Germany’s sub-threshold AIFM: a founder’s guide to light-touch regulation

Why sub-threshold registration matters for first-time fund managers

Launching a fund in Germany without a full AIFM licence is possible if your assets under management (AUM) stay below strict thresholds. For most emerging managers — especially in venture capital or private equity — this means operating under a sub-threshold AIFM registration. The alternative is a four-to-ten-month licensing process that demands infrastructure, capital and expertise most first-time managers lack.

The difference is operational, not just regulatory. Sub-threshold registration lets you start investing within weeks, not months, while still meeting BaFin’s core requirements. But the rules are tightening. If your portfolio appreciates, you could cross the EUR 500 million threshold under new fair market value (FMV) rules — and face a 30-day deadline to apply for full authorisation. This article explains how sub-threshold registration works, where it breaks down and what you need to do to stay compliant.

The two thresholds that define sub-threshold status

Under Germany’s KAGB (Kapitalanlagegesetzbuch), sub-threshold registration is available if your total AUM stays below one of two limits:

• EUR 500 million for funds without leverage and with a five-year lock-up on investor redemptions

• EUR 100 million for all other strategies, including leveraged funds

For a first-time venture or private equity fund, the EUR 500 million threshold is usually the relevant one. Most debut funds raise between EUR 10 million and EUR 100 million, leaving ample headroom. The key is to monitor your portfolio’s fair market value — not just acquisition cost — because that’s how BaFin will assess your status starting in 2026.

Example: when appreciation triggers a threshold breach

A fund invests EUR 50 million across its portfolio. Two years later, portfolio companies are valued at EUR 600 million. Under current rules (acquisition cost), the fund remains below the threshold. Under the new FMV rules, it exceeds EUR 500 million. The fund has 30 days to apply for full AIFM authorisation or risk operating illegally.

What registration actually looks like in practice

BaFin’s sub-threshold registration process is streamlined compared to full licensing. You submit a notification with details about the fund manager, the fund and the investment strategy. BaFin typically processes it in about four weeks. There are no formal hearings, no three-year business plan submissions and no mandatory initial capital requirement like the EUR 125,000 minimum for fully authorised external AIFMs.

Ongoing obligations are lighter too:

• No depositary bank requirement

• No full-time risk manager or compliance officer needed from day one

• No full AIFMD reporting regime

• Still required to report to BaFin and meet basic conduct rules

The difference in regulatory burden between registration and full authorisation is significant. For emerging managers focused on investing — not compliance — this is a major advantage.

What you still have to do as a sub-threshold AIFM

Light-touch regulation does not mean no regulation. Sub-threshold managers must:

• Register with BaFin and keep the registration current

• Report AUM periodically so BaFin can monitor threshold proximity

• Comply with the German Money Laundering Act (Geldwäschegesetz), including KYC for investors

• Maintain proper governance, books, records and auditable valuation and investor reporting processes

• Register in the Transparency Register for beneficial ownership reporting

Crucially, you must monitor the threshold continuously. If your AUM crosses the line, you have 30 days to apply for full authorisation. Planning ahead is essential.

The fund structure that works best with sub-threshold

registration

Nearly all sub-threshold fund managers in Germany use a GmbH & Co. KG structure. The GmbH acts as the general partner, providing limited liability, while the KG offers tax transparency. The fund manager entity — typically a separate GmbH — acts as the AIFM and registers with BaFin.

This structure was designed to align with sub-threshold registration. It’s simple, flexible and scalable. For first-time managers, it’s the most common and cost-effective way to launch a fund in Germany.

How semi-professional investors expand your fundraising options

Germany’s semi-professional investor category is a unique advantage. Unlike many EU jurisdictions, Germany allows wealthy individuals, family offices and foundations to invest in special AIFs managed by sub-threshold AIFMs, provided they commit at least EUR 200,000 and meet documentation requirements.

This widens your LP base without pushing you into the full authorisation regime reserved for retail fund distribution. For emerging managers targeting high-net-worth individuals or family offices, this category is a powerful tool.

The fair market value problem — and why it matters now

Under current rules, the EUR 500 million threshold is calculated using acquisition cost under German GAAP (HGB). For venture funds, this means portfolio companies are carried at purchase price, not current value. A fund with EUR 50 million invested but EUR 600 million in unrealised gains stays below the threshold.

This is about to change. The Draft Law to Limit the Risks Posed by Investment Funds (Fondsrisikobegrenzungsgesetz), published on 9 July 2025, will require managers to use fair market value for threshold calculations starting in 2026. This eliminates a regulatory grey area where funds with substantial unrealised gains operated without full supervision.

For emerging managers, the implication is clear: strong performance can trigger a threshold breach overnight. You must treat the threshold model as a live document, not a one-time projection. The day you cross the line is the day your 30-day clock starts.

What to do if your fund approaches the threshold

If your fund might approach the EUR 500 million threshold over its lifetime, you need to prepare in advance. The 30-day application deadline means you must have organisational infrastructure ready:

• Compliance framework

• Risk management policies

• Depositary relationship

• Potential senior hires

You have two main options:

• Apply proactively for full authorisation before crossing the threshold

• Appoint a third-party AIFM that already holds the licence

For managers expecting to raise much larger second or third funds, full authorisation may be the right long-term move. For those who want to stay focused on investing and keep their team small, an external AIFM can be cleaner.

How Germany’s sub-threshold regime compares to other EU

options

Germany’s sub-threshold regime is broadly similar to other EU jurisdictions under Article 3(2) of AIFMD, but a few differences stand out:

• Speed: BaFin registration takes about a month, faster than some other jurisdictions

• No strategy restriction: Unlike the UK’s RVECA regime, which locks you into venture capital, Germany’s sub-threshold works for any strategy — venture, buyout, credit or real estate

• Semi-professional investors: The EUR 200,000 middle category gives you more fundraising flexibility than most other EU jurisdictions

• Cross-border limitations: Sub-threshold managers do not get an AIFMD marketing passport. You can market domestically and to professional investors in other EU countries through national private placement regimes, but this requires country-by-country compliance

For managers whose Fund II might pivot, Germany’s flexibility is a major advantage.

What AIFMD II means for sub-threshold managers

Germany’s implementation of AIFMD II through the Fund Risk Limitation Act is expected in 2026. For sub-threshold managers, the most relevant change concerns loan origination. If your fund originates loans (not just equity investments), you will face additional organisational and risk management requirements even as a sub-threshold AIFM, unless your lending falls into specific exemptions for shareholder loans and equity-like mezzanine financing.

For a standard venture capital fund making equity investments, the impact should be minimal. But if your strategy includes debt or credit, plan for stricter compliance.

If you are planning a fund launch in Germany and want to talk through the registration process, get in touch.

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