German private equity prepares for hit from AIFMD
Paul Hodkinson
In its implementation of the Alternative Investment Fund Managers Directive, Germany’s Federal Ministry of Finance has removed a threshold that made smaller fund managers exempt from the regulation, and has suggested restricting the operations of firms that have smaller investors.
Industry executives in Germany are now lobbying for changes to the first draft of the rules, which are due to be updated in the coming weeks before going to the German parliament.
The directive had allowed fund managers with less than €500m of assets under management to be excluded from the rules, while giving member states the ability to remove such provisions. The decision to remove the threshold means the smaller firms will be required to shoulder the costs of the regulation and it is expected to hurt Germany’s growing venture capital market. Venture firms based in Germany include Wellington Partners, Earlybird Venture Capital and Holtzbrinck Ventures.
The directive’s definition of what constitutes a “professional investor” is also problematic for private equity. In the German rules, family offices and high net worth individuals – common investors in funds – would almost certainly be classed as “retail investors”, meaning any firm that had any such investors would be unable to make direct acquisitions and would be forced to operate solely as a fund of funds.
In addition, changes to the way foreign fund managers can market to German investors may also prove problematic to the wider market. The rules say that to approach German “retail investors” both a fund manager and its fund would need to be based in the same country and both be subject to supervision – something that does not happen in countries such as the UK.
One person involved in the lobbying process said domestic firms would look to leave the country and that other countries may follow Germany’s example when implementing the directive.
Patricia Volhard, a partner at law firm P+P Pöllath + Partners, added that the restrictions on foreign companies marketing to German investors would make it difficult for local firms to emigrate and that they would be more likely to try and avoid the changes with more complex fund structures.
