Loan originating AIFs – investment funds now permitted to grant loans
The German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) announced in its interpretative decision dated 12 May 2015 that it has changed its administrative practice with regard to investment funds granting, restructuring and extending the period of loans. BaFin thereby follows the approach recently taken by other EU Member states which have already embraced the concept of investment funds originating loans either by announcing respective administrative guidelines or by establishing specific national regulations.
Up to now, German investment funds were allowed to invest in unsecuritized loans; they could not, however, engage in direct lending. The restructuring and extension of loans, also, was subject to strict requirements, as this was eventually regarded by BaFin as engaging in lending business pursuant to the German Banking Act (Kreditwesengesetz – KWG). As a result, German investment funds were at a market disadvantage in relation to foreign investment fu nds which were exempt from these restrictions to the extent they acted within the scope of the freedom to provide requested services (also referred to as “reverse solicitation”).
With the change to BaFin’s administrative practice, the origination, restructuring and extension of loans by investment funds is now considered as permissible activity within the fund management performed by the AIFM. As a consequence, investment funds are allowed to grant, restructure or extend the period of loans without requiring a banking license under the KWG, provided that loans are eligible assets for the investment fund concerned pursuant to the rules set out in the German Capital Investment Code (Kapitalanlagegesetzbuch – KAGB).
Additional information is available in the Investment Fund Update.