Private equity funds (buyout, venture capital and growth capital) and real estate funds, as well as fund of funds, are the most commonly established funds in Germany. Renewable energy funds and private debt funds are also noteworthy. As for the structure, a German limited partnership (“GmbH & Co KG”) is typically used for closed-end alternative investment funds. The German limited partnership is structurally comparable to the US, UK or Luxembourg limited partnership. It offers limited liability to its limited partners and has as a corporate type, general partner with unlimited liability (although the general partner’s liability is limited to its assets, typically EUR25,000, and is thus, effectively, also lim - ited). The German limited partnership offers the benefits of being tax-transparent and allowing legal flexibility for its governance. It is the market standard for registered fund managers, such as AIFMD sub-threshold fund managers. Contractual funds with no legal personality ( Sonder- vermögen ) are typically used for open-end funds. Contractual funds can only be established by AIFMs that are fully authorised under the German implemen - tation of the AIFMD (Directive 2011/61/EU). The con - tractual fund is often established for real estate funds and non-UCITS funds. It is also often used for sepa - rate managed accounts as an investment platform for institutional investors. 2.2 Regulatory Regime for Funds The German regulatory regime for AIFs is based on the AIFMD, which was implemented into the German Capital Investment Code ( Kapitalanlagesetzbuch or KAGB). The KAGB contains the AIFMD manager-relat - ed rules and the AIFMD funds marketing-related rules. It further sets out German-specific “product rules” applicable to AIFs. This overlay of product rules for AIFs, however, applies in general only to fund manag - ers that are fully authorised under the AIFMD.
Smaller-Fund Managers Smaller-fund managers (ie, sub-threshold managers under the AIFMD) are only subject to a registration requirement. The funds of sub-threshold managers are not regulated and no investment restrictions for such funds exist (except for debt funds). Most Ger - man-based fund managers in the alternative assets space are still sub-threshold managers (as opposed to fully authorised fund managers). However, the number of fully regulated managers in Germany is constantly growing, as a result of an increase in assets under management. Large-Fund Managers Large-fund managers (ie, fund managers that need to be fully authorised under the AIFMD) are subject to a regulatory regime that is very much based on the AIFMD. Their funds are also subject to product rules, that is, investment and borrowing limitations. Investment Limitations The German Financial Supervisory Authority ( Bunde- sanstalt für Finanzdienstleistungsaufsicht or BaFin) is in charge of overseeing the regulatory regime for fund managers and funds. The applicable product rules for a fund (ie, the investment limitations) depend on the category of the fund and on whether the fund is a retail fund or a non-retail fund. Non-retail funds (so- called Spezialfonds or specialised investment funds) are open only to professional and semi-professional investors. Open-end and closed-end funds The investment limitations for open-end alternative retail funds are based on the UCITS Directive, but provide for variations and deviations from a UCITS. Deviations are, for instance, broader eligibility of investments in other AIFs or investments in loans or non-listed equity. For open-end real estate funds, the deviations are most profound, that is, real estate funds may only invest in real estate and in vehicles that invest in real estate (in addition to holding liquidity). The investment limitations for closed-end alterna - tive retail funds are not based on the UCITS Direc - tive. Accordingly, they are more in line with alternative asset classes. The reason for this is that closed-end funds have traditionally been used for alternative
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