June 11, 2014
The „New“ German Investment Regulation (Anlageverordnung)
Draft/Consultation Reform of Capital Investments of Insurance Companies
Executive Summary
> The asset classes are regrouped
> Regulated private equity AIF constitute a separate asset class in their own right
> Any acquisition of unregulated private equity
funds is excluded
> Open-ended and closed-ended specialized real
estate AIF and closed-ended mutual AIF are consolidated for real estate quota
> UCITS funds/UCITS-compliant funds constitute a
separate asset class in their own right
> Residual/catch-all quota for other AIF
> Replacement by Solvency II
1. Introduction and background information
Insurance companies are only permitted to invest
the guaranteed assets and the other restricted
assets (restricted assets) in compliance with the
requirements provided in Section 54 Versicherungsaufsichtsgesetz [VAG, German Act on the
Supervision of Insurance Undertakings] in conjunction with the regulation which was enacted pursuant to Section 54 Subsection 3 VAG, namely, the
German Regulation on the Investment of Restricted
Assets of Insurance Undertakings (German Investment Regulation (Anlageverordnung AnlV) – in certain investments (asset classes)
(what is called eligibility to serve as guarantee
assets).
In particular, investments made by a German insurance company have, as a matter of principle,
to comply with the principles of security, profitability, diversification and spread pursuant to Section
54 Subsection 1 VAG. The AnlV substantiates and
clarifies these principles with respect to those insurance companies which are authorized for direct
insurance business. The provision set forth in Section 54 VAG and in the AnlV are explained in detail
by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) [German Federal Financial Supervisory Authority], in particular in their circular memorandum 4/2011 (VA) of April 21, 2011 (Capital
Investment Circular Memorandum).
In practice, the Investment Regulation (AnlV) and
the Capital Investment Circular Memorandum are of
significant importance with respect to the structuring of capital investments by insurance companies
and pension funds: for it is only when a capital investment product is designed in such a way that it
complies with the requirements of the AnlV and the
Capital Investment Circular Memorandum that the
product can be distributed to such financially strong
investors.
In particular with respect to the fact that the
Kapitalanlagegesetzbuch
(KAGB)
[German
Capital Investment Act] came into force in July
2013, which involved a restructuring of the law
relating to open-ended and, in particular, previously
unregulated closed-ended funds, an adjustment of
the AnlV to the current legal situation had become
necessary.
On May 27, 2014, the Bundesministerium der
Finanzen [German Federal Ministry of Finance] presented a first draft bill of the revised Investment
Regulation (AnlV). Beyond the formal adjustment to
the KAGB’s new terminology, the draft also provides – with respect to capital investments in funds
– a reform of the classification of the previously
existing asset classes.
Below, we have provided a brief outline of the
planned amendments.
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The New Investment Regulation (Anlageverordnung)
2. Reform of the „Funds“ Asset Class, According to Investment Focus
With respect to the permissible assets (Section 2
AnlV), the draft provides, in particular, various
changes in the area of investments in investment
asset pools:
a.
New Asset Class: „Private Equity Funds“
The AnlV draft divides the previous so-called equity
quota (previously to be found in Section 2 Subsection 1 Sentence 1 No. 13 AnlV) into investments in
shares in operational companies and in regulated private equity funds.
The currently existing so-called equity quota will
continue to apply, unchanged, under the prerequisites set forth in No. 13 (a), a provision which was
merely provided with a new number.
A newly introduced provision is Section 2 Subsection 1 Sentence 1 Number 13 (b) AnlV, which provides the option to invest in shares and units in
domestic closed-ended AIF within the meaning of
Section 1 Subsection 5 KAGB, if
(i) they invest, directly or indirectly, in assets according to Section 261 Subsection 1 No. 4
KAGB (participations in undertakings that
are not admitted to trading on a stock exchange or included in another organized market) as well as in other instruments which are
similar to equity capital instruments, and
GSK Update / June 11, 2014
It remains unclear whether the foreign structures
which are well-established in the private equity
segment and which are not subject to any investment supervision, like the Delaware LP or the
Cayman Island or Jersey Partnership, will continue to be capital investments which can be acquired by means of the equity quota pursuant to
Section 2 Subsection 1 Sentence 1 No. 13a AnlV.
The same question applies to closed-ended private
equity funds, which, although they qualify as AIF,
are merely subject to the registration requirement, but which do not have a BaFin permit pursuant to Section 20 Subsection 1 No. 13 due to their
compliance with the applicable threshold values set
forth in the AIFM Directive for assets under management (AuM) in the amount of 100 million (with
leverage) or, respectively, 500 million (without
leverage).
An argument in favor of a classification under No.
13 (a) is presented by the government’s statement
of reasons concerning the AnlV’s draft bill, according to which vehicles which are not subject to any
supervision under investment law may be assigned
to No. 13 (a) if the prerequisites are met.
(ii) their investment fund manager has a permit
according to Section 20 Subsection 1 KAGB.
Investments in shares and units in comparable foreign investment asset pools have equal standing, provided that they were issued by a fund manager domiciled in another state of the European
Economic Area or a full member state of the
OECD that is subject to public supervision for the
purpose of protecting the investors, and that has
been granted a permit comparable to the permit of
Section 20 Subsection 1 KAGB.
Likewise, the acquisition of private equity funds of
funds is permissible, provided that the target funds
likewise meet the prerequisites of No. 13 (b).
According to the previous administrative practice of
the insurance supervision, shares or units of the
closed-ended AIF have to be freely transferable. In
particular, a transfer may not be tied to the agreement of the management or the other shareholders.
However, a problem which might occur in this connection is that the typical private equity fund, at
any rate when taking the KAGB’s requirements as a
basis – as opposed to the administrative practice of
the investment supervision when applying the InvG
[Investmentgesetz, German Investment Act] in its
old version – is typically not at all qualified to constitute an operative business, and, therefore, cannot be classified under No. 13 (a) AnlV. For otherwise, even the domestic PE funds were to lose the
status as investment asset pools in accordance with
the KAGB and, thus, their regulatory obligations.
Thus, a synchronism as to the interpretation is to
be expected. A corresponding clarification in the
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The New Investment Regulation (Anlageverordnung)
GSK Update / June 11, 2014
b. Open-ended and Closed-ended Real Estate
Funds
shares or units in investment asset pools which are
– or whose fund manager is – merely subject to a
registration requirement and thus not subject to
supervision by BaFin [German Federal Financial
Supervisory Authority].
With respect to real estate investments, the Draft
provides in Section 2 Subsection 1 Sentence 1 No.
14 (c) AnlV that, beyond real estate, participations
in real estate companies, shares in REIT stock corporation companies and/or comparable foreign
shares, shares or units in domestic (open-ended /
closed ended) specialized AIF or in closedended mutual AIF,
As it is the case regarding the private equity segment, it has to be ensured in the event of an investment by means of a real estate fund of funds
that the target funds likewise comply with the statutory requirements of the AnlV, i.e., that they are
domiciled in an EEA state and that they are managed by a manager domiciled in an EEA state and
provided with a comparable permit.
(i) which, directly or indirectly, invest in real estate or rights pursuant to Section 231 Subsection 1 No. 1 through No. 6 KAGB as well as
Section 235 Subsection 1 KAGB (land, heritable building rights, usufructuary rights in
land, and real estate companies); and
It is to be expected that the prerequisites for acquiring real estate funds will be put into more concrete terms in the Capital Investment Circular
Memorandum.
(ii) whose investment fund manager has a permit
according to Section 20 Subsection 1 KAGB,
The investment in shares in domestic and foreign
UCITS is now provided for in Section 2 Subsection
1 Sentence 1 No. 15 AnlV.
Capital Investment Circular Memorandum, which is
yet to be adjusted, would be welcome.
may likewise be acquired.
Investments in shares and units in comparable European Union investment asset pools have
equal standing, provided that they were issued by a
fund manager domiciled in another state of the
European Economic Area that is subject to public
supervision for the purpose of protecting the investors, and that has been granted a permit comparable to the permit of Section 20 Subsection 1
KAGB.
c. UCITS Funds/UCITS-compliant Funds
Whether shares and units in domestic open-ended
specialized AIF within the meaning of Section 1
Subsection 6 KAGB
(i) which are comparable to the requirements for
UCITS with regard to both eligible assets as
well as redemption rights, and
(i) whose investment fund manager has received
a permit according to Section 20 Subsection 1
KAGB,
Beyond the typical specialized real estate fund
(Immobilien-Spezial-Sondervermögen, now: openended domestic specialized AIF with the investment focus on real estate), this provision
encompasses also closed-ended specialized real
estate funds as well as closed-ended mutual real
estate funds.
are eligible for acquisition is provided for in Section
2 Subsection 1 Sentence 1 No. 16 AnlV.
Not listed as allowable real estate investments are
open-ended mutual real estate funds (offene
Publikums-Immobilien-Sondervermögen) within the
meaning of Sections 230 et seqq. KAGB. This is
consistent with the current legal practice by the
insurance supervision, which regards shares in
(open-ended) real estate mutual funds (offene Publikums-Immobilien-Sondervermögen) as unsuitable
for the restricted assets, because of the notice and
minimum holding periods which have to be complied with in such cases. Just as unsuitable are
Comparable EU investment assets are likewise eligible in accordance with the corresponding prerequisites.
This provision encompasses specialized securities
funds which are comparable to UCITS in terms of
their investment, but which, due to their specialized fund characteristics, do not constitute
UCITS themselves, but rather, AIF.
d. „Other“ Funds
According to Section 2 Subsection 1 Sentence 1 No.
17 AnlV, shares, units, and interests in a limited
partnership (Kommanditgesellschaft) in domestic
investment asset pools
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The New Investment Regulation (Anlageverordnung)
(i) which are not mutual real estate funds (not
Publikums-Immobilien-Sondervermögen),
(ii) which are not already included by Section 2
Subsection 1 Sentence 1 No. 13 (b), 14 (c),
No. 15 and No. 16, and
(iii) whose investment fund manager has received
a permit according to Section 20 Subsection 1
KAGB,
may be acquired for the restricted assets („other
funds“).
Investments in shares and units in comparable European Union investment asset pools have
equal standing, provided that they were issued by a
fund manager domiciled in another state of the EEA
that is subject to public supervision for the purpose
of protecting the investors, and that has been
granted a permit comparable to the permit of Section 20 Subsection 1 KAGB.
Thus, Section 2 Subsection 1 Sentence 1 No. 17
AnlV constitutes a residual/catch-all provision
for any and all other investment asset pools for
which no specific regulations exist. At the same
time, it is made clear that mutual real estate funds
(Immobilien-Publikums-Sondervermögen) may not
be acquired, not even in the context of this residual/catch-all clause, and are thus generally excluded
from serving as a suitable type of investment. Investment asset pools which are – or whose fund
manager is – merely subject to the registration
requirement are likewise not subject to the scope of
the residual/catch-all clause for other funds.
3. Changes Regarding the Quantitative Restrictions (Mix)
Beyond the changes regarding the admissible capital investments, the draft also provides for a reform
concerning the quantitative restrictions (Section
3 AnlV).
a) Both indirect and direct investments according
to Section 2 Subsection 1 Sentence 1 No. 17
AnlV (other funds) as well as other direct and
indirect investments according to Section 2
Subsection 1 AnlV, whose income or repayment is linked to hedge fund or commodity
risks now may not exceed 7.5 per cent (as
opposed to previously 5 per cent) of the guarantee assets and of the other restricted assets,
respectively (please confer Section 3 Subsection 2 No. 2 AnlV).
GSK Update / June 11, 2014
b) The other changes in Section 3 AnlV are mainly
of an editorial nature.
4. Debtor-related Restrictions (Diversification)
Beyond the structural realignment with respect to
the asset classes, the draft of the AnlV also contains alterations concerning the debtor-related
restrictions (Section 4 AnlV).
a) According to the draft bill, Section 4 Subsection 4 AnlV will be amended to the effect that
investments pursuant to Section 2 Subsection
1 No. 9, No. 12, and No. 13 AnlV in one and
the same undertaking, as well as shares and
units in closed-ended investment asset pools
according to Section 2 Subsection 1 No. 17
AnlV may not, in the aggregate, exceed 1% of
the restricted assets.
b) With respect to what is called the real estate
quota, Section 4 Subsection 5 AnlV clarifies
that indirect real estate investments in shares
or units in an investment asset pool according
to Section 2 Subsection 1 Sentence 1 No. 14(c)
AnlV do fall under the scope of the real estate
quota.
5. Transitional Provision
The draft bill provides a grandfathering arrangement, in particular with respect to such capital investments which hitherto used to fall under the
scope of the equity quota, but which now do no
longer qualify for this due to a lack of existing regulation. These funds may remain in the portfolio and
may be permanently allotted to the equity quota
pursuant to No. 13 (b).
It is only until December 31, 2019, that shares or
units in open-ended specialized AIF which were
acquired before the amended AnlV comes into
force, but which do not comply with the new requirements, may be allotted to the „domestic openended specialized AIF“ asset class.
6. Conclusion
The changes of the Investment Regulation (AnlV)
take the alterations of the KAGB into account. In
particular, the provisions concerning the eligibility
of the acquisition of participations in closed-ended
funds are now further clarified. In many respects,
the requirements regarding the eligibility of the
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The New Investment Regulation (Anlageverordnung)
acquisition of investment asset pools still remain
very vague.
It is therefore to be expected that the specific requirements for both open-ended as well as closedended funds will be determined – as has happened
before – in the context of the review of the Capital
Investment Circular Memorandum, by the BaFin
[German Federal Financial Supervisory Authority].
At any rate, with respect to insurance companies,
the amendments constitute merely a transitional
provision. For when Solvency II enters into force –
probably as of January 2016 – the whole system of
capital investments will be regulated in a completely new way, and it will be split off from the rather
GSK Update / June 11, 2014
formal approach which the Investment Regulation
(AnlV) takes.
Sascha Zentis
Lawyer and Notary Public
Frankfurt office
[email protected]
Dr. Timo Patrick Bernau
Lawyer
Munich office
[email protected]
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