The German Ministry of Finance has proposed a draft law to encourage investment fund activity in the country.
The law – Fondsstandortgesetz (FoG) or the Fund Location Act – if passed, it could translate into the implementation of the Directive (EU) 2019/1160 regarding the cross-border undertakings for the collective investment in transferable securities (UCITS). The deadline to integrate the European rules into national law is 2 August 2021.
The set of rules in the Fondsstandortgesetz is intended to reinforce Germany’s appeal as a location for registration of investment funds. Although the German market has shown signs of further progress in recent years, it still falls behind other European countries such as Luxembourg or Ireland for instance, the Ministry noted in the draft.
The new law should tear down existing barriers that slow down Germany’s ability to compete internationally to attract funds.
It would introduce new investment vehicles such as open infrastructure investment funds, master-feeder funds, and closed-ended special funds.
The introduction of an infrastructure special fund would serve as a vehicle for small investors to deploy capital in companies focusing on infrastructure projects.
The idea behind infrastructure project companies would extend beyond public–private partnerships (PPPs) to the private sector only.
According to the draft, the structure of an open public investment fund, which invests primarily in highly illiquid assets, would make infrastructure special funds “particularly close” to real estate special funds.
For open real estate funds and the new open infrastructure funds, the legal form of an open investment limited partnership would also be permitted under the new rules, if approved in their current form.
This, according to the Ministry, would expand the range of products offered by fund providers, in turn boosting Germany’s appeal as a hub for investment funds.
The law also foresees the option to set up closed master-feeder funds, while for closed-end special alternative investment funds (AIFs) the ministry added the possibility of using the the special fund’s legal form for professional and semi-professional investors.
The Fondsstandortgesetz includes changes brought by the transparency and taxonomy regulations at EU level. It added further changes to the Investment Code, or Kapitalanlagegesetzbuch (KAGB), to reduce bureaucracy, administrative costs, and digitize supervision.
The Investment Code would integrate the definition of pre-marketing according to the EU Directive 2011/61/EU on alternative investment fund managers.
Pre-marketing is carried out by or on behalf of a management company, the draft clarified. It is neither sales nor pre-marketing a potential acquisition of a stake in a fund stemming from the initiative of an investor, so-called reverse solicitation, it said.
Real estate companies that are 100% subsidiaries of special funds can receive unlimited equity from the funds if directly holding real estate properties.
A borrowing limit for special real estate funds would increase from 50% to 60% to give fund administrators more flexibility, especially in times of crisis, the draft said.