Dechert LLP

German Federal Ministry of Justice and Consumer Protection published draft bill implementing the Directive (EU) 2017/828 as regards the encouragement of long-term shareholder engagement (“ARUG II”)

The Directive (EU) 2017/828 of May 17, 2017 aims to further enhance shareholder participation in listed companies and to facilitate cross-border information and exercise of shareholder rights. For this purpose, the directive contains a set of rules on shareholder participation rights, e.g. with regard to the compensation of the Supervisory Board/Management Board ("say-on-pay") and transactions with company related parties ("related-party-transactions") as well as for the better identification and information of shareholders ("know-your-shareholder") and for the improvement of transparency among institutional investors, asset managers and proxy advisors. 

The draft bill of the German Federal Ministry of Justice and Consumer Protection published on October 11, 2018 aims to implement the Directive (EU) 2017/828 into the German law. According to section 134b of the German Draft of the Stock Corporation Act (Aktiengesetz, “AktG”) institutional investors and asset management companies would need to publicly disclose a policy on shareholder engagement or explain why they have chosen not to do so. The policy on shareholder engagement should, among others, describe how institutional investors and asset managers integrate shareholder engagement in their investment strategy and how conflicts of interests are managed. The engagement policy should be publicly available for at least three years on the website of the institutional investors and the asset manager and at least annually updated. 

Pursuant to section 134c of the AktG-draft, asset management companies should also give, inter alia, information to the institutional investor or on their website how they act in the best middle- to long-term interests of the investor, about the major medium to long-term risks and the composition of the portfolio, the portfolio turnover and portfolio turnover costs.

The transposition deadline for the Directive (EU) 2017/828 into German law is June 10, 2019.

BaFin provides clarification for outsourcing outside the EU

BaFin has stated that ESMA's New Questions and Answers (Q & A) on the restrictive interpretation of passive marketing under MiFID II and MiFIR (see sections 13.1 to 13.3 therein) do not refer to the outsourcing of portfolio management by investment management companies in the meaning of the German Capital Investment Code (“KAGB”) and the advisory services requested. 

According to section 13.2 of the current ESMA’s Q & A the exception for passive marketing of investment services from third countries under MiFID II and MiFIR does not apply to the sale of "new categories of investment products". ESMA has therefore prepared a non-exhaustive list of investment products that they believe are not in the same category. For example, shares in UCITS and shares in AIFs are just as little in the same category as shares in AIFs with different investment strategies within the meaning of AIFMD reporting. ESMA also sees differences in principle between complex and non-complex financial instruments, between shares traded in different stock exchange segments and between financial instruments with underlying assets from different asset classes. ESMA believes that this granular approach should also be taken into account in ongoing investment advice by a third-party provider.

Investment statistics as of September 18, 2018

The German Investment Fund Association BVI has issued its updated funds raised report as of September 18, 2018. According to the BVI statistics, balanced funds topped the sales chart again in July. 

Investment funds raised EUR 56.3 billion net from the beginning of January to the end of July 2018. Of this volume, open-ended special funds accounted for EUR 43.8 billion, open-ended retail funds accounted for EUR 12.2 billion and closed-ended funds accounted for EUR 0.3 billion. In July alone, funds saw inflows to the tune of approximately EUR 6 billion. Investors withdrew EUR 11.4 billion from discretionary mandates since the beginning of the year. The fund industry manages assets totalling EUR 3.1 trillion.

Almost 10% of retail fund assets, i.e. EUR 98 billion, are contributed by initiators that are neither part of the relevant fund company's corporate group nor originate from any of the large insurance companies or credit institutions. 77% of the assets of these white label funds are attributable to German asset managers, who are generally also involved in the investment decision-making process, either in the capacity of advisers or external portfolio managers.

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