Fund Risk Limitation Act: Conflict of Interest Directive for Service and Master AIFMs – and the interests of investors are already protected?

In future, investment management companies (KVG) that set up or manage funds on the initiative of third parties will have to explain to BaFin in detail how they identify, prevent, manage and disclose conflicts of interest.

That sounds like progress – and formally it is.
Only: Do policies really address the root causes of conflicts of interest? Or are they not deeper – in the business models and their incentive and power relations?

The draft bill for the FoRiBeG is in line with a system convergence of AIFMs to credit institutions (see also the column of 15 August 2025).
In particular, it tightens the duties of conduct and organisation by adding a new paragraph 4a to the general provision of § 27 KAGB.

This is intended to provide a legal basis for a widespread use case in industry:
If a KVG sets up a fund on the initiative of a third party , it will in future document the steps it takes to identify, manage, monitor and, if necessary, disclose conflicts of interest. According to the explanatory memorandum, this serves to implement the revised AIFMD and UCITS requirements.

Formally, therefore, a manual against conflicts of interest.
But: Can a structural problem be solved with manuals?

In the fund industry, which is strongly organised according to the principles of economies of scale, so-called platform AIFMs have become established.
Roughly speaking, two subtypes can be distinguished:

• Service KVG
  • Originates from the securities business (private label funds) and was adapted to the real estate sector following regulatory and administrative supervisory developments in the mid-2000s,
  • the initiator (asset manager) brings the idea, sales and management,
  • the Platform KVG provides the authorisation, administration, risk management and regulatory framework,
  • it is supposed to supervise formally, but is economically dependent on the initiator.
  • → A classic principal-agent problem: The "agent" (KVG) controls the "principal" (initiator), as is also the case with custodians.
• Master KVG
  • is typically initiated by institutional investors themselves,
  • the asset manager is not the initiator, but the service provider ("operator") on the extended workbench of the investors,
  • organizationally similar, but with a different constellation of interests.

These models based on the division of labour make economic sense and are established in industry –
but they harbor inherent conflicts of interest that cannot simply be ignored.

Of course, it makes sense to make conflicts of interest transparent.
However, more paper does not automatically lead to more power for investors.

The supervisory authority can check guidelines, but hardly reconstruct who actually influenced individual decisions.
From an investor's perspective, therefore, business models and their incentive structures should be understood and critically questioned rather than manuals.

Even though platform AIFMs are formally obliged to investors as trustees, there is room for interpretation in the exercise of this trusteeship — and these are much more influenced by the business model than by compliance guidelines.

Three thematic examples:

• Assessment
  Who shapes the fund's valuation policy and effectively controls the evaluators, including the valuation process?
  This is not only relevant for NAVs, but also for transaction prices and remuneration mechanisms.
• Independence
  from asset managersDoes the platform give investors reliable performance promises?
  Who maintains data sovereignty to ensure continuity in the event of a (forced) change of manager?
• Exit
  Are there hurdles that make it difficult for investors to leave the fund cleanly?
  The exit must already be secured in the fund contract at the time of subscription – after that it is often too late.

• Conflicts of interest in service and master KVG structures cannot be "managed away" by guidelines alone – because they are inherent in the business model itself .
• More relevant than compliance folders are the underlying legal constructs between investors and AIFMs.
• On the positive side, the end of the last real estate cycle shows that many institutional investors now have the necessary prior education to classify the different interests of platform AIFMs in a differentiated way.

📝 In short, guidelines do not protect investor interests –
but only a clear view of business models, incentives and power relations.