Preliminary Remarks

The remuneration system established by the Management Board applies to all employees and executives of d.i.i. Investment GmbH (hereinafter “the Company”).

The remuneration system is consistent with the Company’s business strategy and with the remuneration practice pursuant to Art. 37, German Capital Investment Act (KAGB), and the ESMA Guidelines for a sound remuneration policy.

The remuneration system is meant to enhance the administration of the investment funds for the benefit of the investors while avoiding conflicts of interest.
In particular, the remuneration system is based upon a sound and effective risk management system, and enhances it by ruling out incentives for entering into risks that are inconsistent with the risk profile, the investment rules and the partnership agreements of the managed AIFs.

This guideline applies to all organisational entities of d.i.i. Investment GmbH.

The guideline has been adopted via resolution by the Management Board of d.i.i. Investment GmbH. Each amendment and supplement requires the explicit written consent by the Management Board.

The latest version of the remuneration guideline, which is Version 2.0, is effective as of 01/11/2019.

Definitions

AIF:Alternative Investment Fund
AIFM:Alternative Investment Fund Manager
ESMA:European Securities and Market Authority
Identifizierte Mitarbeiter:Kategorien von Mitarbeitern, einschließlich der Führungskräfte, Risiko-
träger, und Mitarbeiter mit Kontrollfunktionen und aller Mitarbeiter, die eine Gesamtvergütung Categories of employees, including executives, risk bearers, employees in controlling functions and all employees who receive a total remuneration that puts them on a level with executives and risk bearers whose professional activity seriously impacts the risk profiles of the AIFM or impacts the risk profiles of the AIFs under their management, and categories of employees of entities to which the portfolio management and risk management activities of the AIFM were delegated and whose professional activities materially impact the risk profiles of the AIFs under the management of the AIFM.
Instruments:Shares in the AIFs managed by the AIFM or equivalent equity interests (including—in the case of AIFs that only issue shares—instruments linked to shares), depending on the legal structure of the respective AIFs and their terms or articles of association, or instruments linked to shares or equivalent non-cash instruments.
Control functions:Employees (not including executives) who are responsible for the risk management, compliance, internal control and similar tasks in a financial institute (e.g. the chief financial officer [CFO] if he or she is responsible for compiling the annual financial statements).
Vesting period:The period during which the variable remuneration already acquired and paid out in the form of instruments cannot be sold.

Overall Responsibility of the Management Board for the Remuneration System

Part of the Management Board’s responsibility is to define the remuneration principles and to ensure their application. As a corporate management tool, the remuneration system focuses on achieving the objectives set forth in the business strategy.
The Management Board strives to establish a sound and prudent remuneration policy while eliminating ways to bypass it through abusive circumvention. The remuneration system is structured so as to offer no incentives to executives or employees to enter into disproportionate risks.

An integral component of our remuneration system is to ensure a performance-based remuneration. Therefore, the total compensation generally includes fixed and variable compensation elements, where applicable, as well as possible fringe benefits for some employees.

Fixed and variable remuneration are in reasonable proportion to each other.

The fixed remuneration is adequate to reward the professional services provided fairly and in proportion to the function performed, to the market conditions and to a given employee’s qualification and skill set. The idea is to ensure that employee efforts on behalf of the Company are not primarily motivated by a desire for variable remuneration.

The Management Board will periodically, but at least once a year and as events require, review the remuneration system.

Integrating the Supervisory Function

In its role as supervisory body, the Supervisory Board will be brought in on the process of amending the remuneration policy by the Management Board. The Supervisory Board watches over the implementation of the remuneration policy and is briefed periodically, but at least once a year and as events require whenever an amendment of the remuneration policy is to be ratified.

The Supervisory Board ensures within the framework of its supervisory function that the objectives of the remuneration policy are consistent with the regulatory requirements and with a sound business strategy of the Company, including compliance with general corporate governance principles, a fund administration in the best interest of the investors and commitment to the integrity of the market, and that conflicts of interest as a result of the remuneration policy are avoided. Moreover, the Supervisory Board ensures that the Company’s controlling functions (Risk Management, Compliance, Internal Audits) are properly integrated.

The remuneration of the senior executives is periodically reviewed by the Supervisory Board.

Identified Staff within the Meaning of the ESMA Guidelines

In accordance with the ESMA Remuneration Guidelines, the guidelines are applied to the AIFM and to their identified staff. The Company is therefore obliged to identify those of its employees who should be considered so-called identified staff. In addition to senior executives, these include employees whose activities have a major influence on the risk profile of the Company and the investment assets under its management (“risk bearers”) while also including employees with control functions.
Also considered identified staff are employees who are paid an overall remuneration, which puts them in the same income bracket as senior executives and risk bearers.
Definitive for the identification of relevant employees, aside from their position within the corporate hierarchy, is any activity in an area relevant for risk-bearers or in a control unit as well as any influence that employees may have on the Company’s risk profile. What had to be taken into account in this context is that, within the Company, final decisions regarding the acquisition or disposal of assets on behalf of the pools of investment assets as well as their management are made solely by senior executives.
The other staff have no material impact on the Company’s risk profile on their own. Rather, staff of this kind may only prepare the relevant decisions to be made by the Management Board.
Included among the identified staff are nonetheless those employees who, while not authorised to make decisions on their own, can have a material impact on the decision-making process.
For the same reason, meaning their potentially material impact, employees of controlling units also had to be identified.

 

Application of these criteria results in the identification of the following senior staff:

  • Director
  • Head of Product Design
  • Head of Property Acquisitions, Fond Management, Property Portfolio Management
  • Head of Risk Management
  • Head of Sales

 

Staff working in the following business units are considered employees in control functions:

  • Risk Management
  • Compliance
  • Internal Audits

 

In addition, d.i.i. Deutsche Invest GmbH contracts services for its business units Asset Management, Construction Project Management, Human Resources and IT from d.i.i. Deutsche Invest Immobilien GmbH, and outsourced accounting / fund accounting to d.i.i. Deutsche Invest Immobilien GmbH. Within the framework of contracting services or outsourcing functions, the employees of d.i.i. Deutsche Invest Immobilien GmbH have no autonomous material influence on the risk profile of d.i.i. Investment GmbH or on the AIFs under its management because all decisions influencing the risk profile are made by d.i.i. Investment GmbH.

There are no other employees designated as identified staff by virtue of their functional position.

Remuneration System

d.i.i. Investment GmbH is not tied to any collective wage agreement. In principle, employee remunerations are freely negotiated and contractually agreed, consisting of a fixed basic salary (cash payments without taking performance criteria into account) and in some cases of a variable remuneration component (additional cash payments and benefits that may be granted on the basis of performance criteria or, in certain cases, of other contractual criteria).

The remuneration system presupposes a sound and effective risk management system, and promotes it by ruling out incentives for entering into risks that are inconsistent with the risk profile, the investment rules, the articles of association and the partnership agreements of the managed AIFs. The aim is therefore to align the remuneration policy with the Company’s business model, its sustainable performance, and its risk structure.

Accordingly, the following guidance applies to the remuneration of employees:

Fixed Annual Salary

The basic salary is paid in 12 monthly instalments. The system of fixed annual salaries depends on the status of a given position or of the function exercised in line with market conditions. Relevant for the remuneration are the requirements for the qualification, and employee skills, among other factors. The remuneration rules are structured in such a manner that employees become in no way dependent on a variable remuneration, and this is particularly true for the fixed annual salary. The Company signs no work or employment contracts that include obligations to pay compensation to employees leaving the Company.

Variable Remuneration

The Company’s remuneration system is generally set up to pay employees a fixed annual salary only.

For certain qualifying employees, a variable remuneration component may be granted by the Management Board in recognition of risk-adjusted outperformance either of the Company or of business units or else in recognition of the personal performance of a given employee.

The Management Board follows a set routine to determine the variable remuneration component during the first quarter of a calendar year, to be paid out together with the regular remuneration of subsequent months. That said, variable remuneration components will principally be disbursed only if the short- and medium-term risk situation permits doing so.

A variable remuneration in the form of instruments whose purpose is to make it easier to bypass the requirements of the AIFMD Guideline are not paid out.

A guaranteed variable remuneration will only be paid in exceptional cases in connection with the hiring of new employees, and even this is limited to the first year.

In connection with the early termination of contracts, the Company pays no rewards for failure.

Variable remuneration paid out to employees in control functions, if earmarked for any employees of this type, should represent only a small fraction of their total remuneration. On top of that, personal performance targets should be agreed for relevant employees in control functions in order to avoid dependencies and conflicts of interest involving the performance of the units to be controlled.

The employment contracts of the managing directors specify both fixed and variable components, with the variable components pegged to the performance of the Company and generally limited to 30% of their total remuneration. The amount of remuneration is defined by the powers, tasks, professional know-how and responsibilities of the managing directors. The actual amounts disbursed are defined within the framework of the management assessment between Management Board and Supervisory Board.

The assessment will focus particularly on the Company’s success and the performance of the respective managing director in the current and previous year, the current risk situation and the corporate planning for the coming years. In other words, the analysis and appraisal will consider the performance of several years.

The Company’s managing directors are prohibited from entering into personal hedging strategies or from taking out remuneration- and liability-related insurance policies that undermine the focus on a person’s risk-behaviour as prescribed in the remuneration rules.

Benefits

The Company offers its employees a variety of incentives and benefits. These include, inter alia, continued professional development and fitness offers, enrolment in the company pension scheme, free business travel passes and protecting employees through a group accident insurance.

In addition, selected employees, specifically the managing directors and certain employees in senior roles, are granted the use of company cars. This option does not extend to all of the Company’s employees.

For the purpose of adjusting a fixed salary and the specific amount of a variable remuneration, the Management Board applies the criteria of the respective employee’s performance, the risk-adjusted success of the Company and its business units, among other criteria.

The remuneration policy is consistent with a sound and effective risk management and discourages risk-taking.

Non-Application of Certain Requirements according to the Principle of Proportionality

Pursuant to Art. VII.I, No. 26, ESMA Guidelines, the principle of proportionality may be cited to rationalise the failure to apply a selected few of its requirements. It vindicates the non-application to all identified staff.

Non-application is limited to the following requirements:

  • Variable remuneration in the form of instruments
  • Vesting period
  • Deferment
  • Ex-post consideration of risk in variable remuneration

The differing risk profiles and attributes of the AIFM justify a proportionate implementation of the remuneration principles. The criteria to be taken into account in this context include those relevant to the application of proportionality, the size of the AIFM and the AIFs it manages, the internal organisation, and the nature, scale and complexity of its business transactions.

With regard to d.i.i. Investment GmbH, certain criteria have been identified that warrant the application of the principle of proportionality, and these are explained below:

Company

  1. Size
    With currently 17 FTEs (Management Board included), d.i.i. Investment GmbH is a small company whose structures are manageable, transparent and not comparable to those of listed companies. Moreover, d.i.i. Investment GmbH is of no systemic relevance for the financial market.

    It conducts only business transactions permitted by its business license.

    For the AIFs under its management, d.i.i. Investment GmbH invests in Germany’s residential property market. At the moment, it neither manages nor markets any cross-border AIF. This has resulted in a considerable risk reduction.

    Sales currently target professional and semi-professional investors only.

  2. Internal Organisation
    Services that d.i.i. Investment GmbH provides in-house include the property portfolio management, the risk management, sales and compliance while relying on parent company d.i.i. Invest Immobilien GmbH for other services within the framework of an optimised value chain.
    Against the background of the long-term experience of both companies in the management of real estate assets, the standardised and optimised processes contribute to a functioning and reliable workflow organisation as well.

  3. Type, Scope and Complexity of the Business Transactions
    The managed investment funds are primarily invested in residential real estate in Germany. There are no investments in high-risk types of use such as commercial real estate.

    The investment target market—this being the German real estate market—is highly regulated and transparent.

    The AIFs pursue a well-balanced debt finance strategy and refrain from complex investments in securities.

    All things considered, d.i.i. Investment GmbH manages a small to midsize volume of assets and, judging by the size of its workforce, the complexity of its business and the risk profile of each AIF and the fact that these AIFs target exclusively residential real estate in Germany, acts primarily as manager of a low-risk and manageable portfolio.

Employees:
A look at the internal organisation and the complexity of the Company’s business transactions clearly shows that the introduction of a complex remuneration system at d.i.i. Investment GmbH would be disproportionate. The same is true for its human resources and workflow organisation. Without the involvement of the Management Board, individual employees have no way to wield significant influence over the risk profile of the AIFM or the AIFs under its management.

Internal competency and approval regulations (application of at least the 4-eyes principle or even the 8-eyes principle) help to ensure that employees can only collectively process and approve essential business transactions.

Due to the aforementioned characteristics, the Company has chosen not to apply certain requirements to the identified staff for reasons of proportionality.

Accordingly, the requirements relating to the disbursement of variable remuneration in the form of instruments, the introduction of a vesting period, the deferral and ex-post consideration of the risk in variable remuneration are not applied to the identified staff.

Remuneration Committee

Pursuant to the ESMA Remuneration Guidelines, setting up a remuneration committee is not required for companies whose AIF portfolio assets under management add up to less than 1.25 billion euros and whose workforce consists of less than 50 employees.

Since the Company consists of far fewer than 50 employees and since the total value (NAV) of the AIF portfolios assets under its management approximated 230 million euros according to the annual financial statements as of year-end 2018, thus remaining well below the sum of 1.25 billion euros, the Company has refrained from setting up a remuneration committee.

Periodic Reviews

The Management Board will periodically, but at least once a year and as events require, review the remuneration system. The Supervisory Board becomes involved in the review whenever an amendment of the remuneration policy is to be ratified.

The review is to focus on the adequacy of the remuneration system against the background of the size and internal organisation of the Company and on the type, scope and complexity of its business activities. Subject to review is specifically the need to set up a remuneration committee.

Other, event-related aspects may also be considered, such as the impact of the remuneration policy (e. g. fixed annual salary) on employee fluctuation and motivation, and evidence of attempts to bypass the remuneration guidance.

If, from the perspective of the Management Board and the Supervisory Board, the remuneration principles need to be revised, the revision will also cover the risk management function, the compliance function and the internal audit system. While e. g. the influence of the risk profile of the AIFM plays a role for the Risk Management, and while e. g. the influence on the adherence to statutory and internal requirements matters to Compliance, the Internal Audits unit applies the experiences it gains from its regular, independent auditing to facilitate the implementation and boost the effectiveness of the remuneration policy.

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