Planned changes to the Investment Regulation: infrastructure ratio and facilitation provisions in the draft of the Second Act to Strengthen Company Pensions

At a glance:

• To facilitate infrastructure investments, a separate infrastructure ratio (Infrastrukturquote) of 5% is to be introduced into the Investment Regulation (Anlageverordnung) as a new minimum diversification requirement (Mischungsquote).
• The draft includes an increase in the risk capital investment ratio (Risikokapitalanlagenquote) from 35% to 40% of the guarantee assets (Sicherungsvermögen).
• In future, it should also be possible to use the so-called opening clause (Öffnungsklausel) for exceeding the diversification limits (Streuungsquote).

The draft bill of the Federal Ministry of Labor and Social Affairs (BMAS) on the Second Act to Strengthen Company Pensions, which was published in coordination with the Federal Ministry of Finance (BMF) on 24 June 2024¹, provides among other things for important changes to the Investment Regulation (Anlageverordnung - AnlV)². The AnlV regulates the investment of the guarantee assets (Sicherungsvermögen) of Pensionskassen (pension funds), small insurance undertakings and funeral expense funds (hereinafter referred to as "AnlV Investors"). A key component of the draft is the revision and expansion of the investment opportunities available to AnlV Investors, especially in the infrastructure segment.

New minimum diversification requirement for infrastructure

The introduction of a new, separate infrastructure ratio (Infrastrukturquote) of 5% of the guarantee assets (proposed Section 3(7) AnlV) is a groundbreaking measure to facilitate infrastructure investments. This quota is to include direct and indirect investments to finance infrastructure projects that are structured as a form of investment permissible under Section 2(1) AnlV. This includes projects for the provision, expansion, operation or maintenance of a major asset. The explanatory memorandum to the law states that this refers to assets which are to be regarded as being in the public interest where the project operator is domiciled in a country in accordance with the respective form of investment under Section 2(1) AnlV and which are located in that country. This should include both equity and debt instruments. The explicit provision on which assets are covered by the new infrastructure ratio creates legal certainty for AnlV Investors.

Investments covered by the new infrastructure ratio are not offset against the existing minimum diversification requirements pursuant to Section 3(1) to (6) AnlV and are therefore not part of the risk asset investment ratio pursuant to Section 3(3) sentence 1 AnlV. This is intended to prevent infrastructure investments from competing with other investments, thus making infrastructure investments more attractive for AnlV Investors. Indirect investments - e.g. via alternative investment funds - may also fall within this new minimum diversification requirement. Accordingly, these changes should be seen as directly related to the discussion draft recently presented by the BMF on the promotion of investments by investment funds in renewable energies and infrastructure (InfrastrukturFörderGesetz)³.

Increase in the risk asset investment ratio (Risikokapitalanlagenquote)

Furthermore, the risk asset investment ratio pursuant to Section 3(3) sentence 1 AnlV is to be increased from 35% to 40% of guarantee assets. This ratio includes, for example, investments in private equity funds, hedge funds, commodity investments as well as shares and high-yield investments. Other minimum diversification requirements that must also be observed for investments within the risk asset investment ratio, such as the participation ratio (Beteiligungsquote) (15%), are to remain unchanged. According to the explanatory memorandum to the draft bill, increasing the risk capital investment ratio by 5 percentage points is intended to expand the scope for capital investment. AnlV Investors must continue to observe the principles of Section 1(3) and (4) AnlV. The extent to which the expanded investment scope can be used will continue to be determined by the investment and risk management considerations as well as the risk-bearing capacity of the respective AnlV Investors.

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

Currently, the so-called opening clause in Section 2(2) AnlV states that the guarantee assets may also be invested in investments not permitted under Section 2(1) AnlV unless the absolute investment prohibitions of Section 2(4) AnlV apply. The so-called opening clause will be extended so that in future investments exceeding the diversification limits pursuant to Section 4(1) to (4) AnlV can also be included under the opening clause. The goal here is to create greater flexibility for investments in individual debtors or individual investments and to expand the scope for investments with higher returns. According to the draft, the last half-sentence of section 3(2) no. 4 AnlV, which requires compliance with the diversification limit pursuant to section 4(4) AnlV, will be deleted without replacement.

The percentage of the opening clause is to remain unchanged: investments made within the scope of the opening clause are limited to a total of 5% or (with the approval of the relevant supervisory authority) 10% of the guarantee assets.

The draft bill is currently in the consultation phase. The relevant stakeholders are encouraged to submit their comments by 25 July 2024. Based on initial reactions, response to the draft appears to be positive. The advantages for AnlV Investors on the one hand and providers in the infrastructure investment sector in particular on the other are obvious. The future will show whether the changes envisaged in the draft bill will be enough to achieve the goal of diverting more investment into infrastructure projects.

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¹ Draft bill of the Federal Ministry of Labor and Social Affairs and the Federal Ministry of Finance - Second Act to Strengthen Occupational Pensions and to Amend Other Laws

² Regulation on the Investment of Guarantee Assets (Sicherungsvermögen) of Pensionskassen, Funeral Expense Funds and Small Insurance Undertakings (Investment Regulation – Anlageverordnung).

³ Discussion draft of a law to promote investments by funds in renewable energies and infrastructure

_{Published: July 2024}