Possible Licensing Requirement For Private Equity Funds-Of-Funds Under The German Banking Act

EXECUTIVE SUMMARY

In our Client Memo of December 2, 2011, we reported on the adoption of the "Act Reforming the Laws on Intermediaries for Financial Investments and on Investment Products" ("Act"). One important change the Act brings about is the extended scope of the notion of "financial instruments" in the German Banking Act ("KWG"): As of June 1, 2012, also interests in closed-ended funds will qualify as financial instruments.

Over the last weeks, evidence has increased that this change of law, in the view of the German Federal Supervisory Authority ("BaFin"), could trigger a licensing requirement pursuant to the KWG for private equity (fund-of-)funds or their managers. This position of BaFin, which has as yet only been uttered in non-published statements, is outlined below.