The outgoing coalition government made some important changes to the rules for German pension funds on how they can invest. The for private markets relevant risk capital quota was increased from 35% to 40%. At the same time, a new infrastructure quota of 5% was introduced.

Laura Bungart from the law firm CMS estimates that the change in these two quotas could theoretically result in an additional 50 billion euros being invested in private markets, as she explains in the podcast „Betting Billions“. Her estimate is based on 2023 figures, with around 500 billion euros invested.

Exact figures are difficult to determine, says Bungart, as the assets managed by pension schemes and funds are not always publicly available. Whether they can be determined depends on the level of transparency each institution allows. The same applies to the actual utilisation of existing quotas. Bungart has to rely on the statements of her clients, who often reported that the quotas were fully utilised. „In the past, this was often the case for the real estate quota or the equity participation quota“, notes the lawyer.

The equity participation quota includes, among other things, private equity and venture capital investments. „With the new infrastructure quota, much more flexibility for infrastructure investments has now been introduced“, says Bungart. Infrastructure investments can now either be placed in the risk participation pool or, to relieve it, be placed under the new dedicated infrastructure quota. The new quota applies to both private equity and private credit investments, as long as they are infrastructure-related.

A separate definition for infrastructure is not provided in the investment regulation, states Bungart. It is only specified that it must involve direct or indirect financing. As a reference, Bungart uses other laws, such as the German Investment Code, which lawyers frequently work with. „All definitions share the common requirement that they must somehow be beneficial to public service or the common good“, says Bungart.

For investors, the room for interpretation offers a certain level of creativity. For example, if the equity participation quota reaches its limit due to numerous private equity investments, investors can examine whether one or more of these investments could be reclassified as infrastructure deals to comply with the new quota.

However, Bungart notes that there is not complete freedom of categorisation, which is a matter of interpretation. But, to date, she has not encountered a situation where an investor had to justify a quota allocation to a regulatory authority.