BRAZIL Law and Practice Contributed by: Ihury Bastos Pereira Darmont, Filipe Starzynski, Karyn Yoshisaki, Ariel Goldstein and Artur Marangoni Cabral Fagundes, Darmont Advogados
2.6 Non-Traditional Assets In Brazil, the possibility of investing in non-traditional assets depends on the type of the fund and the instru - ment used to carry the exposure. Financial Investment Funds may invest in digital assets (cryptocurrencies), provided that the exposure occurs through assets traded on entities authorised by the Central Bank of Brazil or the CVM, or, in the case of foreign transactions, by a local supervisor with legal authority to supervise and oversee the transactions carried out. Investment limits may vary depending on the fund’s target audience. For consumer credit and other loan portfolios, the best option is investment through Credit Rights Invest - ment Funds, which acquires credit rights (performed or non-standardised receivables, depending on the investment policy and target audience of the vehicle). Non-standardised receivables, such as court orders ( precatórios ) or litigation receivables, are generally intended for professional investor funds, with specific exceptions provided for in the applicable legislation. Investments related to cannabis may be and usually are made indirectly, through exchange-traded funds, Brazilian Depositary Receipts, or vehicles abroad under equivalent supervision, in compliance with for - eign investment/exchange-traded funds rules. 2.7 Use of Subsidiaries for Investment Purposes It is relatively common for investment funds in Bra - zil to use subsidiaries or dedicated vehicles such as specific purpose entities and/or holding companies to implement specific strategies. In short, such sub - sidiaries and dedicated vehicles are normally used because they increase legal certainty, structural flexi - bility, and the feasibility of investment strategies, while preserving the segregation of assets and governance of the fund. 2.8 Local/Presence Requirements for Funds The management of securities portfolios in Brazil, including investment funds, requires the involvement of service providers authorised by the CVM, namely a fiduciary administrator, responsible for performing the acts necessary for the administration of the invest -
Furthermore, other types of funds, such as Real Estate Investment Funds and Investment Funds for Agroin - dustrial Production Chains, have specific tax rates, as well as tax relief for their investors. Financial investments made by non-resident investors in investment funds generally benefit. 2.5 Loan Origination Generally, the fiduciary administrator and the invest - ment fund manager, on behalf of the fund, are pro - hibited from contracting or granting loans, without prejudice to the manager being able to borrow and lend financial assets of the fund, provided that such loan transactions are conducted exclusively through a service authorised by the Central Bank of Brazil or the CVM. Notwithstanding the above and depending on the type of fund and if its bylaws permit, funds may contract loans, for example, to cover the default of quota hold - ers who fail to pay their subscribed quotas or to cover the fund’s negative net worth, as applicable. In the case of Private Equity and Venture Capital Investment Funds, there is no credit granting per se. Still, this type of fund invests in companies, whether through equity, debt, or other financial instruments, to profit from their development and appreciation. As a form of investment in such companies, it may use, among other instruments, convertible loans, which may be converted into equity interests in the referred company. Although they cannot grant loans directly, Credit Rights Investment Funds are important instruments for granting credit, especially for micro, small, and medium-sized companies, which have greater diffi - culty accessing credit on adequate terms to finance their working capital. In this sense, the Credit Rights Investment Funds functions as an investment vehi - cle that acquires the credit rights of such companies, such as sales receivables. In other words, the com - pany that has these receivables can sell them to the fund, receiving cash in advance (at a discount).
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