In order to strengthen Germany as a fund location the German legislator has enacted the Fund Location Act (Fondsstandortgesetz – FoStoG) which, for the most part, came into force on 2 August 2021.
The innovations adopted are intended to increase the competitiveness of Germany as a location for investment funds and to further reduce bureaucratic hurdles. In addition to changes to other laws, the FoStoG introduces specific liberalisations of the German Investment Code (Kapitalanlagegesetzbuch – KAGB) and new fund categories.
In particular, the legislator has introduced the new fund vehicle of the so-called development promotion fund (Entwicklungsförderungsfonds). This is a special AIF i.e. available to professional investors, which must predominantly invest in assets measurably leading to the achievement of the goals set by the UN for sustainable development.
The introduction therefore serves to implement a special impact fund that is aimed at promoting sustainability by investing in accordance with the Sustainable Development Goals as set out in the resolution of the General Assembly of the United Nations of 25 September 2015, in countries being included in the list of developing countries and territories maintained by the Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development (OECD).
In order to achieve its purpose a development promotion fund may be established either as an open-ended or closed-ended domestic special fund. The fund may grant loans as well as assume sureties, guarantees and other warranties, provided that the investment management company has implemented appropriate procedural and compliance measures.
For the effective implementation of the purpose of the fund it is the task of the fund management company to establish a procedure for measuring the existing positive impact potential at the launch of the fund and to ensure ongoing transparency and clarity of the procedures.
The fund management company is obliged to become a signatory of the Operating Principles for Impact Management of the International Finance Corporation of the World Bank.
To ensure liquidity the fund management company may also invest, on behalf of the development promotion fund, an amount equivalent to 30 per cent of the fund’s value in bank deposits, money market instruments, certain shares in other highly secure special funds and securities. Derivatives may be employed for hedging purposes.
In order to ensure ongoing compliance with the Operating Principles for Impact Management, in case two consecutive audits according to Principle 9 (independent verification) revealed a material incompliance, the fund must be terminated with six months’ notice.