The German investment market continued to grow in 2016, with both special and retail funds recording cash inflows.

At the end of 2016, the asset management companies managed a total of 6,122 collective investment undertakings (previous year: 5,649) with assets amounting to €1.908 billion (previous year: €1.743 billion). Of these funds, 2,194 (previous year: 1,777) were retail funds with assets totalling €451 billion (previous year: €427 billion) and 3,928 (previous year: 3,872) were special AIFs with assets of €1.457 billion (previous year: €1.316 billion).

Aggregate (net) cash inflows into retail and special funds amounted to €119.96 billion (previous year: €146.1 billion). (Gross) cash inflows amounted to €310.3 billion (previous year: €367.5 billion), of which €106.8 billion were attributable to retail investment funds (previous year: €137.3 billion) and €203.5 billion to special AIFs (previous year: €230.2 billion). This was set against total cash outflows amounting to €190.3 billion (previous year: €221.4 billion).

In 2016, BaFin approved a total of 151 new retail investment funds in accordance with the Investment Code (previous year: 230), including 99 UCITS (previous year: 121), 12 open-ended retail AIFs (previous year: 36) and 40 closed-ended retail AIFs (previous year: 73).

6.2.1 Open-ended real estate funds and hedge funds

As at the end of 2016, BaFin supervised a total of 46 asset management companies authorised to manage open-ended real estate funds (previous year: 45). One of the companies was granted its authorisation in 2016.

While 22 asset management companies had also established open-ended real estate funds for retail investors (previous year: 21), the other 24 companies (previous year: 24) had limited their activities to the management of open-ended real estate special funds.

7 open-ended real estate funds for retail investors were established in the course of 2016, increasing the number of these funds to 51 (previous year: 48). The fund volume of this market segment amounted to €89.48 billion as at the end of the year (previous year: €85.2 billion).

Gross cash inflows into open-ended real estate funds for retail investors increased again in 2016, to €7.9 billion (previous year: €7.0 billion). Gross cash inflows into open-ended real estate special funds increased for the sixth year in succession, to €14.9 billion (previous year: €13.0 billion). The fund assets of open-ended real estate special funds amounted to €75.6 billion at the end of 2016 (previous year: €64.5 billion).

20 open-ended real estate funds for retail investors were in liquidation at the end of 2016 (previous year: 19). Their fund volume amounted to €8.2 billion (previous year: €10.8 billion). The management rights for 14 of these funds have already been transferred to the depositary (previous year: 11).

There were 14 hedge funds in Germany at the end of 2016 (previous year: 24). The total volume under management was €3.02 billion (previous year: approximately €2.85 billion). As in 2015, there were no German funds of hedge funds in Germany.

6.2.2 Foreign collective investment undertakings

In 2016, there were 9,795 EU UCITS¹ authorised for marketing (previous year: 10.513). BaFin processed a total of 941 new notifications by companies wanting to market EU UCITS in Germany (previous year: 846). As in previous years, most of the notifications – 554 in total – came from Luxembourg. In addition, 274 notifications were received from Ireland, 39 from France and 39 from Austria. Marketing was discontinued for 607 EU UCITS.

In addition, 1,402 EU AIFs and 266 foreign AIFs from third countries were authorised to conduct marketing in Germany (previous year: 1,324 EU AIFs and 168 foreign AIFs from third countries). Of the total number, 745 originated in Luxembourg, 254 in the United Kingdom, 214 in Ireland, 93 in the Cayman Islands, 83 in the United States, 111 in France, 11 in Switzerland and 38 in the Netherlands. In 2016, marketing for 525 AIFs (previous year: 486) started in Germany, including 204 from Luxembourg, 93 from the United Kingdom, 69 from Ireland, 26 from the Cayman Islands and 25 from the United States. 165 EU AIFs and foreign AIFs ceased marketing, including 49 from Luxembourg, 50 from the United Kingdom and 16 from Ireland.

6.2.3 Switch to the Act Implementing the UCITS V Directive

The UCITS V Directive² had to be transposed into national law by 18 March 2016. It amends the UCITS Directive in terms of the tasks performed by depositaries, remuneration policies and sanctions. The Act Implementing the UCITS V Directive entered into force on that date, and the asset management companies had until then to adapt the fund rules of existing UCITS to the new requirements, submit the relevant approval applications to BaFin and have them approved.

Legal basis only created by implementing act

However, the legal basis for approving amended fund rules was only created when the Act Implementing the UCITS V Directive entered into force, which only happened one week before the deadline for making the switch. The Act Implementing the UCITS V Directive had limited the extent of permissible modifications to those required for editorial reasons or to adapt the legislation to the new requirements. Yet the need to process the amendment applications of more than 40 asset management companies for almost 1,400 UCITS in total within just one week posed challenges for both the industry and BaFin alike.

For this reason, BaFin and the Bundesverband Investment und Asset Management e.V. (BVI) began in good time to consult on and agree sample fund rules reflecting the required amendments. This allowed the companies affected to get information about the planned submission and approval process as early as at the end of 2015. In addition, agreed sample fund rules were available in good time before the application needed to be submitted and the Act Implementing the UCITS V Directive entered into force.

Due to amendments to the German Investment Tax Act (Investmentsteuergesetz), which are expected to enter into force on 1 January 2018, it is foreseeable that the sample fund rules will have to be amended again. BaFin is already in consultation with the BVI about this.

6.2.4 Shadow banking and financial stability in asset management

BaFin is actively involved in the international discussions around the shadow banking sector/system and financial stability in the asset management sector.

Financial Stability Board (FSB)

At their meeting in Cannes in 2011, the G20 heads of state and government resolved far-reaching measures to strengthen financial stability. In addition to tighter regulation of the banking sector in response to the financial crisis, they resolved to investigate regulatory loopholes in other parts of the financial system and to act on any findings. The G20 asked the Financial Stability Board, in cooperation with the standard-setting bodies, to draft, among other things, recommendations for improving the supervision and regulation of the global shadow banking sector. In this context, the FSB developed international recommendations to address the structural vulnerabilities from asset management activities in the collective investment undertaking/asset manager segment. The in total 14 proposed policy recommendations cover liquidity mismatch, leverage, operational risks and risks associated with securities lending.

The FSB finalised and adopted the recommendations at the beginning of 2017.

The G20 finance ministers confirmed the recommendations in March. The International Organization of Securities Commissions (IOSCO) was instructed to implement the recommendations as far as possible by the end of 2017.

European Systemic Risk Board (ESRB)

The Expert Group on Shadow Banking, which works under the auspices of the European Systemic Risk Board monitors structural changes in the European shadow banking sector as well as risks from EU shadow banking activities. The expert group is made up of representatives of central banks and supervisory authorities. Its work complements global initiatives, especially those of the FSB, in this area. The group publishes an annual shadow banking monitoring report, which contains measured quantities and analysis relating to this issue. The methods used in the report are to be enhanced over time and supervision data provided by national supervisors is to be added.

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