The Act Implementing the AIFM Directive (AIFM-UmsG): Fundamental Changes to German Investment Legislation
August 2012

Key changes

The AIFM-UmsG will introduce a Capital Investment Code (Kapitalanlagegesetzbuch - KAGB) which the BMF intends to be a self-contained body of legislation applicable to investment funds and their managers. The three main changes introduced by the AIFM-UmsG will be:

• Implementation of Directive 2011/61/EU on Alternative Investment Fund Managers (AIFM Directive), the implementation period for which expires on 22 July 2013.
• Repeal of the German Investment Act (Investmentgesetz - InvG), and implementation of the provisions of Directive 2009/65/EC (UCITS Directive).
• Advance implementation of the provisions necessary for the application of the regulations of the European Parliament and of the Council on European Venture Capital Funds and European Social Entrepreneurship Funds.

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Consequences of European legislative procedures

The European legislative procedures relating to the European Regulation on Venture Capital Funds, the European Regulation on European Social Entrepreneurship Funds and the implementing measures to further specify the AIFM Directive (Level 2 Regulations) have not yet been concluded but are expected to be finalised by the end of this year. The aforementioned EU regulations are planned to come into effect on 22 July 2013 concurrently with the expiry of the implementation period for the AIFM Directive. For this reason, the AIFM-UmsG already takes account of the draft form of the EU regulations but changes to the European legislative procedures may therefore also require corresponding amendments to the AIFM-UmsG.

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Amending Act

The AIFM-UmsG is an amending act (Artikelgesetz). Article 1, which constitutes the main part of the Act, contains the provisions relating to the new KAGB. Articles 2 to 28 contain consequential changes to other laws and statutory regulations, in particular, to the provisions of the German securities and capital investment laws, such as the Capital Investment Act (Vermögensanlagengesetz - VermAnlG), the Securities Prospectus Act (Wertpapierprospektgesetz - WpPG), the German Banking Act (Kreditwesengesetz - KWG) and the Money Laundering Act (Geldwäschegesetz - GwG). In addition, the Holding Companies Act (Gesetz über Unternehmensbeteiligungsgesellschaften - UBBG) will be amended to meet the requirements of the AIFM Directive.

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Material investment fund definition (comprising UCITS and AIF)

Under the new KAGB, the previous formal investment fund definition (formeller Investmentfondsbegriff) that applied under the InvG will be replaced by a material investment fund definition (materieller Investmentfondsbegriff). Pursuant to section 1 para. 1 of the KAGB, any undertaking for collective investment that collects money from a number of investors for investment in accordance with a defined investment strategy for the benefit of such investors qualifies as investment assets (Investmentvermögen). Investment assets comprise undertakings for collective investment in transferable securities (UCITS) as well as alternative investment funds (AIF), i.e. a fund must meet the requirements either under the UCITS Directive or under the AIFM Directive in order to be considered as investment assets within the meaning of the KAGB. A fund that does not meet either of these requirements is not permitted and constitutes an investment business conducted without licence (unerlaubt betriebenes Investmentgeschäft).

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Open and closed-ended funds

Under the KAGB, investment assets are classified either as open-ended investment assets (offene Investmentvermögen) or closed-ended investment assets (geschlossene Investmentvermögen). The following types of investment assets may be established as open-ended investment assets: UCITS funds, public AIFs (Publikums-AIF) and special AIFs (Spezial-AIF) [including special AIFs with fixed investment conditions (Spezial-AIF mit festen Anlagebedingungen) previously known as special funds under the InvG (Spezialfonds)]. Closed-ended investment assets may be established, on the one hand, by public AIFs that invest, for example, in

• real estate, ships, aircraft,
• renewable energy,
• shares in public private partnerships (PPPs),
• certain special purpose vehicles,
• units and shares in closed-ended special AIFs/public AIFs,
• <49% in securities, bank deposits, money market instruments

and, on the other hand, by special AIFs that invest predominantly in assets other than financial instruments.

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Fund vehicles

The fund vehicles that may be used for open-ended investment assets are, in general, the separated assets (Sondervermögen) and the investment stock corporation with variable capital (Investmentaktiengesellschaft mit veränderlichem Kapital). In the case of special AIFs, the open-ended investment limited partnership (offene Investmentkommanditgesellschaft) (i.e. with variable capital) may also be chosen. For closed-ended investment assets, only the forms investment stock corporation with fixed capital (Investmentaktiengesellschaft mit fixem Kapital) and closed-ended investment limited partnership (geschlossene Investmentkommanditgesellschaft) (i.e. with fixed capital) are available.

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Special funds

As regards special funds, the product regulation under the InvG is to a large extent adopted. Some amendments, however, are made to accommodate the European requirements, e.g. with respect to additional information duties.

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Open-ended real estate funds

Grandfathering provisions apply to open-ended public real estate funds and special real estate funds launched before the cabinet resolution to the KAGB. These funds may continue under the previously applicable regime for product regulation under the InvG. It will still be possible to invest in these funds; as of the cabinet resolution, however, it will no longer be permissible to launch real estate funds in the form mentioned above. Under the Draft of the AIFM-UmsG, real estate funds may, in the future, only be set up as closed-ended investment assets.

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Deadline for submission of comments

The deadline set by the BMF for the submission of written comments on the Consultation Draft of the AIFM-UmsG expires on 17 August 2012.

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Assistance from Norton Rose

Our Financial Services Team is available to assist you on any other questions you may have relating to the investment fund, banking, financial services and securities services sectors.

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