Brewing AIFM victory in Germany

Although not officially released, a revised draft of Germany’s heavily criticised Alternative Investment Fund Managers (AIFM) bill is being considered by many as a big win for the industry.

Below are the major changes to the draft and how they affect you:

Introduction of “semi-professional investor”

Under the old draft private equity funds could only have professional investors, as defined by the MiFID Directive. This meant that high net worth individuals, some smaller institutional investors and, more worryingly, professionals of the private equity house itself were unable to invest in German private equity.

Christian Schatz

However the new draft introduces the concept of a “semi-professional investor” who can invest in private equity. In crude terms this is a sophisticated investor committing at least €200,000 or an employee of the private equity firm. This will significantly increase the number of eligible investors for private equity funds in Germany.

“The semi-professional investor status is of high relevance as before they proposed just allowing professional investors in private equity funds. Now, we have clarity that investors like family offices and high net worth individuals can invest. This is a big step forward and is extremely positive,” said Schatz.

€500 million exemption opens for more managers

The AIFM’s small managers’ exemption, for managers with fewer than €500 million under management, was restricted to managers with only professional investors under the old draft.

Once again the “semi-professional investor” concept saves the day as this investor classification can be applied to this exemption. German private equity firms with exclusively professional and “semi-professional” investors can make use of the exemption.

“Technically there will be more funds who can take advantage of this exemption. Every fund here in Germany has a non- or a semi-professional investor and before they were excluded from this exemption. Now it’s just the very limited group of non-professional investors that can cause you problems,” said Schatz.

Less stringent third-country marketing restrictions

The old draft put in place strict measures over funds and fund managers based outside of Europe, which effectively blocked German LPs from a large universe of private equity investment opportunities. 

Now “third-country” funds can be marketed to professional investors if the fund complies with basic AIFM marketing requirements, including hiring a custodian to safekeep securities. Additionally the custodian will not need to undertake all depository duties. The revision puts Germany much closer to the AIFM’s default position.

Non-bank depositories

The original draft bill left the industry disappointed as Germany ignored the opportunity to allow service providers to take on the role of depository. It is expected that the revised draft will allow notaries, lawyers, tax advisors and auditors to act as a depository.

Conclusion

“The big political issues are mainly solved and overall I think this will be the draft with some technical amendments that enters the legislative process. I don’t think there will be big changes anymore,” said Schatz

The draft is expected to be presented to parliament in December, and Schatz does not see it being rejected. “We have something that is on the one hand providing regulation, but provides for reasonable exemptions. We had real jurisdiction killers before, things that may force you out of Germany. Now, these real killers are mainly gone.”