GERMANY Law and Practice Contributed by: Tarek Mardini, Antonia Puglisi and Enzo Biagi, POELLATH
2.5 Loan Origination The current German regulatory framework provides for closed-end special funds to originate loans in Germany. This applies to both German funds as well as EU funds with an EU-AIFM. German funds may, however, grant loans only to corporate, non-consum - er, non-retail borrowers; leverage of the fund itself is restricted and certain diversification rules apply. Also, detailed rules on risk management apply (“KAMaRisk rules”). EU funds with an EU-AIFM may grant loans to German corporate, non-consumer, non-retail borrow - ers based on the rules of such AIFM’s home jurisdic - tion. Non-EU funds may grant loans to corporate, non- consumer, non-retail borrowers in general only if the loan is granted on a reverse solicitation basis or if the loans are subordinated to almost-equity level in the case of insolvency or financial difficulties on the part of the borrower. Additionally, a fund (with respect to German bor - rowers) is able to purchase a fully drawn term loan, revolving or unfunded portions of a term loan facil - ity (becoming the lender of record), or enter into a sub-participation of a loan, without a banking licence (loan participation). However, a later restructuring of the loan terms may be regarded as a (new) loan origi - nation and may require a banking licence (unless other exemptions apply). AIFMD II Under the upcoming implementation of the AIFMD II into national law, the rules for the origination of loans by AIFs will change, as the AIFMD II and the current draft of the German implementation act ( Fondsrisiko- begrenzungsgesetz ) already provide for a new regu - latory regime for loan origination activities. Some of those changes will apply to all AIFs that grant loans, regardless of whether a specific threshold is reached. These include, among others, organisational require - ments regarding the risk management of the AIFM, a ban on granting loans to governing bodies of the fund manager, a credit limit in relation to certain bor - rowers and the risk retention of the AIF. Other, stricter rules will only apply to “loan-originating funds” (LOFs), which are being comprehensively regulated and har - monised for the first time. The new rules are expected
to apply for the first time from 16 April 2026 and the current draft of the German implementation act also provides for transitional provisions with regard to AIFs
established before 15 April 2024. 2.6 Non-Traditional Assets Cryptocurrencies
Funds managed by sub-threshold managers may invest in cryptocurrencies and non-traditional assets. With regard to fully authorised managers, a special fund can in theory also invest in cryptocurrencies and non-traditional assets. The practical problem is that the mandatory depositaries for such funds oppose the holding of such assets. That said, new regulatory rules for acting as a depositary for cryptocurrencies and other digital assets were implemented in 2020, although those rules still face the test of time. As a result, it is expected that specialist depositaries will develop and that traditional depositaries will delegate their activities with regard to digital assets to these new “fintech” service providers. At the time of writing, only a limited number of depositaries for cryptocur - rencies have been licensed by BaFin. Special funds (ie, non-retail funds) can invest in cryptocurrencies without any limitation. But special funds managed by fully authorised managers have to appoint a depositary for their crypto-investments. Consumer Credit and Loan Portfolios In general, German investment funds cannot originate consumer credit loans. However, special funds can originate loans to corporate, non-consumer, non-retail borrowers in Germany. German closed-end special funds are allowed to originate loans of up to 30% of the already paid-in capital minus the fees and costs borne by the investors. Additionally, German closed- end special funds can only lend 20% of the already paid-in capital minus the fees and costs borne by the investors, to a single borrower in order to minimise the credit default risk. Further, these funds can borrow up to 50% as share - holder loans of the already paid-in net capital to port - folio companies that the fund holds directly.
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