GERMANY - To boost German hedge funds, the government will likely end a Depotbank requirement for the funds, permit them to invest in property and ease investment restrictions on institutions, according to industry players.

The players' predictions come about two weeks after deputy finance minister Thomas Mirow said the government would soon take measures to boost the products.

"If the government pursues these bold measures, the hedge fund industry would more than welcome them as they would promote the development of a competitive German hedge fund market", commented Ralf Lochmüller, chief executive of Lupus alpha, a Frankfurt-based asset management boutique.

Lupus alpha has so far attracted €200m with its hedge funds. The asset manager has also launched a so-called ‘talent hotel' aimed in part at promoting a new generation of hedge fund managers. Details of the concept will be announced on October 31.

With the enactment of Germany's investment law in January 2004, hedge funds were legalised in Germany for the first time.

But the law also included several requirements that are enforced by German financial services regulator BaFin. On the supply side, hedge funds domiciled in Germany must retain the services of a Depotbank to clear and settle its trades and are also barred from investing in physical property.

Experts point out that the Depotbank requirement is both costly and restraining for the hedge funds. "Using a Depotbank instead of a prime broker not only costs more, it may restrict the hedge fund's ability to trade quickly," said Erik Crawford, a principal at Mercer Investment Consulting in Frankfurt.

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