This week the German government approved its long awaited amendment to the
Investment Ordinance (Anlageverordnung) and the corresponding ordinance
for pension funds. They govern the asset allocation of German insurance
companies and certain pension funds and are expected to come into force within
the next few days. They also apply to most occupational pension schemes for
certain professions (Versorgungswerke). Many investors subject to these
ordinances traditionally allocate private equity and infrastructure investments
to the so-called “equity quota”, which permits them to invest up to 15% of their
"restricted assets" into this asset class.
Changes to the “equity quota”
Under the new rules, investments can only be allocated to the equity quota if
they meet the following conditions:
(i) The fund is a closed ended alternative investment fund subject to the
jurisdiction of an EEA or OECD member state; and
(ii) The fund is managed by (A) a German resident manager being either AIFMD
licensed or AIFMD/EuVECA registered (a “domestic manager") or (B) an EEA/OECD
resident manager subject to investment supervision and holding a license or
registration “comparable” to a domestic manager.
In addition, the fund may only invest in equity shares, equity-like assets
and “other instruments of corporate financing” (which covers subordinated
shareholder loans according to published technical guidance).
Private equity funds should be able to fall within these conditions, although
for funds outside of the EEA but within the OECD it is unclear exactly which
foreign licenses and registrations are “comparable” to those of a domestic
For funds of funds, there is no look through to the underlying funds so the
criteria only needs to be satisfied at the fund of funds level, meaning fund of
funds will generally be able to qualify for the equity quota.
Alternatives to the equity quota
Funds that are unable to qualify under the equity quota may be able to
qualify for the new alternative funds quota to which investors will be allowed
to allocate 7.5% of restricted assets. It is only available to EEA funds with
EEA managers but EU based/managed infrastructure funds should qualify for this
quota, although depending on the type of investments they make, they may also
qualify for the equity quota.
The ordinances provide for grandfathering so investments made as part of the
equity quota prior to the new rules being brought in will still qualify for the
Interaction with Solvency II Directive
Solvency II will come into force in January 2016 and will replace these
ordinances for most insurance companies. However, the Investment Ordinance will
continue to be relevant for many Versorgungswerke after this