Until the summer 2103, German institutional investors wishing to invest indirectly in real estate had the choice of one vehicle: Immobilien-Spezialfonds, the institutional open-ended real estate fund. At least this was true whenever they were subject to regulatory restrictions, as most insurance companies and funds are.
The Alternative Investment Fund Managers Directive (AIFMD) and the introduction of the Capital Investment Act (KAGB) have brought about sweeping changes for providers of property funds and investors. But the introduction of the investment limited partnership (InvKG) has noticeably widened the product spectrum of regulated investment vehicles available in Germany.
For investors such as insurance companies, pension funds, and family offices, the spectrum of regulated investment vehicles (Spezial-AIF) has widened considerably. New regulated products now include the Spezial-AIF in the form of an open-ended as well as closed-ended fund. The closed-ended vehicle is designed as a special investment limited partnership, whose benefits include fiscal transparency and flexibility concerning leverage or risk diversification. It is the first time German institutional investors have had the option to launch a single-asset fund in the form of a regulated vehicle. Also, the closed-ended AIF is not as tightly regulated in its choice of asset allocation, thus offering more flexibility.
Closed-ended AIFs also guarantee investors close regulatory supervision. Managers of these products must be licensed as an AIF management company (KVG) by the regulator BaFin. They also need to fulfil AIFM capital requirements, and must have a reliable, professionally competent senior management. They are also subject to governance rules in terms of portfolio and risk management, the periodic valuation of their assets, and the monitoring of the fund assets by the depository.
The introduction of KAGB in July 2013 enabled private investors to invest in regulated closed-ended fund products (Publikums-AIF) for the first time. The new closed-ended fund is another strongly regulated vehicle. For example, Publikums-AIFs have to apply the principle of risk diversification. Single-asset funds presuppose a minimum investment of €20,000, unless the fund holds at least three assets. They are also subject to a leverage cap of 60%, and their choice of investment assets is limited to appraisable, tangible assets.
Another innovation is the redefinition of investor groups, giving investors the option to be categorised as ‘semi-professional’ after demonstrating proper qualification and committing a minimum subscription amount exceeding €200,000. Once they meet these requirements, they may invest in open-ended and closed-ended Spezial-AIF.
Moreover, the KAGB has strengthened an existing vehicle of long-standing popularity – there is reason to assume that the proven German Immobilien-Spezialfonds, now in its new form of the open-ended Spezial-AIF, will remain the vehicle of choice for institutional investors, not least because this time-tested legal form will survive under the new regulatory regime.
Given their long history and established processes, open-ended Spezial-AIF comply with many statutory investor-specific regulations, such as those of the Insurance Supervision Act (VAG) and the Investment Ordinance (AnlV). In the eyes of insurance companies, superannuation schemes and pension funds, these will remain important preconditions for fund vehicles.
Michael Schneider is managing director of IntReal International Real Estate KV