Launching a German Investment Offering under VermAnlG

The German Investment Products Act (Vermögensanlagengesetz, VermAnlG) can – depending on the business model, target investor group, and distribution structure – provide an attractive legal framework for launching a German investment offering. However, investment products governed by the VermAnlG represent only one of several possible structuring options, each with its own advantages and disadvantages.

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What are Investment Products (Vermögensanlagen)?

 

"Investment product" (Vermögensanlage) is a legal term and defined in Section 1 (2) of the VermAnlG. It, broadly speaking, refers to investment offerings that do not constitute:

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• Securities offerings within the meaning of the EU Prospectus Regulation (PR),

• Investment funds as defined by the German Capital Investment Code (Kapitalanlagegesetzbuch, KAGB), which implements the Undertakings for Collective Investment in Transferable Securities Directive (UCITSD) and the Alternative Investment Fund Manager Directive (AIFMD),

• Crowdfunding offerings under the European Crowdfunding Service Provider Regulation (ECSPR), or

• Crypto-asset offerings under the Markets in Crypto-Assets Regulation (MiCAR).

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Structuring Options

 

There are several ways to legally structure an investment product under the VermAnlG. In practice, the most commonly used instruments are limited partnership interests and subordinated loans with qualified subordination clauses.

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• Limited partnership interests (Kommanditgesellschaftsanteile) offer a tax-transparent structure with profit participation for investors. Due to administrative efficiencies, a trustee company is typically interposed between the investor and the partnership.

• Subordinated loans provide the investor with interest payments on the capital provided, rather than an equity participation. As a profit-participating loan, participation in turnover or profits is also possible. For regulatory reasons, such loans generally include a qualified subordination clause.

 

It is important to note that investment products must not be structured as a blind pool. In a blind pool structure, the investment object (e.g., the property) is not specifically determined at the time the prospectus or investment information sheet (Vermögensanlagen-Informationsblatt, VIB) is prepared. The BaFin guidance note on the blind pool prohibition sets out various scenarios in this regard.

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Furthermore, the use of funds must be monitored by an independent controller. This role can be fulfilled by a lawyer, notary public, tax adviser, auditor, or sworn accountant.

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Prospectus Requirement and Exemptions

 

As a general rule, public offerings of investment products may only be made after the publication of a sales prospectus approved by BaFin. The form and content of this prospectus are governed by the Investment Products Prospectus Regulation (Vermögensanlagen-Verkaufsprospektverordnung, VermVerkProspV). This prospectus is comparable to a prospectus under the EU Prospectus Regulation.

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However, exemptions from the prospectus requirement apply, particularly in the case of investment products structured as crowdfunding offerings. Other important exemptions are set out in Section 2 (1) No. 3 VermAnlG. These apply, for example, where:

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• No more than 20 units of the same investment product are offered,

• The total sales price of the units offered within a twelve-month period does not exceed EUR 100,000,

• Or the price of each unit offered is at least EUR 200,000 per investor.

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Investment Information Sheet (VIB) and Key Information Document (KID)

 

Depending on how the investment product is structured, the publication of an Investment Information Sheet (VIB) or a Key Information Document (KID) under the PRIIPs Regulation may be required. The structure and content are governed by the VermAnlG and the PRIIPs Regulation, respectively.

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Regulation and Supervision of the Issuer

 

There is generally no regulation of the issuer or manager of the investment product comparable to that of management companies under the KAGB. However, BaFin does monitor compliance with legal requirements regarding the prospectus, the VIB, any supplements or updates, and the marketing of the investment product.

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Distribution Channels

 

Investment products are considered financial instruments for regulatory purposes. As such, investment advice and distribution require authorisation. Such authorisations are held by credit institutions and financial services institutions under the German Banking Act (Kreditwesengesetz, KWG), securities institutions under the Securities Institutions Act (WpIG), and investment brokers under the German Trade Regulation Act (Gewerbeordnung, GewO). Some institutions also operate under a liability umbrella, allowing brokers to act under their licence. Direct distribution by the issuer is generally prohibited by law.

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Conclusion

 

Overall, the VermAnlG provides a regulatory framework that, depending on the business model, target investor group, and distribution structure, can be an attractive option. Alternatives for structuring an investment offering include units in an investment fund under the KAGB or securities under the EU Prospectus Regulation.