Companies that seek to procure capital have a multitude of options to finance their business in Germany. The first one to turn to is usually to talk to the company’s house bank, even though bank loans are regularly associated to granting of substantial collaterals by the borrower. Especially startups regularly tend to opt for the issuance of shares to business angels and venture capitalists. A third option is the funding of projects via the capital markets. If the owners of the capital-seeking business do not want to issue company shares to potential investors, they also have the option to publicly offer debt instruments. In this case, investors receive interest and a repayment claim at the end of the duration against the issuing company in exchange for the temporary granting of capital. The specifics of such an offer can be designed in various ways. While most of the aforementioned debt products are regulated as securities, there is also a specific regulatory regime for products that are designed in a certain way – the Asset Investment Act (VermAnlG).



Asset investments can only be investment products that are neither regulated as securities by the EU prospectus regulation nor as shares of an investment fund by the German Capital Investment Code. It is furthermore required that the acceptance of the investors’ money by the issuer cannot be qualified as a deposit-taking business and therefore as a banking service pursuant to the German Banking Act (KWG). Historically speaking, these products were the investment options on the grey capital market. The term grey capital market was used to refer to investment possibilities, which while legal were not specifically regulated, so that issuers of such products were not subject to prospectus obligations for the public offering. The German legislator intended to regulate products of the grey capital market with the Asset Investment Act and subjected issuers and distributors of asset investments to transparency, publications and conduct obligations. Since then, limited partner´s shares, trust shares, subordinated loans, unsecuritized participation rights, registered bonds and direct investments are all regulated accordingly in Germany. A key characteristic of asset investments is that they are limited in their tradability as well as their transferability. Therefore, they used to be interesting primarily for private and not so much for institutional investors.



There used to be a considerable market in Germany for products of the grey capital market especially prior to the introduction of the Asset Investment Act. The legislator decided to allow financial asset intermediaries, that do not need authorization by BaFin pursuant to the KWG to continue to distribute these products, not least because he intended to protect the existing market infrastructure. Asset investments can therefore be distributed in Germany on the basis of a mere authorization for financial asset distribution pursuant to the German Industrial Code. Such an authorization can be obtained far easier than an authorization for investment brokerage in accordance to the KWG. Furthermore, there is still a considerable amount of financial asset intermediaries in Germany that can be commissioned with the distribution of asset investments. A disadvantage of asset investments on the other hand is the fact, that the Asset Investment Act is a purely national regulation, meaning that asset investments that are based on the provisions of the German Asset Investment Act can only be distributed on the bases of the corresponding asset investment prospectus within the German borders.



Tokenization can have considerable advantages for asset investments because it allows for an embodiment of the shares of that product class. Because of the necessary distinction to securitized securities, asset investments are traditionally designed as direct and immediate contracts between the issuer and the investor which stipulate the connected rights and obligations. An embodiment in e.g., a bond certificate was not possible. With the option to embody asset investments in tokens, this product class can now potentially also be interesting for institutional investors. Because of their investment guidelines, institutional investors are usually dependent on their investments being held in custody by a third-party, so that they can provide auditors with third-party deposit statements enabling the auditors to vouch for the portfolio. These deposit statements could be issued by crypto custody institutions for tokenized asset investments. Investment products that are intended to be offered via a vast distribution network to private and institutional investors could therefore profit from a design as an asset investment.


Attorney Lutz Auffenberg, LL.M. (London)





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