Germany adopts ‘strict’ AIFM legislation

Germany's interpretation of the Alternative Investment Fund Managers (AIFM) directive goes above and beyond what EU regulators envisioned, according to industry sources. 

Last week Germany’s Ministry of Finance published its draft legislation of the directive, which creates a pan-EU marketing regime for GPs, and must be implemented by each EU member state by next July. Luxembourg and the UK have both recently created their own draft AIFM bills. 

Included in the Germany draft are provisions excluding “non-professional” investors from private equity investment. Inspired by the EU's Markets in Financial Instruments Directive (MiFID), an investor is classified a non-professional investor if unable to meet two of three criteria: has worked at least one year in the financial sector; has a portfolio of at least €500,000; and is able to show two transactions per quarter over the last four quarters. 

The definition also affects the implementation of the directive's exemption for GPs managing less than €500 million in assets. Germany will only apply the exemption if smaller GPs refuse investments from non-professional investors, a daunting challenge for most GPs of this scale, according to one Germany-based lawyer.

“That was always going to be totally unreasonable and it would just mean that [smaller GPs] leave Germany,” he added. 

The rules will likely lead ‘non-professional’ investors to access the market through fund of funds or feeder structures. Germany goes beyond the requirements of the AIFM here as the directive does not restrict LPs of certain characteristics from the alternatives market. 

The draft also takes an unyielding position on non-EU or “third country” funds, despite maintaining a private placement marketing regime. Germany requires that foreign funds fully comply with the country’s AIFM rules before being able to take advantage of its private placement framework. Consequently Germany-based institutional investors will receive less marketing pitches from foreign funds unwilling to follow Germany's “strict” funds' regime, said the lawyer. 

The German government will take feedback on its draft until 20 August with a consolidated draft due at the beginning of September.