New 5% infrastructure Quota

Good news for regulated investors: On February 6, 2025 the German Federal Ministry of Finance (BMF) implemented significant amendments to the Investment Regulation (Anlageverordnung – AnlV) by introducing the Eighth Regulation to Amend Regulations under the Insurance Supervision Act (Achte Verordnung zur Änderung von Verordnungen nach dem Versicherungsaufsichtsgesetz – 8. VAGVÄndV) . The centerpiece of the amendments is a new Infrastructure Allocation Quota that allows regulated investors to invest up to 5% of their guarantee assets separately in infrastructure projects.

This amendment implements one of the legislative proposals intended to create incentives to channel more money from the private sector and institutional investors into infrastructure projects. The amendments increase the scope of direct and indirect investments in "infrastructure facilities and infrastructure companies" by small insurance undertakings, pension funds Pensionskassen and pension schemes, which must comply with the AnlV when managing their guarantee assets.

These alterations to the AnlV were already envisaged alongside the amendments in the draft of the Second Act to Strengthen Company Pensions and to Amend Other Acts (Second Act to Strengthen Company Pensions) . Like other legislative projects, the legislative procedure for the Second Act to Strengthen Company Pensions came to a standstill due to the end of the German coalition government. On February 6, 2025 the BMF published the 8th VAGVÄndV. Using this regulation, the BMF implemented the much-anticipated simplifications in the AnlV. The BMF has adopted the changes from the draft of the Second Act to Strengthen Company Pensions and also refers to the corresponding passages in the government draft for the explanatory memorandum.

>>> Brief legal background:

The AnlV regulates the investment of the guarantee assets by Pensionskassen (pension funds), small insurance undertakings and funeral expenses funds as well as certain pension schemes on the basis of state regulations (hereinafter referred to as "AnlV Investors"). AnlV Investors must i.e. observe exclusions, investment restrictions as well as Risk Diversification Quotas and limits under the AnlV. As AnlV Investors represent a significant customer group for the German and international asset management industry, the AnlV is a central set of regulations for the investors themselves, but must also be observed by product providers in order to be able to offer their customers compliant products, such as investment funds, in accordance with the AnlV.

Introduction of an Infrastructure Allocation Quota for infrastructure

The new Infrastructure Allocation Quota of 5% of the guarantee assets (Section 3 (7) AnlV) is a guiding principle when it comes to the facilitation of infrastructure investments. It is a separate Risk Diversification Quota which can include direct and indirect investments in infrastructure facilities and infrastructure companies. As a result, these investments do not (or no longer) have to be offset against the existing Risk Diversification Quotas pursuant to Section 3 (1) to (6) AnlV (such as the participation ratio (Beteiligungsquote), which are often already exhausted by other investments. The Infrastructure Allocation Quota is also not part of the risk capital investment ratio (Risikokapitalanlagenquote) pursuant to Section 3 (3) sentence 1 AnlV. This reduces the competition between investments in infrastructure and other investments. Accordingly, the existing, strict proportional restrictions on the guarantee assets, which infrastructure investments were previously subject to, will be mitigated. This should create greater flexibility within the asset allocation for infrastructure investments and result in higher legal certainty for AnlV Investors.

It should be noted that the Infrastructure Allocation Quota is not an independent form of investment, but a new Risk Diversification Quota. Based on the explanatory memorandum of the 8th VAGVÄndV, both equity and debt instruments should be appropriate investments for this ratio. The prerequisites for classification under this Infrastructure Allocation Quota are as follows:

(1) the facilities are permissible under Section 2 AnlV, i.e. fall under one of the forms of investment listed therein, and

(2) the facilities are intended for the construction, expansion, renovation, maintenance, provision, preservation, operation or management of infrastructure.

The explanatory memorandum to the introduction of the Infrastructure Allocation Quota states that the investment of guarantee assets in infrastructure should not be limited to 5% in total. Investments in infrastructure can continue to be considered in other Risk Diversification Quotas in accordance with their investment form pursuant to Section 2 (1) AnlV. They do not have to be included in the Infrastructure Allocation Quota - not even as a priority.

Infrastructure: Missing definition?

It should be emphasized that investments in infrastructure companies are also explicitly included in the scope of the Infrastructure Allocation Quota. This extension should be seen as a positive development of the originally proposed scope of application, particularly in the context of indirect investment via infrastructure funds, which flow into both infrastructure facilities and infrastructure companies.

The amended AnlV does not include a definition for "infrastructure," a term also used without clarification in the explanatory memorandum of the government draft and the German Investment Code (Kapitalanlagegesetzbuch - KAGB). This could be interpreted as an absence of a sector-specific limitation to the term "infrastructure" within the AnlV. In general, Section 1 (19) no. 23a KAGB provides guidance for classifying the term "infrastructure". According to this, infrastructure project companies are facilities, installations, structures or parts thereof that “serve” the functioning of the community. Additionally, Section 2 (10) of the Act on the German Federal Office for Information Security (Gesetz über das Bundesamt für Sicherheit in der Informationstechnik – BSI Act) can also be used for a general understanding of the term "infrastructure". The Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) has already proposed this approach for interpreting Section 1 (19) no. 23a KAGB. Within the meaning of the BSI Act, infrastructures are facilities, structures or parts thereof that belong to the energy, information technology and telecommunications, transport and traffic, health, water, food, finance and insurance and municipal waste disposal sectors and are paramount for the community´s functioning as their failure or impairment would result in substantial supply shortages or threats to public safety.

Increase in the risk capital investment ratio

The risk capital investment ratio pursuant to Section 3 (3) sentence 1 AnlV was increased from 35% to 40% of the guarantee assets. This ratio includes, for example, investments in private equity funds and hedge funds, commodity investments as well as equities and high-yield investments. However, other Risk Diversification Quotas that must also be taken into account for investments within the risk capital investment ratio, such as the participation ratio (15%), remain unchanged. The expansion of the risk capital investment ratio means that the individual diversification requirements, which add up to the risk capital investment ratio, can be used more effectively. As stated above, the new Infrastructure Allocation Quota is not part of the risk capital investment ratio. This increase is intended to provide a wider scope for capital investment. The extent to which the expanded investment scope can be used is still determined by the investment and risk management as well as the risk-bearing capacity of the respective AnlV Investors.

Use of the opening clause for exceeding the diversification limits (Streuungsgrenzen)

Previously, the so-called opening clause in Section 2 (2) AnlV allowed that guarantee assets may also be invested in investments not permitted under Section 2 (1) AnlV as long as the absolute investment prohibitions of Section 2 (4) AnlV were not violated. Now, the opening clause has been extended so that investments exceeding the diversification limits under Section 4 (1) to (4) AnlV can also be covered by the opening clause. This is intended to create more flexibility for investments in individual debtors or individual investments and to expand the scope for investments with higher returns. The last half-sentence of Section 3 (2) no. 4 AnlV, which required compliance with the diversification limit pursuant to section 4 (4) AnlV, has been deleted without replacement.