The Act Implementing the AIFM Directive - Norton Rose

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The Act Implementing the AIFM Directive Section 1 sub-section 2 of Regulation (EC) No. 24/2009 reads as follows: “2. ‘securitisation’ means a transaction or scheme whereby an asset or pool of assets is transferred to an entity that is separate from the originator and is created for or serves the purpose of the securitisation and/or the credit risk of an asset or pool of assets, or part thereof, is transferred to the investors in the securities, securitisation fund units, other debt instruments and/or financial derivatives issued by an entity that is separate from the originator and is created for or serves the purpose of the securitisation, and: in case of transfer of credit risk, the transfer is achieved by: – the economic transfer of the assets being securitised to an entity separate from the originator created for or serving the purpose of the securitisation. This is accomplished by the transfer of ownership of the securitised assets from the originator or through subparticipation, or – the use of credit derivatives, guarantees or any similar mechanism; and 10 Norton Rose December 2012 where such securities, securitisation fund units, debt instruments and/or financial derivatives are issued, they do not represent the originator’s payment obligations ….“ The differentiation between securitisation vehicles and investment funds is particularly difficult, as both such enterprises are closely connected with each other. Most striking is the overlap in the case of Managed Collateralised Debt Obligations (Managed CDOs), whose fund character had already been hotly debated under the former AIG. However, this legal issue does not apply to the current situation, as the legislator has stipulated a clear exemption. According to the definition contained in the Regulation, it is sufficient to transfer the asset pool to a securitisation vehicle to avoid the applicability of the KAGB-E. However, the existence of credit risks (in which case special rules would apply) or a division into tranches is not required. Thus, managers of Managed CDOs are exempt from the definition of an AIFM. 1.3.5 Insurances According to recital 8 of the AIFM Directive and p. 368 of the Draft Bill, which, however, is not reflected in the KAGB-E, insurance contracts do not fall within the scope of the investment law. This is accounted for in the Draft Bill insofar as, in Article 26 amending the Insurance Supervisory Act (Versicherungsaufsichtsgesetz − VAG), it provides for cases where an insurer invests in AIFs for the purposes of insurance contracts and, thus, also clarifies that the embedding of funds in insurance contracts (an “insurance wrapper”) is not subject to the KAGB-E. 1.3.6 Joint ventures Pursuant to recital 8 of the AIFM Directive and page 368 of the Draft Bill, joint ventures are also excluded from the scope of the KAGB-E. A definition of the term ‘joint venture’, however, is not provided. In general, a joint venture is defined as the systematic cooperation of two or more parties each of which contributes to the achievement of a common objective. Correspondingly, if several parties come together to pursue a common purpose − such as an investment purpose − the KAGB-E does not apply.
1.4 Scenarios Besides the aforementioned explicit exemptions and the exemptions which are at least mentioned in the explanatory comments to the law, there are further scenarios outside the scope of the KAGB-E. 1.4.1 Structured products Characteristic to structured products is that an issuer issues a cash instrument in which a (basic or complex) derivative is embedded. Often − but not necessarily − credit institutions act as issuers. Since, as a consequence of the financial crisis investors are not always permitted to have a (high) credit exposure to a single credit institution, single purpose vehicles (SPV) are also frequently used as issuers. Cases where credit institutions act as issuers obviously do not fall within the scope of the KAGB-E, as, due to their operating activities, credit institutions cannot qualify as an investment asset pool. Moreover, the KAGB-E does not apply to situations where a SPV acquires, for example, investment fund units, issues structured or hybrid products (delta-1 certificates or participation rights or certificates) with respect thereto, and then provides such investment fund units to investors as collateral against the possibility that the SPV fails to duly comply with its obligations under the certificates or other instruments. However, the fact that the KAGB-E does not apply to these cases certainly requires a more detailed explanation. As regards participation rights, the legislator has expressly provided for the non-applicability of the KAGB-E by amending section 1 sub-section 2 of the Capital Investment Act (Vermögensanlagegesetz – VermAnlG) by Article 4 of the Draft Bill. The new wording is as follows (freely translated and amendments shown in italics): (2) Capital investments within the meaning of this Act are: 1 shares granting a participation in the profit or loss of an undertaking; 2 shares in a pool of assets held or managed by the issuer or a third party in its own name for the account of others (trust assets); 3 units in other closed-ended funds; 4 participation rights; and 5 registered bonds, The Act Implementing the AIFM Directive which are not represented by securities within the meaning of the WpPG and not structured as shares in investment asset pools within the meaning of section 1 sub-section 1 KAGB. On page 559 of the Draft Bill, the above amendment is explained as follows (freely translated): “This amendment ensures that the Capital Investment Act (Vermögensanlagengesetz) henceforth only applies to capital investments, which are not subject to the new provisions of the Capital Investment Code; this may apply, in particular, to participation rights and registered bonds.” Thus, it is explicitly stated that, as a general rule, participation rights are not treated as fund units. Norton Rose December 2012 11
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The Act Implementing the AIFM Directive - Norton Rose

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