Market Overview: State of the Market
Germany is frequently used by advisers and managers for the formation of venture capital, private equity and similar closed-end alternative investment funds, as well as for retail funds wherever the manager of the respective investment fund is located in Germany – ie, Germany is generally not used as a domicile for structuring alternative investment funds or retail funds by non-German advisers or managers. Typically, German private equity or venture capital funds are structured as limited partnerships that are transparent for German tax purposes.
German resident institutional investors as well as German family offices are a frequent target of the fundraising activities of venture capital, private equity and similar alternative investment funds located in Germany or various other jurisdictions around the world.
Alternative Investment Funds
Fund Formation: Fund Structures
The typical legal forms of investment funds used in Germany are limited partnerships, investment stock corporations and contractual funds with no legal personality of their own (Sondervermögen). The most frequently used legal form for private funds is the limited partnership, whereas retail funds, undertakings for the collective investment in transferable securities (UCITS) funds and, quite often, real estate funds are more often structured as contractual funds. A key difference is that a limited partnership is transparent for German tax purposes, whereas the rules of the German Investment Tax Act apply in respect of corporate fund structures and contractual funds.
Fund Formation: Common Process for Setting Up Investment Funds
The process for setting up an investment fund in Germany must be described separately for registered sub-threshold managers and for fully licensed managers of alternative investment funds. The regulation of investment funds in Germany is primarily exercised through the regulation of the respective manager. The manager is required to apply for a full licence or needs to be registered with the German supervisory authority for financial services (BaFin) under the German Capital Investment Act (KAGB). The KAGB implements the European Alternative Investment Fund Managers Directive (AIFMD) rules into German law.
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Chambers_Overview Germany_Law & Practice Investment Funds 2023
This article was first published in: Chambers Legal Practice Guide Investment Funds, 2023 (last updated 9 February 2023)