GERMANY Law and Practice Contributed by: Amos Veith, Jens Steinmüller, Ronald Buge and Stephan Schade, POELLATH
3. Retail Funds 3.1 Fund Formation 3.1.1 Fund Structures
Both vehicles can issue different classes of shares or interests and establish sub-funds (umbrella structure). 3.1.2 Common Process for Setting Up Investment Funds The contractual fund is established by the fund manager on a contractual basis with the investor. The contractual fund is a pool of assets sepa - rated by statute and contract from the (other) assets of the fund manager. The investment guidelines for contractual funds set out the details of the contractual relationship between the fund manager and the investors, particularly the applicable investment restrictions. Investment corporations and investment lim - ited partnerships are basically corporations and limited partnerships, with some modifications required by investment law. They are established in accordance with the applicable procedures for establishing corporations and partnerships (with some modifications because of investment law). In addition to the articles of incorporation or the limited partnership agreement (LPA), separate investment guidelines are necessary. The investment guidelines and marketing of retail funds need BaFin approval. BaFin also has to approve the selection of the depositary for the respective retail fund. The approvals are usually obtained in parallel with each other. Depending on the type of fund, the process can be rather short in the case of a standardised fund product, or it can be rather lengthy and expen - sive in the case of a bespoke alternative asset retail fund (in particular, a closed-end fund).
As a starting point, retail investors are neither professional nor semi-professional investors (see 2.3.1 Regulatory Regime ). Retail funds are typically set up as UCITS funds or as so-called Public AIFs (as opposed to Spe - cial AIFs). Legal vehicles are mostly contractu - al-type funds ( Sondervermögen ) for open-end structures, and investment limited partnerships for closed-end retail funds. Corporate structures are less common in the retail sector as they are more complicated. The choice of the vehicle is, in principle, depend - ent on whether an open-end fund or a closed- end fund is desired. Arrangements and Vehicles for Open-End Funds For open-end funds, the contractual fund and the investment corporation with variable capital structures are available. They can have different classes of units or shares, and can also establish sub-funds (umbrella structure). For open-end funds, most fund managers prefer a contrac - tual fund to a corporation as the setting up and operation are easier. Vehicles for Closed-End Funds For closed-end funds, the only available vehicles for retail funds are the investment corporation with fixed capital and the closed-end investment limited partnership. Managers can only set up a closed-end fund in the form of a contractual fund for non-retail investors.
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