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IPE special report May 2018

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Barriers set to fall German hedge funds

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GERMANY - Further barriers to hedge fund investing could be removed later this year in the coming reform to the German Investment Act, according to a law firm.

Henning Starke, a partner with law firm SJ Berwin told the SuperHedge event last week that liquidity was one of the biggest issues facing pension funds and those setting up funds of hedge funds.

One restriction of the act currently limited the period between the notice date of investor withdrawal and the date of actual redemption to 100 days.

“There is a problem in deciding when the redemption date is,” said Stark.

The redemption is carried out at the asset value of that date, he pointed out. But in funds of funds it depends on the value of the assets in the target funds. “This can take five to 20 days after the actual valuation date.”

“Then it will take even more time to cough up the money.” The whole period might take 160 days he noted when the processing is completed. “The law only allows 100 days for all of this.”

He believed it was important to look at the intention of the lawmaker and not just the wording of the law as regulator BaFIN does currently – quite correctly, he pointed out.

The 100 days should refer to the period from the notice to the valuation. “This was the only interpretation that made sense.”

BaFIN has accepted this and Stark believed the proposal to reform this would be in the upcoming amendments to the investment act.

“BaFIN currently grants an extra five days plus to allow for processing,” he pointed out. “Currently with funds set up solely for institutional investors there might be some additional room.”

He reckoned that in setting up funds of hedge funds in general some 40% of the time was taken up with the liquidity issues. He said the expectation was that the amended law would go through in the second half of this year.

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