GERMANY Law and Practice Contributed by: Tarek Mardini, Antonia Puglisi and Enzo Biagi, POELLATH
office for so-called “whistle-blower activities” within a company. This applies to all management companies regardless of their size. Whistle-blowing by employ - ees is intended to lead to the detection, prosecution and suppression of malpractice of the fund manager. Individuals, groups of people within the management company or third parties (eg, service providers) can act as internal whistle-blowers. 4. Investors 4.1 Types of Investors in Alternative Funds The spectrum of investors in AIFs ranges from retail investors to highly sophisticated institutional inves - tors. 4.2 Side Letters There is no strict limitation in statutory law on side- letter provisions, other than the principle of fair treat - ment of all investors in a fund. Typically, German fund agreements provide that the manager may grant spe - cial rights to individual investors by means of a con - tractual side letter. Usually, it is stated that the granted side-letter provisions need to be disclosed to all other investors shortly after the final closing. However, the electability of side-letter clauses is often restricted, either requiring a certain capital commitment by the electing investor and/or restricting the electability of certain clauses per se (eg, the selection may be lim - ited to clauses that do not contain preferential eco - nomic terms as in management fee reductions, seats on the advisory committee, special regulatory or tax requirements for the investor, granting of co-invest - ment rights, and the transfer and sharing of confiden - tial information). 4.3 Marketing of Alternative Funds to Investors Retail funds can be marketed to all types of inves - tors. Special funds may only be marketed to profes - sional investors and to semi-professional investors. The definition of a professional investor is in line with the AIFMD/MiFID II definition. In addition, Germany has introduced a special category of investor – a semi- professional investor is, broadly speaking, an investor who commits at least EUR200,000 (in the framework of EuVECA, those investing at least EUR100,000) and
who has shown certain investment experience and understanding of risk. Local investors may invest in alternative funds estab - lished in Germany. This is, in particular, true for Ger - man institutional investors (typically qualifying as “pro - fessional investors” according to MiFID II) as well as other investors (eg, family office investors and HNWIs) qualifying as so-called “semi-professional” investors under German law. Special requirements and restric - tions apply to funds targeting retail investors. 4.4 Rules Concerning Marketing of Alternative Funds Marketing by an Intermediary In the absence of reverse solicitation, if a firm would like to market an AIF in Germany, the firm would require either a MiFID licence or a MiFID passport. It is also possible to get a local financial intermediary licence under the German Commerce Act ( Gewerbe- ordnung or GewO). The local financial intermediary licence is a non-MiFID licence and is based on the optional exemption from MiFID II in Article 3 of MiFID II. In the case of holders of both licences (for MiFID firms and local financial intermediary firms), Germany con - siders the prospective investor as the regulatory client of the firm. Accordingly, firms have to adhere to the MiFID II rules of good conduct towards the prospec - tive investor (eg, requiring compliance with suitability or appropriateness checks). The MiFID application also means that marketing materials provided by the fund manager must comply with the MiFID II require - ments on marketing materials (eg, with regard to past or simulated performance). The same applies for firms licensed under the Investment Firm Directive (Direc - tive 2019/2034). Marketing by the Fund Manager The fund manager itself can always market its “own” funds. If the fund manager is fully authorised under the AIFMD, it can also market the investment funds of other managers. Pursuant to the new EU cross- border distribution of funds regulation (Regulation 2019/1156), fund managers are obliged to provide marketing materials to their prospective investors
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