© Springer-Verlag Berlin Heidelberg 2015Orestis Schinas, Carsten Grau and Max Johns (eds.)HSBA Handbook on Ship Finance10.1007/978-3-662-43410-9_5
5. Equity Capital Market in Shipping
MPC Münchmeyer Petersen Capital AG, Palmaille 71, 22767 Hamburg, Germany
In general, the placement of new equity in shipping falls under the scope of the Alternative Investment Fund Managers Directive (“AIFMD”). The article describes the essentials of the AIFMD, its purpose and scope, the regulatory requirements it contains and, in particular, its provisions regarding the valuation of funds and the appointment of a depositary to ensure the proper monitoring of cash flows. In Germany, the AIFMD has been implemented through the enactment of the Investment Code (“Kapitalanlagegesetzbuch”—hereinafter “Code”). The article describes the purpose and the scope of the Code in relation to shipping funds structured as limited partnerships. The different types of AIFs and their requirements as stipulated in the Code are explained. Institutional investors and their needs are classified with reference to the AIFMD and the Code. The article concludes by considering those structures where institutional investors prefer to invest their equity with a focus on private equity investments.
German partnerships structured as limited partnerships (“Kommanditgesellschaft”) own the world’s largest fleet of container vessels.1 The investors in those partnerships are mostly retail investors with partnership interests worth, on average, between EUR 25,000 and EUR 35,000.2 Investments are made either directly or indirectly through a trustee. The recent financial and shipping crises have essentially caused placement of equity in partnerships with retail investors to collapse. Shipping investors in general and retail investors in particular have suffered bitter losses. As a consequence, almost no additional equity was placed with retail investors for investment in new vessels in 2012 and 2013.3 Retail investors are not expected to be ready to invest in the shipping market again at any time in the near future. On the other hand, institutional investors are seeking to benefit from the crash in the shipping market by investing now to participate in higher yields when the market recovers. The structures used by institutional investors are diverse.
On 22 July 2013, the Alternative Investment Fund Managers Directive (AIFMD) entered into force. The Directive regulates alternative investment funds within the European Union which, prior to its enactment, were unregulated. The AIFMD contains provisions on portfolio, risk and liquidity management. Fund managers have to comply with these requirements, which means that they have to provide minimum initial capital, an independent valuation of the managed assets on an annual basis and appoint a depositary to supervise the use of liquidity in compliance with the fund’s investment policy. However, the AIFMD covers the structuring of the fund only partially and is silent on certain points. For example, the AIFMD does not lay down any conditions with regard to the marketing of AIFs other than to restrict marketing to institutional investors.4 However, Member States are given discretion as to whether to allow marketing of AIFs to retail investors. In Germany, the AIFMD has mainly been implemented through the enactment of the Investment Code (“Kapitalanlagegesetzbuch”—hereinafter the “Code”), which replaced the Investment Act (“Investmentgesetz”).5 The Code not only implements the AIFMD, but also supplements it in relation to the marketing of AIFs to retail investors by stipulating further requirements regarding their structure and the placement of equity.
It is our intention in this article to present a concise overview of a new and rather complex area of the law, while focusing on German legal requirements as a result of the AIFMD. We begin by exploring the regulatory framework set down in the AIFMD for the European Union (section 5.2) before turning to deal with the implementation of the AIFMD in Germany through the Code and its effect on the placement of equity with retail investors in shipping (section 5.3). The importance of the term investment fund (“Investmentvermögen”) is discussed as are the different types of investors. Both of these issues are important when considering whether the placement of shipping funds with institutional investors will be subject to special requirements in the future. After analyzing the different classes of investors, we take a look at the investment structures used by institutional investors. It will be shown that the range of potential structures is relatively diverse as compared with the structures used under what is known as the “limited partnership model” (section 5.4).
5.2 General Principles of the AIFMD
5.2.1 Purpose and Scope of the AIFMD
The AIFMD aims to establish a framework to cover the potential risks which can arise from the activities of funds managers and to ensure the effective monitoring of those risks by the competent authorities within the European Union. Originally, it was intended to restrict the application of the AIFMD to managers of hedge or private equity funds. However, the AIFMD’s scope of application now covers the management of all fund structures which were not regulated in the past. Nevertheless, the scope of the AIFMD is limited to entities whose regular business is managing AIFs regardless of whether the AIF is of an open-ended or a closed-ended type, whatever the legal form of the AIF, and whether or not the AIF is listed. In addition, the AIFMD is limited in scope to entities managing AIFs which raise capital from investors with the aim of investing the capital for the investors’ benefit in accordance with a defined investment policy. Investment undertakings, such as family office vehicles which invest the private wealth of investors without raising external capital, are not considered to be AIFs according to the AIFMD. Fund managers who already managed AIFs before 22 July 2013 and which do not make any additional investments after 22 July 2013 do not fall under the scope of the AIFMD and are allowed to continue such management without authorization under the AIFMD.
5.2.2 Regulatory Requirements
According to the AIFMD, the management of AIFs is subject to authorization granted by the competent authority (in Germany, this authority is the Federal Financial Supervisory Authority—“BaFin”). No authorization is required (a) for fund managers whose managed assets, including any assets acquired through use of leverage, in total do not exceed a threshold of EUR 100 million or (b) if the managed assets do not exceed a threshold of EUR 500 million where the portfolios of AIFs consist of AIFs that are unleveraged and have no redemption rights. Those small funds are only subject to registration with the competent authority and must keep it informed of their activities.
AIFs can be managed either internally or externally by third parties. Where the managing partner manages the assets (in Germany, this is in most cases the general partner “Komplementär”), this amounts to internal management. External management exists where a third party manages the assets under the terms of a management contract (“Fremdverwaltungsvertrag”).
For the sake of simplicity, the regulatory requirements under the AIFMD may be classified in three groups:
The requirements for authorization
The rules for ongoing operation, in particular, appointment of an independent depositary and valuation of the AIF’s assets according to a proper and independent valuation procedure (cf. section 5.2.3.)
Obligations regarding transparency and information (cf. section 5.2.4.)
The persons who effectively conduct the business of the AIFM must be of a sufficiently good repute and be sufficiently experienced. In addition, the shareholders must be suitable. Where an AIFM is appointed as the external manager of an AIF, the AIFM must have an initial capital of at least EUR 125,000.00. If, on the other hand, the AIF is managed internally, the initial capital must amount to EUR 300,000.00. The capital must in general be increased where the value of the AIF portfolios managed by the AIFM exceeds EUR 250 million. The additional amount must be equal to 0.02 % of the amount by which the value of the portfolios of the AIFM exceeds EUR 250 million but the required total amount of the capital must not exceed EUR 10 million. Moreover, the AIFM must either have additional own funds which are appropriate to cover potential liability risks or hold professional indemnity insurance against liability for damages arising from professional negligence. The initial capital, including own funds, must be invested in liquid assets readily convertible to cash in the short term and must not include speculative positions.