Regulation light under the German Investment Code — A new map for managers of “small” funds

The AIFM Directive (AIFM-RL), which has been discussed in the private equity and venture capital industry for years, was implemented on time in July 2013 with the Capital Investment Code (KAGB). This will subject many investment fund managers to comprehensive regulation for the first time. However, to the extent that the assets under management are below certain size thresholds, only a portion of these provisions is applicable. This creates a separate, reshaped regulatory environment for "small" fund managers and their investors to grasp. - The following article draws a map of "regulation light" and the design alternatives that the KAGB opens up especially for the managers of "small" funds.

First-time regulation of many fund managers

Already with the adoption of the AIFM Directive (AIFM-Directive) it was clear that regulatory requirements for private equity funds, venture capital funds, family offices and other asset managers will play an increasing role in the future. With the entry into force of the German Investment Code (Kapitalanlagegesetzbuch, KAGB) on July 22, 2013, the German legislator has now transposed the AIFM Directive into German law on schedule. On this occasion, it also reformed the already existing national regulations and combined them with the provisions from the AIFM Directive in a uniform, but not always catchily worded code of 227 pages.

The KAGB is likely to have a significant impact on the fund landscape in the future and change it considerably in some areas. This is because it completes a paradigm shift in line with the AIFM Directive: In the future, a "material" concept of fund and manager will apply, and thus a comprehensive regulatory approach. Whereas previously the formal categories of the UCITS Directives or the Investment Act determined whether a fund manager was subject to regulation, now the materially pronounced definition of investment assets in Section 1 (1) is decisive. 1 KAGB5. All investment assets that do not meet the formal criteria of the UCITS directives are now recorded as alternative investment funds (AIF) whose manager (AIFM) requires a permit.