Second attempt with a new name: The German Fund Risk Limitation Act

On August 8, 2025, the Federal Ministry of Finance published its draft bill for the so-called “Fund Risk Limitation Act.” In terms of content, it essentially corresponds to last year's draft of the Fund Market Strengthening Act proposed by the traffic light coalition. This comes as no surprise, as it also deals with the implementation of European legal requirements in the German Capital Investment Code (“KAGB”), including those relating to lending and liquidity management.

The Fund Market Strengthening Act was not implemented at the time due to the collapse of the traffic light coalition. Now a new attempt is being made with the declared aim of modernizing the fund market in Germany and making it more resilient. In this article, we would like to briefly highlight some of the key points of the draft bill.

Closed-end special funds can also be launched as mutual funds

One change not to be underestimated is the following: a revision of Art. 139 KAGB is intended to allow for mutual funds to be established in the legal form of closed-end special funds.

In addition, the deletion of Art. 91 (3) KAGB will allow open-ended real estate funds and open-ended infrastructure funds to take the legal form of an open-ended investment corporation in the future.

Investment in renewable energies with citizen energy community investments

Even after the change of government, promoting citizen energy community investments remain a goal. Due to the so-called “principle of risk diversification” for closed-end domestic public alternative investment funds (“public AIFs”), citizen energy investments in the form of funds are generally not possible under current legislation. Therefore, within the scope of the Fund Risk Limitation Act, an exception to this principle is to be included in the KAGB if a closed-end domestic public AIF invests in facilities for the generation, transport, and storage of electricity, gas, or heat from renewable energies and the investors are domiciled where these energy facilities are located.

Managers of open-ended funds are to be required to select at least two suitable liquidity management tools for their funds.

In future, capital management companies will be required to select at least two suitable liquidity management tools, such as redemption restrictions, redemption fees, or swing prices, for each open-ended investment fund they manage. Accordingly, information on this will have to be included in the investment conditions and sales prospectuses in future.

In the case of real estate investment funds, the suspension of redemptions pursuant to Art. 257 (1) KAGB is already regulated by law. Provided the requirements of Art. 257 (1) KAGB are met, it would be sufficient in future for the capital management company to select an additional liquidity management tool for each real estate investment fund it manages.

Regulations on lending are being adapted to European requirements

New risk management regulations are to be added for lending. The requirements for lending by alternative investment funds (“AIFs”) are to be adjusted. For example, an explicit prohibition on granting loans to and providing credit services for consumers is to be included.

If a closed-end public AIF grants loans, the relevant information should also be included in the sales prospectus.

General changes for AIF capital management companies

In future, the description of the managers in a capital management company's application for a license to BaFin is to include (i) a description of the function, title, and position of the persons concerned, (ii) a description of the reporting lines and responsibilities of the persons concerned within and outside the AIF capital management company, (iii) an overview of the time each of these persons spends on each task, and (iv) a description of the human and technical resources supporting the activities of the persons concerned.

It should also be noted that a capital management company's license may be refused in future if there are facts indicating that the two managers (i) are not employed by the capital management company on a full-time basis or are not executive members or members of the management body of the capital management company who manage the capital management company 's business on a full-time basis, or (ii) are not domiciled in the EU. 

Furthermore, in the event of termination of a special fund, the KVG and not the depositary shall be obliged to completely wind up the special fund in future.

Conclusion

In our view, the implementation of European legal requirements for liquidity management and lending can lead to increased resilience of funds. The possibility of launching public AIFs as closed-end special funds in the future and the exemption from the principle of risk diversification for citizen energy community investments are also appropriate modernizations that will make Germany a more attractive location for funds. The extent to which the changes contained in the draft law will be amended during the legislative process will hopefully become clear in the not-too-distant future.