New German Infrastructure Allocation Comes Into Force for German Pension Funds, Small Insurance Companies and (Occupational) Pension Schemes (Versorgungswerke)

Background:

On 18 September 2024, the German Federal Ministry of Labor and Social Affairs (Bundesministerium für Arbeit und Soziales) and the German Federal Ministry of Finance (Bundesministerium für Finanzen) published a draft bill (Regierungsentwurf) on the “Second Act to Strengthen Occupational Retirement Schemes and to Amend Other Laws” (Draft Bill)².

The objective of the Draft Bill was to improve the stability and viability of occupational retirement schemes while streamlining the conditions for their establishment and expansion under German labour, financial and tax law. Due to the early new election of the German Bundestag on 23 February 2025, at the time of writing the Draft Bill has not come into force.

On 6 February 2025, the Eighth Ordinance Amending Ordinances under the German Insurance Supervision Act of 31 January 2025³ (8th Ordinance) was published in the Federal Law Gazette (BGBl. I. 31, 2025), implementing several amendments that were included in the Draft Bill.

The new regulations came into force on 7 February 2025 and will have an impact on the investment opportunities of German Regulated Investors, particularly in respect of investments in debt and equity infrastructure investments.

Amendments to the German Investment Ordinance (Anlageverordnung)

German Regulated Investors are subject to statutory investment restrictions in respect of the investment of their restricted assets (Sicherungsvermögen). This means that they are only permitted to invest in alternative investment funds (AIFs) if such investment qualifies as an eligible investment under the German Investment Ordinance (AnlV). The restricted assets (Sicherungsvermögen) are an internal ring-fenced pool of assets to secure policyholder claims, particularly in the event of the insolvency of a German Regulated Investor).

The respective classification determines the proportion of the restricted assets (Sicherungsvermögen) that can be invested in such types of AIF (or issuer) (Risk Diversification Limit, or Streuungsgrenzen) and how the overall portfolio of the German Regulated Investor must be diversified (Risk Diversification Quota, or Mischungsquote).

The investment restrictions set out in the German Investment Ordinance (Anlageverordnung)⁴ are further specified in the German Federal Financial Supervisory Authority’s (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) “Guidance on the Investment of the Restricted Assets of German Insurance Companies to which the Provisions for Small Insurance Companies apply and of German Pension Funds and Pension Schemes” (BaFin Circular 11/2017)⁵.

AIFs investing directly or indirectly in Infrastructure Project Companies (Infrastruktur-Projektgesellschaften) are in principle eligible investments for German Regulated Investors under the German Investment Ordinance

In line with the existing administrative practice of BaFin, section 2(1) no. 13 lit. b) of the AnlV, which covers investments in AIFs under the so-called private equity allocation, has been extended to include closed-ended German AIFs or closed-ended AIFs domiciled in the EEA or OECD that invest directly or indirectly in Infrastructure Project Companies pursuant to section 261(1) no. 2 of the German Investment Code (Kapitalanlagegesetzbuch, KAGB).

An Infrastructure Project Company (Infrastruktur-Projektgesellschaft) is defined⁶ as “a company formed in accordance with the articles of association or the statutes for the purpose of constructing, renovating, operating or managing facilities, installations, buildings or parts thereof which serve the public interest”.

The amendment to the German Investment Ordinance (Anlageverordnung) clarifies the scope of investments pursuant to section 2(1) no. 13 lit. b) of the AnlV. It is in line with BaFin’s existing administrative practice.

Introduction of a new Infrastructure Allocation of five percent of the restricted assets (Sicherungsvermögen)

The 8th Ordinance has introduced a new Infrastructure Allocation, limiting them to five percent of the restricted assets (Sicherungsvermögen).

The Infrastructure Allocation provides that “direct and indirect investments for the financing of infrastructure projects and infrastructure companies (Infrastructure Financing) in the amount of up to five percent of the restricted assets” must not be counted towards the other Risk Diversification Quotas (Mischungsquoten). Furthermore, Infrastructure Financing must serve the construction, expansion, renovation, maintenance, provision, holding, operation or management of infrastructure (section 3(7) of the AnlV).

Based on this definition, investments are permissible in “greenfield”, “brownfield” and existing infrastructure projects and also in shares or other equity-type investments of project companies. Further, the legislative materials of the Draft Bill specify that both equity and debt financing are covered by Infrastructure Financing. This will allow, for example German Regulated Investors to make investments in infrastructure debt funds (provided such funds also meet the requirement of section 2 AnlV). The explanatory memorandum to the Draft Bill states that “Infrastructure financing investments within the meaning of the new paragraph 7 that are held by an open-ended German Spezial-AIF can be counted towards the Infrastructure Allocation”. Our understanding is that this implies a look-through approach, as only assets that qualify as Infrastructure Financing should be allocated to the Infrastructure Allocation.

As a new Risk Diversification Quota (Mischungsquote), Infrastructure Financing is not a separate investment category under the German Investment Ordinance (Anlageverordnung). Instead, Infrastructure Financing must qualify as an eligible investment under section 2(1) of the German Investment Ordinance (Anlageverordnung), meaning that if Infrastructure Financing is made indirectly through an AIF, such AIF must fulfil the requirements of a specific investment category under the German Investor Ordinance (e.g., as real estate fund pursuant to section 2(1) no. 14 lit. c) AnlV, private equity fund pursuant to section 2(1) no. 13 lit. b) AnlV, or other AIF pursuant to section 2(1) no. 17 AnlV). As such investment categories under the German Investment Ordinance (Anlageverordnung) typically impose requirements on the geographical location of the investment. This means that AIF investing in the Infrastructure Financing must generally be located in an eligible jurisdiction under the relevant classification (commonly the EU or EEA, but also the OECD), however, subject to such geographical restriction, in principle no further restrictions apply in relation to the domicile of the Infrastructure Financing.

In the context of the new Infrastructure Allocation, we would anticipate that BaFin will update Circular 11/2017 and provide further official regulatory guidance.

There is no mandatory allocation of Infrastructure Financing to the Infrastructure Allocation. German Regulated Investors have the flexibility to decide whether Infrastructure Financing is allocated to the Infrastructure Allocation or to the other applicable Risk Diversification Quotas (Mischungsquoten) (e.g., for investments in non-infrastructure private equity funds or private debt funds).

However, in cases where the Infrastructure Allocation is fully exhausted, Infrastructure Financing can be reapplied to other relevant Risk Diversification Quotas (Mischungsquoten).

Increase of the Risk Investment Limit (Risikokapitalanlagenquote) from 35 percent to 40 percent of the restricted assets (Sicherungsvermögen)

The amendments based on the 8th Ordinance also increase the Risk Investment Limit from 35 percent to 40 percent of the restricted assets (Sicherungsvermögen), allowing German Regulated Investors to invest a higher proportion of their restricted assets (Sicherungsvermögen) in, for example, in private equity funds, private debt funds, receivables from profit participation rights (Genussrechte), and certain types of listed securities.

Extension of the exemption provision (Öffnungsklausel) to Risk Diversification Limits (Streuungsgrenzen)

Section 2 (2) AnlV provides an exemption provision (Öffnungsklausel) meaning that it is permissible to make investments that do not (fully) meet the requirements of a specific classification under the German Investment Ordinance (Anlageverordnung) or that exceed the Risk Diversification Quotas (Mischungsquoten).

Following the amendments by the 8th Ordinance, the exemption provision (Öffnungsklausel) also applies to investments that exceed the Risk Diversification Limits (Streuungsgrenzen) set forth in Sections 4 (1) to (4) AnlV, i.e., in cases where a German Regulated Investor invests more than the eligible amount in a single investment. However, the scope of the exemption provision (Öffnungsklausel) remains unchanged. This means that investments made within the scope of the exemption provision (Öffnungsklausel) are limited to a total of five percent or (with BaFin approval) 10 percent of the restricted assets (Sicherungsvermögen).

Practical impact

The amendments to the German Investment Ordinance (Anlageverordnung), which came into force on 7 February 2025, are in line with the current trend in German legislation to promote and strengthen investments in infrastructure. German Regulated Investors will benefit from greater flexibility in the choice of investments for their restricted assets (Sicherungsvermögen).