Find Lawyers in Germany for Investment Funds

Practice Area Overview

Investment funds are undertakings for joint investments in transferable securities (UCITS). They collect capital from a multiple number of investors and follow a predetermined investment strategy for the benefit of the investors’ capital. Thereby they provide a broader variety of investment opportunities, greater management expertise and lower investment fees than investors would be able to obtain on their own. 

All types of investment funds share some mutual characteristics: The capital is collected on a legally and economically autonomous level and each investor is awarded a corresponding number of shares or interest. The investors share the risks that accompany the purchase, holding and sale of assets and do not have any authority to decide or control the assets’ financial management. However, the scope of investment is considerably predetermined by the fund’s investment strategy. Investment funds can be broad-based on stock indexes or narrowly focused on specific geographic regions or industry sectors. The funds are overseen by a fund manager who carries out the day-to-day management and in return receives remuneration typically in form of an annual percentage taken directly out of the fund. 

Alternatives to the traditional undertakings for joint investments in transferable securities (UCITS) are qualified as alternative investment funds (AIFs). There is a wide range of products serving different purposes and investment strategies, such as venture capital funds, hedge funds, private equity funds or real estate funds. In recent years exchange traded funds (ETFs) have emerged as an alternative to actively managed funds. ETFs merely track the yield and return of indexes without trying to outperform them and as a result of their passive management incur fewer administrative costs. 

Investment funds can either appear as open-end or close-end funds. Open-end funds do not have a fixed capital and perpetually issue new shares or interest each time money is invested. Closed-end funds raise a prescribed amount of capital through an IPO by issuing a fixed number of shares or interest. They are tradable just like stocks, allowing their price to fluctuate above or below their real value.

In essence, investment funds allow investors to profit from a professional portfolio management, typically a low minimal investment and risk reduction through diversification, whilst on the other hand having rather high fund expense ratios. 

Christian Zuleger Sidley Austin

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