BRAZIL Trends and Developments Contributed by: Ana Carolina Nomura and Flávio B. Lugão, Mattos Filho
Structured credit: navigating fiscal and regulatory uncertainty If regulation provided a source of clarity, taxation provided the opposite. Structured credit channelled through collateralised receivables funds (FIDCs) faced significant turbulence in 2025 due to fiscal policy shifts, particularly the repeated changes to the IOF (tax on financial transactions). Although FIDCs grew by about 40% during 2024 and early 2025, the inconsistent treatment of IOF not only affected expected returns but also created legal ambi - guities that forced managers and originators to rede - sign established vehicles. The industry’s response was twofold. On the one hand, there was a shift toward more conservative structures, with greater emphasis on transparency, risk segrega - tion, and predictability of cash flows. On the other, there was an acceleration in the demand for legal and tax expertise to craft solutions that minimised con - tingent liabilities. Managers became more attuned to aligning their structures with investor concerns, espe - cially those of institutional investors who prioritised regulatory clarity over marginally higher yields. This adaptability reinforced Brazil’s role as a regional benchmark in structured credit, where innovation often emerges in response to fiscal and regulatory volatility. Credit funds as engines for structured leverage In an environment where traditional bank credit remained restricted and costly, credit funds played an increasingly central role in providing structured leverage. The ability of funds to combine senior and subordinated share classes proved particularly effec - tive in creating scalable capital structures that could match diverse investor risk appetites. These models were not limited to vanilla credit opera - tions. They supported leveraged buyouts, bridge-to- exit financing for illiquid assets, and liability restruc - turings for mid-sized companies excluded from direct access to capital markets. The mechanism typically involved senior shares with defined maturities and returns, complemented by subordinated shares that absorbed residual risks, and has been seen as a struc -
• New flexibilities and modernisation of investment scope – including the opening of FIPs to retail investors; the possibility of greater freedom to invest in limited liability companies and use lever - age through derivatives; a broader international exposure, as qualified investor FIPs will be per - mitted to allocate up to 100% of their resources abroad; and the possibility of FIPs to invest up to 100% in non-convertible debt, making them the most suitable to become the best vehicle for pri - vate lending. Together, these measures significantly expand the potential investor base and provide managers with a more versatile toolbox to structure vehicles in line with global practices and enhance returns. • Eliminating the requirement of significant influence in the management of portfolio companies – gov - ernance terms will now be defined in each fund’s by-laws, providing managers with greater flexibility in shaping involvement with the portfolio compa - nies. Although some degree of flexibility already exists in practice, the current rule is not sufficiently clear, which has led certain administrators to resist non-traditional forms of participation commonly associated with startups and early-stage compa - nies, such as mentorship, strategic networking, or reduced governance rights as successive funding rounds dilute earlier investors. • More flexible asset valuation criteria, allowing funds to adapt methodologies to the nature of their portfolios. This innovation is particularly relevant for the venture capital ecosystem, where traditional valuation metrics often fail to capture the realities of startups and early-stage companies. By clarify - ing that managers have the freedom to apply more suitable, non-traditional valuation approaches, the regulation can significantly improve the credibility and functionality of VC-focused FIPs. Together, these reforms have the potential to posi - tion Brazilian private equity and venture capital funds at the forefront of regulatory innovation, while also fostering greater alignment with international practic - es. The regulator’s willingness to modernise the FIP framework demonstrates a clear intent to respond to the evolving needs of both local and global investors, enhancing Brazil’s appeal as a competitive jurisdiction for alternative investment structures.
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