New BaFin draft guidelines clarify that investor involvement in asset-level decisions risks disqualifying a fund as an AIF under EU rules—a shift with potential implications far beyond Germany, according to Sebastiaan Hooghiemstra at Loyens & Loeff.
The German legislator BaFin published on 14 March 2025 a draft consultation with respect to guidelines to be issued that answer the question whether and to what extent investors may influence investment decisions of AIFMs and/or delegated portfolio managers in respect of collective investment undertakings for them to still qualify as an “AIF” under the AIFMD. As this guidance may have broader implications than just for German AIFMs and AIFs, this contribution discusses the BaFin’s insights.
Background: Portfolio management under AIFMD
Portfolio management is a core function performed by AIFMs under the AIFMD. If AIFMs are authorized under the AIFMD, they may be “managing AIFs”, which means performing, at least, the portfolio management and risk management function of Annex I AIFMD for one or more AIFs.
The AIFMD itself does not define what “portfolio management” means. Guidance can be found in the ESMA “Guidelines on key concepts of the AIFMD”, in which ESMA clarified that in a collective investment undertaking, “the unitholders or shareholders of the undertaking – as a collective group – have no day-to-day discretion or control.” In practice, it is understood as the decision to buy, hold or sell assets, including pre- and post-trade analysis of the investment decision on behalf of one or more investors.
A clear understanding of whether and to what extent investors may influence investment decisions of AIFMs and/or delegated portfolio managers is highly relevant for AIFs (or non-AIFs) with investor advisory boards/LPACs, insurance companies/pension funds that set-up AIFs by themselves and whether or not an undertaking for collective investment undertakings qualifies as an “AIF” (e.g. JVs).
BaFin’s guidance
From a fund regulatory perspective, the key message in BaFin’s consultation guidelines is that the final say on any investment or divestment decisions must rest with the AIFM or delegated asset manager, if any, and not the investors. The BaFin clarifies this general principle by specifying this further.
Investor instructions with respect to individual assets
BaFin sees investor instructions with respect to the buying, holding or selling of individual assets as not compatible with the AIFMD. In their view, the AIFMD requires that either the AIFM or the delegated portfolio manager retains the final decision-making power in relation to investment or divestment decisions.
Veto & approval rights
In this context, BaFin has also clarified that any veto rights, approval requirements or others means of investor consent in relation to individual investment/divestment decisions are not permitted under the AIFMD. BaFin considers that, if that were to be the case, the final decision-making power with respect to investment/divestment decisions would not be with the AIFM or portfolio manager, but with the investors, as vetoing the AIFM’s or portfolio manager’s investment/divestment decisions or withholding the necessary consent would, de facto, block the latter’s decision-making power to acquire/dispose of assets.
By contrast, veto rights or equivalent are seen as unproblematic, if investor committees are having such rights in relation to the investment policy, such as, for example, in connection with the question whether an AIF should invest in a certain region or sectors, etc.
In these cases, investors may influence the fundamental strategic orientation of an AIF. However, the final decision on the acquisition or disposal of a specific asset must remain entirely with an AIFM or a delegated portfolio manager.
Investment ideas/recommendations
Furthermore, BaFin is of the view that investors may share non-binding “investment ideas” or “recommendations” with the AIFM or a delegated portfolio manager, as long as their idea/recommendations are non-binding and the AIFM or delegated portfolio manager retains the final decision-making power in relation to investment/divestment decisions. However, ideas/recommendations may not be “indirect” instructions, i.e. rubber stamping of investment ideas/recommendations shared to an AIFM or delegated portfolio manager. AIFMs or delegated portfolio managers are namely expected to conduct their own research and perform their own assessment with respect to investment and divestment decisions.
Documenting investment decisions
BaFin is also recommending AIFMs to document investor influence on their decisions, including instructions, investment ideas and recommendations.
Implications for Luxembourg
Albeit it is merely a draft consultation on guidelines with respect to the “investor influence” topic, the views of BaFin may also be seen as helpful guidance in Luxembourg, as was pre-Brexit the case with the views expressed by the FCA. This is, in particular, the case, as the criteria formulated still relate to the “AIF” definition as such and ESMA has not exhaustively formulated its views in relation to all relevant aspects of the AIF-definition.
Sebastiaan Hooghiemstra is a senior associate in the investment management practice group of Loyens & Loeff Luxembourg and Senior Fellow of the International Center for Financial Law & Governance at the Erasmus University Rotterdam. The law firm is a knowledge partner of Investment Officer.