Germany is not a typical funds jurisdiction, such as Luxembourg or the Channel Islands. Nevertheless, Germany has a sizeable alternative funds sector with German-based funds and managers in place, for both direct investment funds as well as fund of funds. Besides domestic fund structures, many fund managers offer cross-border fund structures (eg, a German master fund with non-German feeder funds for certain non-German investors). Some German fund managers also use pure non-German fund structures (mostly based in Luxembourg).
As for investors, Germany is a top jurisdiction in Europe with regard to large institutional investors, such as insurance companies, pension funds and pension schemes, banks and credit institutions, as well as family offices and high net worth individuals (HNWIs).
Funds
Types of Alternative Funds
Private equity funds (buyout, venture capital, and growth capital) and real estate funds, as well as fund of funds, are the most commonly established funds in Germany. Renewable energy funds and private debt funds are also noteworthy.
Fund Structures
A German limited partnership (“GmbH & Co KG”) is typically used for closed-end alternative investment funds. The German limited partnership is structurally comparable to the US, UK or Luxembourg limited partnership. It offers limited liability to its limited partners and has as a corporate type, general partner with unlimited liability (although the general partner’s liability is limited to its assets, typically EUR 25,000, and is thus, effectively, also limited).
The German limited partnership offers the benefits of being tax-transparent and allowing legal flexibility for its governance. It is the market standard for registered fund managers, such as Alternative Investment Fund Managers Directive (AIFMD) sub-threshold fund managers.
Contractual funds with no legal personality (Sondervermögen) are typically used for open-end funds. Contractual funds can only be established by alternative investment fund managers (AIFMs) that are fully authorised under the German implementation of the AIFMD (Directive 2011/61/EU). The contractual fund is often established for real estate funds and non-UCITS funds. It is also often used for separate managed accounts as an investment platform for institutional investors.
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Chambers_Alternative Funds 2024_ Chapter Germany
This article was first published in: Chambers Global Practice Guide, Alternative Funds 2023, 19 October 2023