Let me make a brief comment at the outset: Twenty years ago, in July 1997, we foun­ded the Bundes­ver­band Alter­na­tive Invest­ments e.V. (BAI) with eight members with the aim of estab­li­shing a lobby for alter­na­tive invest­ment stra­te­gies. At the time, the alter­na­tive invest­ment indus­try was a niche and still in its infancy. After twenty years, the Alter­na­ti­ves have arri­ved in the main­stream. The indus­try mana­ges an esti­ma­ted USD 8 tril­lion in assets world­wide, and there are hardly any insti­tu­tio­nal inves­tors left in Germany without an allo­ca­tion to private markets or liquid alter­na­ti­ves. The BAI has grown over this time and now consists of 173 natio­nal and inter­na­tio­nal member compa­nies that repre­sent the entire value chain in the alter­na­tive invest­ment sector.

In the run-up to our annual Alter­na­tive Inves­tor Confe­rence, we regu­larly ask insti­tu­tio­nal inves­tors in a survey about their plans in the area of alter­na­tive invest­ments. Over the last twelve months, 86% of the inves­tors surveyed have increased their allo­ca­ti­ons to alter­na­tive invest­ments. What should be empha­si­zed here is the extent to which inves­tors’ expec­ta­ti­ons were met or even excee­ded in the case of invest­ments alre­ady made. In the private debt sector, for exam­ple, 70% of inves­tors saw their return expec­ta­ti­ons met and 18% even excee­ded. In terms of risk, around 96% of inves­tors conside­red their expec­ta­ti­ons for their private debt invest­ments to have been met, and 4% even to have excee­ded them; in terms of port­fo­lio diver­si­fi­ca­tion, 87% conside­red their expec­ta­ti­ons to have been met and even 10% to have excee­ded them. Given the high satis­fac­tion levels, it is not surpri­sing that insti­tu­tio­nal inves­tors are plan­ning to increase allo­ca­ti­ons to private markets over the next 3–5 years, with a focus on infra­struc­ture, private debt and private equity.

The regu­la­tory frame­work has a funda­men­tal influence on inves­tors’ invest­ment decis­i­ons. The BAI has been inten­si­vely invol­ved in the private debt invest­ment segment for many years and has inten­si­vely supported and helped to deve­lop many of the frame­work condi­ti­ons. The change in admi­nis­tra­tive prac­tice on credit funds by BaFin in May 2015 and its legal imple­men­ta­tion through the UCITS‑V Imple­men­ta­tion Act toge­ther with KAMa­Risk had a strong influence on the deve­lo­p­ment of the market.

As an asso­cia­tion, we have inten­si­vely accom­pa­nied and helped shape the consul­ta­ti­ons on this. We believe that German insti­tu­tio­nal inves­tors should be able to invest in the funds of the best mana­gers world­wide — and these are often loca­ted in Anglo-Saxon count­ries in the curr­ently most attrac­tive asset clas­ses such as private equity, private debt, infra­struc­ture and hedge funds/liquid alter­na­ti­ves. If German inves­tor super­vi­sion law, for exam­ple. disal­lo­wing invest­ments in funds of mana­gers domic­i­led in the U.S. or other non-EU juris­dic­tions, this unneces­s­a­rily rest­ricts the invest­ment universe of these inves­tors. It is also a parti­cu­lar concern of ours that a synchro­niza­tion between super­vi­sory law and tax law is ensu­red! Sensi­ble — alter­na­tive — invest­ment oppor­tu­ni­ties in infra­struc­ture, private equity, private debt, abso­lute return should not be thwar­ted by tax law or rest­ric­tive requi­re­ments for special AIFs in the Invest­ment Regu­la­tion. Avoi­ding gold­pla­ting of Euro­pean regu­la­ti­ons in Germany is also one of our constant demands. There must be no stric­ter, some­ti­mes absurd requi­re­ments for the German fund indus­try and its investors.

A key factor influen­cing the private debt market is, of course, the increased capi­tal requi­re­ments for banks under Basel III, which affec­ted demand for alter­na­tive debt capi­tal. In many cases, credit insti­tu­ti­ons have been more rest­ric­tive in gran­ting loans over the past few years, thus opening up the field for alter­na­tive forms of finan­cing. Alter­na­tive forms of finan­cing have gained in importance, espe­ci­ally for small and medium-sized compa­nies. In many cases, they offer grea­ter flexi­bi­lity in terms of term, remu­ne­ra­tion and repay­ment, thus gaining in attrac­ti­ve­ness for the borrower. This constel­la­tion is met on the oppo­site side by insti­tu­tio­nal inves­tors who are looking for new and alter­na­tive forms of invest­ment in the low-inte­rest environment.

The US market is seve­ral years ahead of us in the private debt segment. The disin­ter­me­dia­tion of regu­la­ted U.S. banks by non-banks star­ted more than 20 years ago and resul­ted in the banking sector accoun­ting for only 20%(!) of all outstan­ding loans in the United States. Even though Euro­pean borro­wers now have access to the same range of finan­cing alter­na­ti­ves as in the U.S., the Euro­pean market will still need some time to achieve compa­ra­ble size and stan­dar­diza­tion. Here, the Euro­pean Secu­ri­ties and Market Autho­rity (ESMA) is pushing for a uniform regu­la­tory frame­work for credit funds. As long as these efforts do not lead to over­re­gu­la­tion of the debt fund market, I see a very posi­tive deve­lo­p­ment in the private debt market over the next few years.

About Achim Pütz
Achim Pütz specia­li­zes in provi­ding legal advice to German and inter­na­tio­nal clients regar­ding tradi­tio­nal and alter­na­tive invest­ment funds and specia­li­zes in the design, docu­men­ta­tion and distri­bu­tion of struc­tu­red finan­cial products and pack­a­ging solutions.

Pütz advi­ses regu­la­ted and non-regu­la­ted insti­tu­tio­nal inves­tors on their invest­ments in complex alter­na­tive invest­ment struc­tures, in parti­cu­lar hedge and commo­dity funds, real estate and infra­struc­ture funds as well as debt and private equity funds.

Pütz is foun­der and 1st chair­man of the Bundes­ver­band Alter­na­tive Invest­ments e.V. and was a coun­cil member of the Alter­na­tive Invest­ment Manage­ment Asso­cia­tion (AIMA) for many years.