Compliance has a high priority at Deutsche Investment.
As an established company in the German real estate sector, we are aware of our responsibilities, especially in the area of compliance with laws and guidelines, contracts and voluntary codes. For each team member, from the management to our interns, value-based corporate management, oriented to the needs of our contractual partners, and integrity, diligence, honesty, openness, expertise and fairness at all levels are obligatory.
This is based on the fact that entrepreneurial success in real estate investment management is built on trust – the trust of investors, the trust of shareholders, the trust of contractual partners, the trust of tenants and the trust of the public. With the compliance management system of the Deutsche Investment Group, its code of conduct and the policies based on it (in particular the conflict of interest management, employee transactions, anti-money laundering and anti-corruption policies) and the established role of the compliance officer, who is available to our managers and employees at any time, our contractual partners can rely on the fact that legal and regulatory provisions are observed and their interests are safeguarded in the best possible way.
Various procedures have been set up in this context to limit any risk to a minimum and to enable the competent supervisory authority, the Federal Financial Supervisory Authority (BaFin), to exercise its powers effectively. This also includes effective and transparent procedures for appropriate and prompt handling of inquiries from our investors, shareholders, contractual partners, tenants and the public.
Best Execution Policy pursuant to section 168(7) of the German Investment Code (KAGB)
In accordance with the requirements of Section 168(7) of the German Investment Code (Kapitalanlagegesetzbuch - KAGB) in conjunction with Articles 27, 28 of Delegated Regulation (EU) No. 231/2013 (Level II Regulation), capital management companies are required to establish a Best Execution Policy and take appropriate measures to achieve the best possible trading results in the interests of their clients. In addition, the specific best execution regulations agreed for the alternative investment fund (AIF) must be observed. The Minimum Requirements for the Risk Management of Capital Management Companies (KAMaRisk) specify certain requirements of the Level II Regulation, which in turn are based on Directive 2011/61/EU (AIFM Directive), and certain provisions of the KAGB.
If there are no internal work instructions that have to be observed as a matter of priority, the best execution rules described below apply. Deutsche Investment Kapitalverwaltung AG (Deutsche Investment) has adopted principles for the execution of orders for financial instruments (trading orders) and other assets (securities). In particular, these concern
- Acquisition/disposal of assets
- Interest transactions (time deposits, bank accounts)
- FX transactions
- Forward exchange transactions
When Deutsche Investment executes trading decisions for the managed AIF as part of its portfolio management, it acts in the best interest of the AIF or the investors in the AIF it manages as part of its special duty of care.
In section 4.6 Fund management para. 10 of KAMaRisk, there are specific requirements for business transactions involving the AIF. Transactions for the AIF on terms that are not in line with the market are generally not permitted. Exceptions are only permitted in the case of transactions that are advantageous for the investor (e.g. transactions at advantageous prices in connection with the acquisition or sale of assets). In the case of special AIFs, transactions may exceptionally also be concluded under non-market conditions if the transaction is concluded with the consent of all investors, is objectively justified and documented.
The following applies in detail, taking into account Art. 27 of the Level II Regulation:
Purchases or sales of financial instruments or other assets for which best execution is important are made by Deutsche Investment on the best available terms, taking into account all information available at the time the order is placed. When deciding on the selection of counterparties and their execution of orders, the Company is guided by certain factors relevant to achieving the best possible result, including in particular:
- Order execution costs
- Speed of execution
- Probability of execution or settlement
These criteria are weighted differently depending on the type of financial instrument or asset and the trading order so that the counterparties involved can be selected. The relative importance of these factors is determined using the following criteria:
- The objectives, investment policy and specific risks of the managed AIF as set out in the marketing documents or, where applicable, in the investment terms and conditions
- Characteristics of the order
- Characteristics of the financial instruments or assets
- Characteristics of the execution venues to which the order can be forwarded.
In the case of loan prolongations, Deutsche Investment has the option of prolonging finance with the existing financial institution without having to issue a tender if this procedure is more advantageous for the AIF than retendering for finance. All costs incurred at the expense of the AIF, e.g. for registration of a land charge, must be taken into account.
Deviating placement in individual cases
Due to system failures or exceptional market conditions, it may be necessary in exceptional cases to place an order that deviates from this Best Execution Policy. Even under these circumstances, Deutsche Investment will do its utmost to achieve the best possible result for the client.
Documentation and control
Ongoing documentation of transactions takes place to demonstrate compliance with the order execution principles. For this purpose, Deutsche Investment maintains an order register. This ensures that each transaction relating to the managed AIF can be reconstructed in terms of origin, counterparty, type and time and place of conclusion, see Section 28(1) no. 6 KAGB.
Deutsche Investment regularly monitors order execution through appointed intermediaries. For this purpose, processed transactions are examined using random sampling to determine compliance with this Best Execution Policy. Any deficiencies are raised.
Guidelines for Awarding External Services
In addition to the Best Execution Policy, the management of Deutsche Investment has also issued Guidelines for Awarding External Services. The guidelines serve to implement objective regulations in line with the above principles, which must be observed when awarding external services.
The Best Execution Policy is reviewed by Deutsche Investment on a regular basis, at least once a year. A review also takes place if there is a material change in the market environment that may affect the achievement of the best possible outcomes under this policy.
Deutsche Investment is subject to regulatory requirements with regard to the design of its remuneration system and has issued a remuneration system for its managers and employees which is set out in its Remuneration Policy. The Remuneration Policy is intended to ensure that the performance of business managers and employees is remunerated appropriately and in line with the market, and to provide effective performance incentives. Misguided incentives that encourage excessive risk and are not compatible with the risk profile or the investment conditions should be avoided.
Deutsche Investment’s remuneration system comprises fixed and variable remuneration elements and monetary and non-monetary fringe benefits. Ranges and benchmarks set for total target remuneration ensure that there is no significant dependence on variable remuneration and that there is an appropriate ratio of variable to fixed remuneration. The applicable ranges and benchmarks vary depending on the level of remuneration and are regularly reviewed to ensure that they are appropriate and in line with market practice. In addition, consistent maximum caps apply to the total amount of variable remuneration for the various (groups of) employees.
The remuneration policy also takes account of sustainability factors from the environmental, social and corporate governance areas and thus serves to avoid sustainability risks. Deutsche Investment has defined sustainability criteria for the environment, social affairs and corporate governance at both the corporate and portfolio levels, each covering a broad spectrum. Criteria relevant to the environment include the consideration of ecological aspects when purchasing real estate; in the social area, a fixed quota of earnings is to be used for charitable purposes; and in the area of good corporate governance, high standards prevent corruption and bribery, among other things.
The company’s sales, from which in turn the remuneration is paid, are generated in compliance with these high sustainability targets, which means that the Remuneration Policy is already consistent with the inclusion of sustainability risks from the areas of environment, social affairs and corporate governance. In the future, the amount of variable remuneration is also to be made directly dependent on the achievement of specifically defined sustainability targets by providing for individual sustainability-related targets from the areas of environment, social affairs and corporate governance in the employees’ target agreements, each with a weighting to be defined in more detail each year.
Identification and differentiation with regard to risk bearers and non-risk bearers
Deutsche Investment’s remuneration systems differentiate according to whether the respective employee is a risk bearer or a non-risk bearer. The Company identifies risk bearers on the basis of the principles set out in Section 37(1) KAGB and Sections 19 to 22 of the ESMA Remuneration Guidelines. Based on this identification, the following (groups of) employees are classified as risk bearers:
- Business managers
- Authorized officers and general representatives of the company
- Head and – not only supporting – employees of the Sales department
- Head and – not only supporting – employees of the Investment Management department
- Head and – not only supporting – employees of the Fund and Asset Management department
- Head and – not only supporting – employees of the Risk Management department
- Heads and – not only supporting – employees of the administration (staff units and cross-divisional functions), in particular of the Legal, Organization, Human Resources, Internal Audit and Compliance departments
Deutsche Investment reclassifies employees as risk bearers or non-risk bearers whenever job descriptions are changed, new positions are created or legal requirements are amended, but at least once a year.
Remuneration of non-risk bearers and risk bearers
Non-risk bearers receive the following remuneration components:
- an appropriate fixed basic salary and
- variable remuneration that is not subject to ex-post risk adjustment and is paid immediately
Risk bearers receive the following remuneration components:
- an appropriate fixed basic salary and
- variable remuneration, 60% of which is paid immediately, the remaining 40% is paid in arrears in three equal annual installments and is subject to ex-post risk adjustment
Details regarding the variable remuneration
The variable remuneration is based overall on an assessment of both the performance and results of the employee concerned, their department and Deutsche Investment, and the risk associated with the respective activities.
The variable remuneration is determined in each case on the basis of performance and target achievement in a one-year accrual period. The variable remuneration is determined for each accrual period immediately after it.
The performance-related remuneration comprises the results-based targets of Deutsche Investment and the personal qualitative targets specified to assess the employee’s individual performance. Results-based targets and individual qualitative targets must be in an appropriate relationship to each other. However, as the scope of responsibility increases, the results-based targets may acquire an increasingly significant weighting in the determination of the variable remuneration. With regard to the results-based targets, it is necessary to define the contribution that the individual employee has to make to the strategic goals specified by Deutsche Investment. Both the results-based and personal qualitative targets must be subject to the direct influence of the employee and must be realistic, measurable and comprehensible.
The current variable remuneration of the employees is awarded by the department heads together with the Executive Board, those of the department heads by the Executive Board and those of the Executive Board by resolution of the Supervisory Board.
Applies only to risk bearers: The first 60% of the variable remuneration will be paid as a bonus discount immediately after the accrual period. The payment of the retained additional 40% of the variable remuneration is generally made in three installments of the same amount and at intervals of one year each, whereby an ex-post risk adjustment can be made with regard to the deferred installments if unrecognized risks are realized within this period when the variable remuneration is determined. However, these ex-post risk adjustments are usually made only to a limited extent, namely in the case of proven serious misconduct by the employee or a sharp decline in the financial performance of the company or the investment funds managed by it which is significant for payment of the relevant variable remuneration component.
The variable remuneration is paid in cash; Deutsche Investment does not pay any variable remuneration in the form of instruments.
Deutsche Investment has not established its own Remuneration Committee, applying the principle of proportionality.
Review of the remuneration system
The review of the remuneration system for appropriateness and compliance with all legal requirements is carried out on an occasional basis, but at least once a year by Deutsche Investment with reporting to the Supervisory Board.