Anyone who collects capital from investors and sets up an investment vehicle (Fund), regardless of its legal form, in order to invest this capital for the benefit of investors as part of a defined strategy, must comply with the investment supervisory requirements of the German Investment Code ("KAGB"). The requirements are complex and time-consuming. However, non-compliance with the requirements of the law can result in severe penalties. According to § 339 (1) KAGB, the legislator provides for fines and even imprisonment of up to five years.

However, the law also provides for the possibility of setting up "special AIFs" using a so-called KAGB "light" regulation, which makes it possible to set up such "special AIFs" with considerable simplifications as a KVG.

In principle, the structuring options of the "KAGB light" are aimed at professional and Semi-professional investors - not to private investors. We are therefore talking about investors who can be equated with professional investors both in terms of investment volumes and expertise.

The "KAGB light" offers, among other things, the following simplifications for the KVG:

(1) Exemption of the KVG from the BaFin authorisation procedure - only Registration obligation

The business operations of a KVG always require prior authorisation or prior registration by BaFin. Under the KABG-light regime, however, the legislator does not require the KVG to carry out a comprehensive authorisation procedure with BaFin. It is sufficient to carry out the much more favourable and faster registration procedure.

(2) Exemption from capital requirements

The capital requirements of the KAGB only apply to authorised KVGs. Depending on the management (internal/external), only these must have an initial capital of EUR 300,000/ EUR 125,000 (up to an additional maximum of EUR 10 million possible). Registered KVGs, on the other hand, only have to have the minimum capital under company law that corresponds to their legal form.

(3) Exemption from rules of organisation and conduct

"Permitted" KVGs must not only hold equity capital, but also fulfil extensive organisational requirements. The rules of conduct require, for example, that they carry out their activities honestly and fairly and act in the interests of investors and market integrity. These organisational and conduct rules do not apply to only "registered" capital management companies under the KAGB "light" regime.

(4) Exemption from ongoing monitoring

The KAGB stipulates that "authorised" KVGs must be continuously monitored to ensure that they comply with the rules of organisation and conduct. Their annual financial statements are audited by an auditor who submits its annual report to BaFin. There is no such annual audit for "registered" KVGs (i.e. within the scope of KAGB "light" regulation).

But there are also various simplifications for the "special AIF". These include, among others:

(1) No depositary required for the "Special AIF"

The KAGB stipulates that both UCITS and AIFs must provide evidence of an entity independent of the KVG that is responsible for managing the assets. However, the additional costs incurred as a result of this and the additional documentation effort are not required under the KAGB "light" regulation, as the law does not require such a depositary for a "special AIF" of a registered KVG.

(2)       Marketing requirements for "special AIFs" - lower prospectus requirements

In principle, a distribution notification must be submitted to BaFin for all funds. However, the distribution notification in accordance with Section 321 KAGB must include a significantly abridged prospectus with key information on the AIF.

To summarise: The "KAGB-light" regime offers attractive structuring options for offering an interesting, regulated product that is not subject to the full set of obligations of the KAGB. It is therefore particularly suitable for asset managers and fund initiators who want to raise new capital on the market with their investment ideas and want to benefit from the advantages of a reduced and therefore more cost-effective supervisory regime at the outset.

We will be happy to answer any questions you may have on this topic.