Germany changes fund managers' rules of engagement with insurance companies


This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.

Summary and implications

Real estate fund managers marketing their funds to German insurance companies (and to German pension funds subject to German insurance law) need to consider the impact of changes to the rules governing the investment allocations of German insurance companies.

In February, the German Federal Government revised the German Investment Ordinance*(AnlV), which regulates the way German insurance (and some pension) companies invest their restricted assets.

The revised AnlV contains important updates from the first draft bill published in May 2014. However, some uncertainty is likely to remain regarding the application of the new rules until the German regulator (BaFin) publishes detailed guidance, expected later in the year.

The new framework

German insurance companies are only permitted to invest their premium reserves in certain eligible asset classes under the AnlV. These restrictions aim to safeguard the security, profitability, liquidity and diversification of investments by insurance companies.

Under the previous rules, interests in real estate funds typically qualified for investment under the "participations" or "real estate" quotas. Under the new rules, the asset classes into which insurance companies may now invest for the purposes of the AnlV include:

  1. the "equity" quota;
  2. the "real estate" quota; and
  3. the "other funds" quota.

A high-level summary of the revised quotas is set out below:

1. The equity quota

This consists of two sub-classes:

  • Operational vehicles: This sub-class remains unchanged from the previous "participations" quota. It comprises investments in fully paid up shares, shares in limited liability companies, limited partnership interests, or partnership contributions. In each case, this is where the relevant undertaking has a business model, bears entrepreneurial risk, is domiciled in an EU or OECD full member state and publishes annual audited financial statements.
  • Private equity funds: This newly-created sub-class comprises investments in shares, units or interests in closed-ended Alternative Investment Funds (AIFs) (including funds of funds) domiciled within the EU or OECD and which invest, directly or indirectly, in non-listed undertakings and other equity capital and similar instruments. The AIF must be managed by an appropriately regulated or registered manager domiciled in the EU or OECD and its shares or units must be freely transferable.

2. The real estate quota

This permits the acquisition of the following:

  • Direct real estate: This sub-class includes land or holdings in an undertaking established for the sole purpose of the acquisition, development and management of land, in each case where the land is located in the EU or OECD.
  • REITs: This sub-class includes shares in REITs which are domiciled in the EU or OECD.
  • Real estate funds: This sub-class is new and includes shares, units or interests in (i) open and closed-ended specialised real estate AIFs or (ii) closed-ended retail AIFs, in each case where they are domiciled in the EU and invest, directly or indirectly, in real estate located in the EEA or OECD. The AIF must be managed by an appropriately regulated manager domiciled within the EEA and the interests in the AIF must be freely transferable. Sub-funds have to fulfil the corresponding criteria.

3. The quota for other funds

This effectively operates as a catch-all (except for open-ended, retail real estate funds). It includes shares, units and limited partnership interests in AIFs which are domiciled in the EU but do not already fall within the scope of any other asset class. Shares or units must be freely transferable. The manager must be appropriately regulated and domiciled in the EEA.

How do the changes affect the real estate sector?

It may no longer be possible for managers to rely on the "participations" quota especially with regard to closed-end real estate funds and debt funds. The requirement for the relevant undertaking to have a business model in place has recently been interpreted more strictly. BaFin has also announced that the "participations" quota should not be relied upon as a catch-all for investments which fail to qualify under other more suitable asset classes.

Instead, real estate fund interests may increasingly be expected to qualify under the extended real estate funds sub-class of the real estate quota, while certain alternative funds (such as real estate debt funds) are now more likely to qualify into the "other funds" quota.





Real estate


Other funds





Insurance companies are only permitted to invest a certain percentage of their assets in each quota (as set out in the table above). The changes may therefore impact an investor's appetite for investment or the size of their allocation towards the fund.

The new AnlV also contains more stringent requirements regarding the liquidity of interests held by insurance companies in real estate funds. During negotiations with German insurance companies, investors might therefore be expected to request additional transfer rights above and beyond those typically given to other investors.

Finally, a German insurance company may in certain cases seek clearance from BaFin that the investment it proposes to make falls within a permitted quota. This process can impact on timings for the fundraising process.


Managers marketing a fund to German insurance companies (or pension funds) will need to consider into which quota the fund interests are likely to qualify, on a case-by-case basis.

There will remain a level of uncertainty until BaFin publishes its detailed guidance on the application of the new provisions.

The new AnlV provisions will effectively operate on a transitional basis pending the implementation of Solvency II. This is scheduled to come into force on 1 January 2016 and will introduce an entirely new framework for the regulation of capital investments by German insurance companies.

We would like to thank Dr. Timo Bernau from Broadlaw Group firm GSK for his help in preparing this briefing:

Germany – GSK Stockmann + Kollegen
Dr Timo Patrick Bernau, Local Partner
T + 49 (89) 28 81 74 - 622

* Full name: The German Ordinance on the Investment of Restricted Assets of Insurance Undertakings (Anlageverordnung).