GERMANY Law and Practice Contributed by: Amos Veith, Jens Steinmüller, Ronald Buge and Stephan Schade, POELLATH
Rather than investing directly, institutional inves - tors often invest through managed accounts set up as single or group investor funds. 2.2.2 Legal Structures Used by Fund Managers Legal structures depend on investors’ specific requirements and preferences. The legal struc - tures for private funds in which most types of investors are usually prepared to invest are limited partnerships and, particularly regarding real estate, contractual funds. However, specific structural requirements apply for certain types of investors. For example, certain non-taxable or tax-exempt investors, including pension funds ( Pensionskas - sen ), can only invest in business-type partner - ships if certain conditions and thresholds are met. Investments by investment funds intending to be treated as tax-transparent ( Spezial-Invest - mentfonds ) have to check the eligibility of invest - ments in closed-end funds on a case-by-case basis. Generally, feasible ways exist for Spezial- Investmentfonds to invest in partnerships as well as corporate or contractual fund structures, sub - ject to certain restrictions and thresholds. Based on applicable product requirements, investments by Spezial-Investmentfonds via corporate funds or holding vehicles might be challenged, depending on the respective Spezi - al-Investmentfond’s share in such fund or hold - ing vehicle. Statements by the Federal Ministry of Finance confirm that interests in alternative funds in general can be treated as eligible invest - ments for Spezial-Investmentfonds if they qual - ify as transferable securities under the UCITS Directive. German pension funds that are subject to Ger - man domestic insurance regulation (Solvency I
investors) usually prefer investment funds that are managed by a regulated manager. Require - ments regarding the provenance and regulatory status of the fund depend on the classification of the fund. For private equity funds, fund vehicles and managers that have their seats within an EU/EEA country or Organisation for Economic Co-operation and Development (OECD) member state and that have a manager regulation that is at least comparable to the regulation of a sub- threshold alternative investment fund manager (AIFM) are sufficient. For a fund to qualify as a private equity fund, it needs to be closed-ended and may only invest in certain types of corpo - rate finance instruments. Funds with investment policies covering instruments beyond equity and equity-like instruments require special scrutiny in this respect. For all other types of funds, only EU/EEA vehicles with full-scope AIFMs with an EU/EEA seat are eligible as AIF investments. Interests in closed-end funds held by Solvency I investors or Solvency II investors need to be transferable without the prior consent of the general partner, manager or any other investor, as long as the interests are transferred to anoth - er institutional (or other creditworthy) investor. At the same time, the fund documents might need to contain specific language clarifying that an interest can only be transferred upon the prior written consent of a trustee appointed by the investor to safeguard the investor’s assets, dedi - cated to covering a client’s claims against the insurer. 2.2.3 Restrictions on Investors There are no general restrictions for investors investing in investment funds. However, certain restrictions apply to specific types of investors – eg, Solvency I investors may not invest in invest - ment funds that directly invest in working capital or consumer credits.
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