Conditions for direct or indirect investment in infrastructure have significantly improved for German regulated investors covered by the Investment Ordinance (Anlageverordnung) in regard to the investment of their secured assets. German regulated investors typically include small insurance companies, pension funds, pension schemes for the liberal professions (Versorgungswerke), and other retirement institutions covered by the Investment Ordinance.
Background
For the acquisition of fund investments under the Investment Ordinance, the investment must be allocated to one of the acquisition categories provided in the Investment Ordinance. The allocation leads to the application of a specific “quota” for the composition of the secured assets, which the German regulated investor must observe. Secured assets are the investors’ assets formed to satisfy potentially insured claims.
Previously, investments in infrastructure funds were allocated either to the acquisition category for private equity funds, which lead to the application of the “participation quota,” or to the acquisition category for “other AIFs,” which lead to the application of the “other-AIF quota.” Infrastructure funds thus competed with private equity funds, private debt funds, and hedge funds.
New Regulation
German legislators have increased the existing quotas for investments in infrastructure funds. The new regulation covers direct and indirect investments for the financing of infrastructure facilities and infrastructure companies, which may be equity as well as debt investments. The regulation stipulates that up to 5% of the secured assets for those investments do not count toward existing quotas. The investment must be assigned to an acquisition category and serves the construction, expansion, renovation, maintenance, provision, holding, operation, or management of infrastructure. “Infrastructure,” “infrastructure facility,” and “infrastructure company,” among other terms, are not further defined in the law’s text or its reasoning. The general market practice assumes a broad understanding to meet the purpose of promoting investments in infrastructure.
The new regulation came into force on February 7, 2025, and no transitional regulation has been created. We therefore assume that the new regulations apply to all new investments since February 7, in addition to investors’ existing investments.
Our View
The new regulation should capture a very large part of the infrastructure equity and infrastructure debt funds available on the market. It should also significantly facilitate further investment by German regulated investors in infrastructure funds. As a result, infrastructure investments will no longer be in direct competition with private equity funds or hedge funds in terms of investor suitability.
German regulated investors must carefully implement the applicable regulations within the framework of the fund documentation. We are happy to assist with this.
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