When Chicago-based LaSalle Investment Management announced last month it was setting up a KAG fund structure in Germany, it was a noteworthy step.
Foreign property managers have long been at a disadvantage in Germany. Barriers to entry for those wishing to establish KAGs – dubbed the ‘structure of choice’ by some – for many German institutional investors tended to be prohibitively high. For example, one needed to establish a separate legal entity, staff it with two separate managing directors, and hold a minimum capital amount 5 million Deutschmarks.
A German KAG (Kapitalanlagegesellschaft) is basically an investment company supervised by BaFin, Germany’s financial supervisory body. The benefit to an investor is that KAG status gives it certainty that the vehicle will tick all the necessary regulatory boxes. The tax structure of a KAG is uniform too.
LaSalle regional director, Claus Thomas, said it has been operating in Germany for more than 10 years and has built up a roster of large institutional clients. However, the KAG would help it tap smaller and medium-sized institutions that don’t always have the necessary resources to pour over investment vehicles.
What has changed, he added, was that the barriers to entry were recently lowered in acknowledgement that protectionist measures were anti-European Union.
The KAG is essentially just a legal form of a new subsidiary that LaSalle is setting up under which funds can be launched.
LaSalle’s first vehicle is likely to be a commingled pan European fund, but separate accounts could follow.
According to Thomas, some firms have been so keen to tap the large capital reservoir of German institutional investors that they are ‘renting’ KAGs from German financial institutions. That wouldn’t work for LaSalle, he added, as that would mean an additional cost and would not fit in with the long- term commitment to the country. He said German institutional investors were one of the most important in the world and the trend was still for many to invest indirectly.