Germany has removed its private placement regime, making it difficult for non-EU fund managers to raise capital in Europe’s largest economy.
“The legal situation in Germany has significantly changed as of July 22, 2013. The private placement rules previously available for fund interests have been abolished,” law firm CMS said in a recent client memo.
Last July Germany begin implementing the Alternative Investment Fund Managers Directive (AIFMD), an EU law harmonizing private fund marketing rules across the continent. The directive leaves open the possibility for EU sovereigns to preserve their national private placement rules, something most countries did, but Germany opted to “gold plate” the directive, meaning it went above and beyond the directive’s requirements.
All funds in Germany, regardless of their origin, must follow the German Capital Investment Code (Kapitalanlagegesetzbuch) which does not provide for a private placement exemption, the alert said.
With the private placement route closed, fund managers soliciting capital in Germany fall under the AIFMD regime by default. GPs able to meet the directive’s obligations, which include rules on pay, reporting and the need for a depositary, must notify German authorities about their marketing intents. Assuming no objection from German regulators, a GP can begin marketing four months from after this notification is made.
“From a practical perspective it is almost impossible [for non-EU managers] to achieve this,” said Andreas Rodin, founding partner of German law firm P + P P?llath + Partners.
Legal sources note fund managers can enter Germany through a backdoor entrance under the concept of reverse solicitation, which is when an investor is the one who initiatives contact.
“If a German investor is already invested in an existing fund and knows when the investment period expires, it should be possible for this investor to approach the manager and participate in the successor fund,” said Rodin.
However it isn’t entirely clear how German authorities plan to regulate reverse solicitation offerings, legal sources warn.