Introduction of the German Investment Code by the AIFM Directive Implementation Act — Requirements for the Depositary and Criteria for a Depositary Selection

As a result of the financial crisis, numerous legislative initiatives have been launched at the international, European and national levels to contain systemic risks. One of these initiatives is the regulation of products offered in the gray capital market. The German private equity and venture capital industry is also facing drastic developments. In July 2011, the EU Commission issued a directive to regulate the managers of previously unregulated investment funds by, among other things, introducing a depositary. Implementation in Germany will lead to lasting structural changes in the industry.

However, investee companies should not view the tighter regulation as merely a necessary evil, but should also actively exploit the opportunities presented by the new regulation. Some institutional investors, who today prefer to invest in regulated (e.g. Luxembourg) private equity funds due to, among other things, national financial services supervision and control by a depositary, may soon also be interesting capital providers for German investment companies.

The status of the legislative process, the national implementation of the Directive and, in particular, the role of the depositary for private equity funds are examined in more detail in the following article.

We would like to conclude the article with an overview of the criteria that an investment company should consider when selecting a depositary.

Emergence of the AIFM Directive

Since 2009, the European Commission has pursued the ambitious goal of subjecting all actors and activities that are subject to significant risks to appropriate regulation and supervision. Trading of unregulated products on the financial market should no longer be possible. With regard to the regulation of alternative investment fund managers, this has been implemented at European level through the so-called AIFM Directive1.

The European Directive 2011/61/EU2 on Alternative Investment Fund Managers (AIFM Directive) was published in the EU Official Journal on July 1, 2011. Then, in early June 2012, an unofficial draft of the EU Commission's so-called Level 2 implementing measures was released to the public.3 The draft contains requirements for the transposition of the AIFM Directive into the law of the EU member states.