Loan funds are a very sought-after form of investment for German institutional investors these days. This development is partly due to the new regulatory environment to which German insurance companies, pension plans and pension funds are subject. The banking supervisory authority has now also reacted to this and softened the restrictive administrative practice with regard to lending by funds. For example, lending by funds is now permissible under certain conditions and is no longer subject to the licensing requirement under the KWG. The following article presents the new regulatory environment of these loan funds and their investors and explains the tax aspects of this asset class, which are also in flux.

The Regulatory Environment of German Institutional Investors

German insurance companies and pension funds are subject to the Investment Ordinance for the investment of tied assets. According to this, these investors may only invest their tied assets in certain asset classes. Each asset class has its own requirements. The Investment Ordinance, which was in force until 3.3.2015, allowed investment in funds investing in loans only to a limited extent and under very strict conditions. This has changed with the entry into force of the new Investment Regulation on 03.03.2015: According to the new Investment Regulation, investment in open or closed-end funds that are 100% invested in loans is allowed if they are EU funds managed by a fully regulated manager that is licensed under the AIFM Directive. Under certain conditions, investment in funds domiciled in an OECD country is also permitted, provided that the manager is subject to comparable supervision, the fund's investment strategy is geared towards holding the loans for the long term, and the manager performs comprehensive due diligence prior to the investment.

German pension funds (special pension institutions for certain professional classes) that are not subject to BaFin supervision are not directly subject to the Investment Ordinance, but are subject to it by internal statute or under state law.