3 questions to smart minds

Introduction of a depositary for private equity funds by the German Investment Code (KAGB)

For this 3 questions to I. Biermann

BNP Pari­bas Secu­ri­ties Services
Photo: I. Bier­mann | BNP Pari­bas Secu­ri­ties Services
10. Octo­ber 2012

The German private equity and venture capi­tal indus­try is 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 through the Capi­tal Invest­ment Code will lead to lasting struc­tu­ral chan­ges in the indus­try. Three ques­ti­ons for 

For this 3 ques­ti­ons to Head of Sales & Rela­ti­onship Manage­ment, Asset Owners, Asset Mana­gers, Corpo­ra­tes, Germany, Central Europe and CIS at BNP Pari­bas Secu­ri­ties Services, Frankfurt/Main

1. As of when is the depo­si­tary manda­tory for private equity funds?

To date, the Euro­pean AIFM Direc­tive must be trans­po­sed into German law by July 22, 2013. The AIFM Imple­men­ta­tion Act in Germany provi­des in parti­cu­lar for the crea­tion of the German Invest­ment Code (Kapi­tal­an­la­ge­ge­setz­buch, KAGB), which in the future is to provide the legal frame­work for all invest­ment funds — i.e. also for private equity and venture capi­tal funds. One inno­va­tion resul­ting from the AIFM Direc­tive and the draft KAGB for the German private equity indus­try is the obli­ga­tion to appoint a depo­si­tary, subject to certain condi­ti­ons: As of July 22, 2013, a private equity company must ensure that a depo­si­tary is appoin­ted for each of its newly laun­ched funds as soon as the invest­ment company reaches a total volume of more than 500 million euros in assets under management. 

2. What is a depository?

A depo­si­tary is best known as a “custo­dian” for funds that are alre­ady regu­la­ted. It is conside­red and appre­cia­ted not only by invest­ment compa­nies but also by insti­tu­tio­nal inves­tors as an abso­lute must to ensure the moni­to­ring func­tion. Both the capi­tal manage­ment company and the custo­dian bank act in the inte­rests of the inves­tor — toge­ther they form the so-called ‘invest­ment triangle’. The duties of a depo­si­tary are to verify the owner­ship and holdings of the invest­ments, moni­tor the net asset value of the fund, moni­tor invest­ment regu­la­ti­ons and moni­tor cash flows. It is also an inde­pen­dent autho­rity in the event of a conflict of inte­rest between the inves­tor and the invest­ment company.

3. What should be conside­red when selec­ting a depository?

The depo­si­tary should have exten­sive expe­ri­ence as admi­nis­tra­tor and trus­tee with regu­la­ted private equity and venture capi­tal funds abroad, such as in Luxem­bourg or the Chan­nel Islands, where a trus­tee and admi­nis­tra­tor are alre­ady manda­tory for private equity funds. A depo­si­tary can also be a good part­ner for an invest­ment company to be able to imple­ment all requi­re­ments arising from the AIFM Direc­tive in a timely manner. As the market-leading depo­si­tory in Germany, we are curr­ently working inten­si­vely to support capi­tal invest­ment compa­nies in imple­men­ting the new requi­re­ments. Due to our exten­sive expe­ri­ence in private equity, infra­struc­ture and real estate, which we have gained in our offices in Luxem­bourg and the Chan­nel Islands, among others, we believe that we are ideally posi­tio­ned in Germany.

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