GERMANY Law and Practice Contributed by: Tarek Mardini, Antonia Puglisi and Enzo Biagi, POELLATH
4.6 Private Placements Since the implementation of the AIFMD in 2013, pri - vate placements of alternative investment funds are no longer generally exempt from regulation in Ger - many. Any offering of fund interests – whether to pro - fessional, semi-professional, or retail investors – is a regulated activity and generally requires prior notifica - tion to the BaFin under the KAGB. However, Germany maintains a national private place - ment regime (NPPR) under which certain AIFs – par - ticularly those managed by non-EU (third-country) AIFMs – may be marketed to professional and semi- professional investors in Germany, provided specific conditions are met. These include a notification to BaFin, transparency and reporting obligations, and the existence of co-operation agreements between BaFin and the regulator in the AIFM’s home jurisdic - tion (so-called memorandum of understanding). Dis - tribution to retail investors remains excluded under this regime. Active marketing without such notification (and approval, where applicable) is considered a public offering and triggers licensing and prospectus obliga - tions. This includes any communication that could be interpreted as targeted distribution to German inves - tors. A limited exemption is available for German-registered sub-threshold AIFMs, who may market their funds to professional and semi-professional investors on a pri - vate placement basis without full AIFM authorisation, but subject to registration and ongoing compliance obligations. If fund interests are offered by entities that do not qualify as fund managers pursuant to the AIFMD, this is usually seen as investment advice or investment brokerage requiring a regulatory approval pursuant to the German banking and investment firm laws ( Kredit- wesengesetz and Wertpapierinstitutsgesetz ). Reverse solicitation is technically known by the Ger - man regulator but its application remains narrow and strictly interpreted. It is only permitted where the investment is initiated solely by the investor, with- out prior contact, influence or marketing by the fund
AIFs, which are reserved for professional or semi- professional investors (subject to specific knowledge requirements and a typical minimum investment of EUR200,000), retail AIFs offer regulated vehicles that open alternative strategies to a broader investor base. In Germany, HNWIs may qualify as semi-professional or even professional investors if they meet certain regulatory criteria, such as sufficient investment expe - rience and financial capacity, and formally opt to be In recent years, asset managers have increasingly developed closed-end retail AIF products to invest in asset classes such as real estate, private equity or infrastructure which can be subscribed at a com - paratively low minimum investment level. Legislative reforms have expanded this area further: since 2021, open-end retail AIFs focused on infrastructure may be launched under German law, and at the Europe - an level, the ELTIF framework enables cross-border access to long-term alternative investments for retail investors. treated as such under MiFID II rules. Democratisation of the Fund Industry At the same time, special distribution structures have evolved. Master-feeder structures, for instance, allow a retail AIF to serve as a feeder into an institutional special AIF, provided the retail-level investor protection is maintained. In addition, formats such as tokenised fund units – digital shares issued on a blockchain – are offering new, innovative forms of indirect participation for retail investors. However, the German regulator BaFin remains cau - tious in order to ensure investor protection. Structures that give retail investors de facto direct exposure to high-risk institutional AIFs via intermediary vehicles (eg, subordinated loans to SPVs investing in special AIFs) are closely scrutinised by BaFin and may be pro - hibited if they undermine investor protection. Overall, today’s fund products and distribution models are increasingly designed to provide broader access to alternative investment strategies by retail investors – while operating within the regulatory safeguards required to protect less experienced and less diversi - fied investors.
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