Launch an Investment Fund in Germany (BaFin)

Launching a fund is first a question of structure and manager

With over €2 trillion in fund assets, Germany is the largest fund market in the EU, and the German Capital Investment Code (KAGB) turns the European UCITS and AIFMD directives into a dependable framework. For sponsors, however, the launch starts not with the fund itself but with two choices: the fund type — UCITS retail fund, special AIF or closed-ended AIF — and the management structure. Those who do not want to build their own capital management company use a service KVG that already holds a BaFin licence; this shortens the launch from 12–18 months to 3–6 months and is usually the more economical route up to around €500 million in assets under management.

Fund Types Overview

1. UCITS Funds

Undertakings for Collective Investment in Transferable Securities are strictly regulated retail funds that can be distributed EU-wide to private investors.

Feature	UCITS Fund
Investors	Retail and institutional investors
Investment Universe	Securities, money market, derivatives (restricted)
Diversification	Strict spreading requirements (5-10-40 rule)
Liquidity	Daily redemption mandatory
EU Distribution	Europe-wide passporting
Minimum Capital AIFM	€125,000 - €10 million

2. Special AIF

Alternative Investment Funds for professional and semi-professional investors with more flexible investment rules.

Feature	Special AIF
Investors	Professional investors (min. €200,000 investment)
Investment Universe	Real estate, private equity, infrastructure, hedge funds
Diversification	Flexible, according to fund rules
Liquidity	According to strategy (often semi-annual/annual)
Regulation	KAGB/AIFMD, less strict than UCITS

3. Closed-Ended Funds

Closed-ended AIFs raise capital once and have a fixed term. Typical for real estate, shipping, or private equity investments.

• Fixed Term: Usually 10-15 years
• No Redemption: Unit return only at end of term
• Secondary Market: Trading via secondary market exchanges possible
• Assets: Often single investments (property, aircraft, etc.)

4. Investment KG

The Investment Limited Partnership is a popular legal form for closed-ended funds, especially for real estate and private equity.

• Legal Form: GmbH & Co. KG as fund entity
• Tax: Transparent taxation at investor level
• Flexibility: Partnership agreement structuring
• Liability: Limited partners liable only with contribution

Alternative Investment Fund Manager (AIFM)

Own AIFM License

An own AIFM license from BaFin authorizes the management of investment funds. The requirements are substantial:

Requirement	Details
Initial Capital	€125,000 - €10 million (depending on AUM)
Managers	Min. 2 qualified persons
Risk Management	Own risk management function
Compliance	Compliance officer required
IT & Systems	Adequate technical infrastructure
Approval Duration	12-18 months

Service AIFM (Third-Party Management)

A Service AIFM (Master AIFM) is an external provider that provides the regulatory infrastructure:

• No Own License Needed: Use of existing BaFin authorization
• Faster Launch: 3-6 months instead of 12-18 months
• Lower Fixed Costs: Variable fees instead of infrastructure buildup
• Portfolio Management Delegation: Investment decisions with initiator
• Makes Sense Until: Approx. €500 million AUM

Depositary

Every regulated fund requires an independent depositary that safeguards fund assets and monitors the AIFM:

• Custody: Secure safekeeping of assets
• Oversight: Control of AIFM activities
• Cash Flows: Monitoring of fund flows
• NAV Control: Verification of unit price calculation
• Costs: From approx. €10,000 annually (volume-dependent)

BaFin Approval Process

Phase 1: Structuring (1-3 Months)

• Define investment strategy
• Choose fund structure (UCITS, AIF, closed-ended)
• Select service AIFM and depositary
• Draft fund rules
• Prepare prospectus

Phase 2: Documentation (1-2 Months)

• Finalize fund rules
• Create prospectus and KIID/KID
• Contracts with AIFM and depositary
• Risk management documentation
• Compliance policies

Phase 3: BaFin Review (2-6 Months)

• Submission to BaFin
• Document review
• Queries and adjustments
• Approval of fund rules
• Commencement of operations

Fund Launch Costs

Cost Type	Amount
BaFin Fees	€5,000 - 25,000
Legal Advisory	€30,000 - 80,000
Tax Advisory	€10,000 - 30,000
Service AIFM Setup	€20,000 - 50,000
Depositary Setup	€5,000 - 15,000
Prospectus Preparation	€15,000 - 40,000

Ongoing Costs (Annual)

Item	Cost
Service AIFM	0.05-0.15% of fund assets (min. €25,000)
Depositary	0.02-0.10% of fund assets (min. €10,000)
Auditor	€15,000 - 50,000
Reporting & Compliance	€10,000 - 30,000

Tax Aspects

Fund Level

• Corporate Tax: 15% on domestic income (with exceptions)
• Trade Tax: Generally exempt (for regulated funds)
• Investment Tax Reform 2018: Partial exemptions for investors

Investor Level

• Partial Exemption: 30% for equity funds, 60% for real estate funds
• Withholding Tax: 25% on income (retail investors)
• Institutional: Regular corporate taxation

Advantages of Germany as Fund Location

• Largest EU Market: Over €2 trillion in fund assets
• Strong Infrastructure: Many service AIFMs and depositaries
• Regulatory Clarity: Established KAGB regime
• Investor Confidence: German supervision highly regarded
• EU Passporting: Distribution across entire EU possible
• Institutional Demand: Large pension funds and insurers

Who Benefits from a German Fund?

• Asset Managers: Institutionalization of asset management
• Family Offices: Professional wealth structuring
• Real Estate Developers: Capital raising for projects
• Private Equity: Regulated framework for investments
• International Initiators: Access to German market