Germany

Summary of private placement provisions for fund interests (if applicable)

As of 22 July 2013, fund interests can no longer be distributed in Germany on a private placement basis. Consequently, there is no defined set of rules regarding the private placement of fund interests.

The German law implementing the AIFMD, the German Capital Investment Code (Kapitalanlagegesetzbuch), allows for domestic German as well as EU and Non-EU funds to be placed only in accordance with a dedicated set of rules. Those rules do not provide for a private placement exemption, meaning that placement would be exempted from regulatory requirements. In particular, funds targeting professional and private investors cannot rely on private placement exemptions. In respect of the latter investor group, the German Capital Investment Code applies – beyond what the AIFMD stipulates – to retail funds.

Most importantly, the German Capital Investment Code imposes comparably high hurdles to the placement of Non-EU funds or funds managed by Non-EU managers as of 22 July 2013. Those require, inter alia, for placement in Germany that cooperation agreements are in place between the German regulator and the regulator of the fund’s and/ or manager’s country of domicile.

The legal situation in Germany has significantly changed since 22 July 2013. The private placement rules previously available for fund interests have been abolished.

Other forms of possible placement options for fund interests outside fund regulations

Placement of fund interests is not subject to the regulations of the German Capital Investment Code when not made on the “initiative” of the fund manager but on the initiative of professional investors or so called semi-professional investors. This exemption is commonly referred to as reverse solicitation.

From a German perspective, “reverse solicitation” applies to an approach by a potential professional or semi-professional investor on its own initiative. Due to a change in the law, reverse solicitation will be much more restricted in the future and as such be classified as marketing activity.

For the sake of completeness, certain other activities are also not classified as marketing activities pursuant to the German Capital Investment Code. Such activities include the publication of NAV and ISIN and other information published to comply with legal requirements as well as the issuance of interests in a German UCITS, which is a feeder to an EU master UCITS.

Placement of certain interests in the following vehicles or structures is exempted from the German Capital Investment Code and can therefore be made on private placement basis:

• holding companies;
• institutions for occupational retirement provision;
• supranational institutions, if such institutions or organisations manage AIFs and in so far as those AIFs act in the public interest;
• national, regional and local governments and bodies or other institutions which manage funds supporting social security and pension systems;
• employee participation schemes or employee savings schemes;
• securitisation special purpose vehicles;
• AIFs in so far as their only investors are their AIFM or the AIFMs parent undertakings, their subsidiaries or other subsidiaries of their parent undertaking and where those investors are not themselves AIFs;
• AIFs managed by an AIFM where the aggregated assets managed do not exceed EUR 100m (leverage included) or EUR 500m (without leverage) subject to certain further marketing requirements;
• AIFs for private investors where the assets do not exceed EUR 5m and have not more than five investors;
• AIFs for private investors in the form of a cooperative society which invests in clean energy; and
• AIFs for private investors where the assets of the AIFM managing such AIFs do not exceed EUR 100m.

Private placement options for non-fund interests are available and outlined below under private placement rules for non-fund investments.

Consequences of non-compliance with placement regimes for fund interests

From a civil law perspective, the German law implementing AIFMD creates some uncertainty.

Contracts concluded should principally be regarded as valid under general German law even if one of the parties may have acted in contrary to the German Capital Investment Code when entering into the agreement. However, if a fund needs to be unwound, e.g. for regulatory requirements, an investor might under general German civil law principles hold the fund and/ or its manager responsible and claim compensation and damages for losses suffered.

From a regulatory perspective, distribution of fund interests which breaches the German Capital Investment Code could constitute a criminal offence. Sanctions include fines and even imprisonment. Further, the German regulator may issue a request to the fund manager to adapt their operations so that they comply with the legal requirements or may prohibit further distribution activities and request unwinding of the fund.

Private placement rules for non-fund investments available

Any instrument, other than a fund instrument, can be subject to private placement rules in Germany. German law distinguishes between two different regimes; first, private placement of securities, and second, private placement of non-securities. Both regulations explicitly allow for private placement.

Under German law, securities are transferable instruments which are tradeable on capital markets. All other instruments, e.g. non-tradeable participations in companies, are non-securities.

The private placement of securities is regulated in the German Securities Prospectus Act (Wertpapierprospektgesetz). This law provides for a number of private placement exemptions, the most important applying to offers (i) where the minimum subscription amount is EUR 100,000 per investor or (ii) addressing fewer than 150 investors per EEA State or (iii) which are restricted to professional investors (professional investors defined in accordance with the MiFID definition of professional clients).

The private placement of non-securities is regulated by the German Asset Investment Act (Vermögensanlagengesetz). Again, this law provides for several private placement exemptions of which the most important apply to offers where (i) the minimum subscription amount is EUR 200,000 per investor or (ii) a maximum of 20 interests are issued.