The discussion draft of the Capital Investment Act (Kapitalanlagegesetzbuchs, KAGB-E), through which the German legislator intends to implement the AIFM Directive, exceeds European rules in respect to many issues. This may have massive effects particularly on closed real estate funds.


On July 20, 2012, the German Ministry of Finance (BMF) published the discussion draft of an Act for the Implementation of Directive 2011/61/EC on Alternative Investment Fund Managers (AIFM-UmsG).

Directive 2011/61/EC of the European Parliament and of the Council of June 8, 2011 on Alternative Investment Fund Managers (AIFM Directive) stipulates common requirements for and the supervision over the mangers of alternative investment funds (AIF). AIF are investment funds that do not constitute Undertakings for Collective Investment in Transferable Securities (UCITS) in the sense of Directive 2009/65/EG (UCITS Directive), e.g. closed-end funds, hedge funds, or special funds. The rules of the AIFM Directive generally concern only the managers of the AIF, not the AIF themselves. The AIFM Directive must be implemented in national law by July 22, 2013.

The AIFM-UmsG now establishes a uniform set of rules for UCITS und AIF in the form of a Capital Investment Act (KAGB). The German Investment Act (Investmentgesetz) is cancelled, but the core of its rules will be integrated into the KAGB in accordance with the requirements of the AIFM Directive. The discussion draft thus goes far beyond the AIFM Directive. Furthermore, provisions concerning the application of two European Regulations are included in the KAGB, the Regulation on European Venture Capital Funds and the Regulation on European Social Entrepreneurship Funds. Both Regulations are still in their draft stage. The draft of the KAGB also contains extensive references to a EC Regulation (Level 2 Regulation) specifying the AIFM Directive, which is so far also only available as a draft.


The KAGB-E provides for different fund vehicles and fund types, which the initiators and financing units of real estate funds have to deal with:

For example, the discussion draft distinguishes between open-end and closed-end investment funds. Investment funds are open-ended, if investors can exercise a redemption right at least once every year. All other investment funds are closed-end funds.

A further distinction is made between public investment funds, which are open to all types of investors, and so-called special AIF. Special AIF are AIF, whose shares may be held exclusively by professional clients irrespective of the legal form of the AIF based on a written agreement with the management company of the AIF or due to the constitutive documents of the AIF. A professional client is an investor, who is considered a professional client in the sense of Annex II of Directive 2oo4/39/EC on Markets in Financial Instruments (MiFID) (e.g. credit institutions, investment firms, insurance companies, and certain “large” companies) or may be treated as a professional client upon request, while such an “upgrade” may be considered only for certain private investors, who are particularly experienced due to a professional activity in the financial sector or have sufficient financial assets and who regularly carry out transaction in significant size. The circle of investors of the special AIF is therefore larger than the circle of investors of a special fund under the InvG, which includes only non-individuals.

Furthermore, the discussion draft distinguishes between domestic and foreign investment funds and among the latter between EU-UCITS, EU-AIF, and foreign AIF.


Real estate funds are to be issued only as closed-end public or special AIF in the future. As arguments for the abolition of open-end real estate funds, the German Ministry of Finances lists their susceptibility to crises and the inconsistency between the shortterm redemption possibility for investors and the long-term investment in illiquid assets. This is even more astonishing, since not just the same, but even the very identical ministry officials, who now present the AIFM-UmsG, have introduced far-reaching changes into the InvG only in the spring of 2011, in order to limit these risks. Existing open-end real estate funds enjoy grandfathering protection.

For closed-end public AIF, the discussion draft provides a conclusive catalog of permitted investment objects (Section KAGB-E). After all, real property is provided for as a permitted investment object for closed-end public AIF in addition to aircraft and ships.

However, the legislator decided to set up certain hurdles for the issuance of such funds.

For example, the risk diversification principle is to apply generally in the future both to open-end funds and to domestic closed-end AIF. Shares in so-called single-object funds can only be acquired by private investors, who invest at least EUR 50,000 in the AIF and are also considered so-called semi-professional investors in the sense of the EU Regulation on European Venture Capital Funds (that is still to be adopted). The latter precondition is fulfilled, if the investor declares in writing that he is aware of the risks in connection with the investment and if the KVG has evaluated the professionalism, experience, and knowledge of the investor and is sufficiently convinced that the investor is able to make an investment decision on his own, understands the risk, and such an obligation is appropriate for the investor, and if the KVG has confirmed this in writing. Insofar, experts fear that numerous investors are “cut off ” from closed-end real estate funds, since e.g. in the Sparkassen sector the average subscription amount is EUR 25,000.

A new requirement is also that each investment object (except for financial instruments) must be valued by an external appraiser, which does not carry out the annual appraisal of the assets of the AIF. Like some other provisions about closed-end public AIF, this rule follows the provisions about special real estate funds (Sections 66 et seq. InvG).

Furthermore, assets held for the account of a closedend public AIF may only be subject to a currency exchange risk insofar as the value of any asset subject to such a risk does not exceed 30 percent of the value of the AIF. As a consequence, a domestic closed-end public AIF that is structured as an umbrella fund may invest a maximum of 30 percent of its capital in non-EU funds.

Finally, the KAGB-E provides for a new minimum information catalog for prospectuses. The Asset Investment Act (Vermögensanlagengesetz , VermAnlGI) is cancelled insofar and will apply only to registered bearer bonds and profit participation rights. Therefore, offerors of closed-end real estate funds will also have to adapt to a new prospectus culture and practice.


Before this background, it is not exaggerated to speak of a “new era” for real estate funds. It remains to be seen, which of the numerous disputed rules will be found in the government draft expected for the fall – because the parameters that will apply from July 2013, as far as it seems now, must be taken into account from then on at the latest when designing new funds.