“Small” Investment Fund Managers in Germany

By Dr. Michael Jünemann, Johannes Wirtz


A summary of regulatory exemptions in Germany offered to alternative investment fund managers.

Ever since the introduction of the German Capital Investment Act (Kapitalanlagegesetzbuch – KAGB) the management of a closed investment fund requires permission by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzidienstleistungsaufsicht BaFin). Without such a license or registration, the operation of an investment fund is illegal. Especially for small investment funds, family offices and venture capital funds, high regulatory requirements present a burden that is not to be underestimated. To circumvent such regulation, depending on the business model, alternative structures can be an option. This includes the issuance of capital investments (e.g. subordinated loans). The chart illustrates existing exemptions that allows small fund managers to operate as an alternative investment fund management company (AIFM).

Small special-AIFM are subject to the least amount of regulatory requirements: The registration process does not include an assessment of the managing directors’ qualification, organizational and operational requirements of KAGB are exempted and the product regulation can be chosen freely. However, the scope of clients is relatively limited. Small special-AIFM may only manage funds marketed solely to professional and semi-professional investors. The assets under management are limited to a maximum of EUR 500 million. Should the funds apply leverage, this amount is reduced to EUR 100 million. Any participation in the investment fund may not be redeemed within the first five years.

The regulatory scope for mini retail-AIFM is similarly limited. However, the number of participating individuals may not exceed five. The AIFM must be an internally administered, closed fund with assets under management not exceeding EUR 5 million.

Small AIFM that allows for the participation of retail investors in a closed fund may not exceed EUR 100 million in assets under management. For the benefit of the retail investors, such AIFM bear the greatest regulatory burdens of such fund managers that require only a registration, but not BaFin-license.