What is a capital management company/asset management?

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Capital management companies (CMCs) are institutions that are authorised to manage investment funds in accordance with the Capital Investment Code (KAGB). Since July 2013 the new name has replaced the old term “Investment Company” (ICs). CMCss can manage domestic investment funds, but also EU investment funds and foreign AIFs (alternative investment funds). The capital management companies can be divided into two categories. The first type of CMC, known as “external”, is appointed by a mutual fund or on behalf of the mutual fund and, on the basis of this order, is responsible for managing investment assets. The second type of capital management company is called "internal", since this capital management company consists of the fund itself. It’s important that the legal form of the special fund gives internal administration and the board of directors the option of not appointing an external CMC. In this case, the fund can be approved as a CMC.

From that moment on, a properly constituted CMC is responsible for all measures resulting from portfolio management and risk monitoring of special assets. It makes all investment decisions and examines investment proposals. It is also responsible for ensuring effective risk control (e.g. stress tests) in accordance with specific regulations. A key aspect of CMCs is that risk management, as well as asset and portfolio management, must work strictly separately from one another. It’s also very important that the CMC must guarantee constant liquidity for its payment and repayment obligations towards the fund’s investors. As stipulated by BaFin, capital management companies must, among other things, provide evidence of at least EUR 300,000 or EUR 125,000 in initial capital, depending on the structure, in order to obtain a license.

As mentioned, a capital management company, or CMC, manages special funds, and the form of management involves investment funds for joint accounts of investors. However, there are also other forms of management, such as the UCITS capital management company (UGAW-CMC) and the AIF capital management company (AIF-CMC), which differ in the type of investment fund managed. UCITS are investment funds that invest in securities and liquid financial instruments (stocks, bonds, , money market papers, or mixed funds, as well as units in other UCITS, which are called “funds of funds”). UCITS units will be redeemed or paid out immediately at the request of the unit holders. AIFs differ from UCITS in that they invest in all other areas (e.g. in real estate, private equity or venture capital funds), or use other financial instruments (hedge funds). Another feature is that the fund does not consist of securities. The new provisions contained in the KAGB also apply to alternative investment funds.

BaFin oversees the capital management companies (CMCs) and the investment funds offered by the CMCs. As mentioned, the reference law is called the Capital Investment Code (KAGB). This law also clearly regulates all relevant remuneration systems. Capital management companies have two options for managing investment assets in Germany: either with their registered office and head office in Germany, which requires a permit or registration with BaFin; or via a branch within the framework of cross-border services (EU passport). If you want to sell shares or units of investment funds in Germany, you must first go through a distribution notification procedure at BaFin.

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