The Fund Location Act aims to improve the attractiveness of Germany as a fund location.
In addition to new product options, the revised Capital Investment Code also provides for measures to exempt funds from VAT, promote employee share ownership and reduce bureaucracy for fund managers.
The transparency rules of the Disclosure Regulation on dealing with sustainability risks will be integrated into the Capital Investment Code.
In the draft of the "Fondsstandortgesetz" (FoStoG), the legislator presents a whole series of measures to increase Germany's attractiveness as a fund location. New regulations are intended to increase the competitiveness of the German fund industry and reduce bureaucracy. In addition, European requirements from the directives for "Undertakings for Collective Investment in Transferable Securities" (UCITS) and for "Alternative Investment Fund Managers" (AIFM) will be implemented.
On the evening of 22 April 2021, the Bundestag gave final approval to the Federal Government's draft of the Fund Location Act in its second and third readings and passed it in the version of the Finance Committee's recommended resolution.
The "Kapitalanlagegesetzbuch" (KAGB) revised by the FoStoG provides four new product options:
1. Special AIFs may be launched as closed-ended investment funds
According to the recommended resolution, closed-ended special AIFs may in the future be launched also as special funds. This expands the product range of German fund managers, and the regulations applicable to open-ended investment funds will now also apply to closed-ended investment funds. The advantages of closed-ended special funds compared to the previously applicable corporate form of closed-ended funds are obvious: for example, partnership agreements no longer have to be concluded, shareholder meetings/resolutions are no longer required and limited partners do not have to be entered in the commercial register. In addition, the process of acquiring shares in closed-end funds is simplified, as these shares - unlike a limited partner's share in an investment limited partnership - can be deposited with a special fund.
The innovations mean that German private equity and venture capital funds can for the first time use the legal form of a special fund instead of the corporate form of a GmbH & Co. KG. This has always been recognised in other European jurisdictions, such as Luxembourg with its Fonds Commun de Placement (FCP).
It is hoped that this will bring advantages such as flexibility and minimising the risk of commercial infection (tainting) of income or a complete or partial tax liability (shielding effect).
2. Closed-end master-feeder AIFs
The revised KAGB also contains new rules for closed-end master-feeder structures, which were previously not permitted. This change also serves to strengthen Germany as a fund location. Asset management companies are to be given more structuring options. The content of the regulations is largely based on the regulations for open-ended master-feeder structures (Sections 171 to 180), taking into account the special characteristics of closed-ended vehicles. However, closed-end funds cannot be subsequently converted into a feeder fund, as is possible for open-end funds.
3. Open-ended infrastructure special funds
The planned introduction of infrastructure special funds will give small investors the opportunity to invest in infrastructure project companies and have a share in infrastructure projects. The idea is not foreign to German investment law, as this type of fund already existed in the Investment Act of 2007. The regulations for open-ended infrastructure funds are based on the regulations for real estate funds. According to the amended KAGB, infrastructure project companies are companies founded to redevelop, operate or manage facilities, plants or structures that serve the functioning of the community.
4. Development support funds
In the FoStoG, the Bundestag has created an initial incentive for "development support funds" to be set up in the Federal Republic of Germany and to mobilise private capital to help achieve the Sustainable Development Goals (SDGs) in developing and emerging countries. The development support funds may be launched as open and closed-ended domestic special AIFs, and offer more flexibility than the traditional German fund types. The development support funds combine European-style sustainability funding with the opportunity to invest in developing countries through a special fund vehicle.