BRAZIL Law and Practice Contributed by: Guilherme Bueno Malouf, Luciana Costa Engelberg, Bruna Marrara and Thales Saito, Machado Meyer Advogados
funds (FIPs), real estate funds (FIIs), agriculture investment funds (FIAGROs), among others. Brazilian investment funds are organised as a special condominium, in which financial assets are collectively owned by interest holders, known as “quotas”, under a co-ownership framework. The funds can be organised as open-ended con - dominiums (ie, allowing redemption of quotas during the fund’s duration) or closed-ended con - dominiums (prohibiting redemption of quotas until the end of the fund’s term or in the event of early liquidation). Alternative funds are generally set up as closed-ended condominiums. Pursuant to CVM Resolution 175, all funds are entitled to create different classes of quotas with different economic and political rights, as well as segregation of assets. Subclasses of quotas are also permitted and can be differentiated with respect to: • target public; • terms and conditions for investment, amorti - sation and redemption; and • administration, management, maximum distri - bution, entry and exit fees. Other economic rights and political rights per - taining to subclasses of restricted classes (ie, those exclusively targeted at qualified and professional investors) may be included in the fund’s by-laws. Private Equity Funds (FIPs) Currently regulated by CVM Resolution 175, FIPs are organised in the form of closed-ended condominiums restricted to qualified investors. FIPs are allowed to invest in shares, debentures, warrants and convertible debt securities issued by listed and unlisted companies. FIPs shall participate in the decision-making process of
invested companies and effectively influence the definition of their strategic policies and manage - ment (Influence Test). FIPs are classified into the following categories. • Seed Capital FIPs are allowed to invest in corporations or limited liability companies with gross revenue of up to BRL20 million in the fiscal year prior to the fund’s investment. • Emerging Companies FIPs are allowed to invest in corporations with gross revenue of up to BRL400 million in the fiscal year prior to the fund’s investment. • Infrastructure (FIP-IE) and Intensive Economic Production in Research, Development and Innovation (FIP-PD&I) FIPs are allowed to invest in corporations that develop new infra - structure or intensive economic production in research projects in the energy, transporta - tion, water and sanitation, irrigation sectors, and in other priority areas as determined by the federal government. According to Bra - zilian regulations, “new projects” are those implemented after 22 January 2007, includ - ing expansions of existing or implemented projects or projects in the process of imple - mentation, provided that the investments and results of the expansion are segregated through the establishment of a specific purpose company. Such funds shall have at least five quota holders, none of each being allowed to hold more than 40% of the fund’s quotas or to earn income exceeding 40% of its total income. • Multi-strategy FIPs are the most common form used in the Brazilian market and may invest in different types and sizes of compa - nies. A Multi-Strategy FIP targeted at profes - sional investors may invest up to 100% of its subscribed capital in foreign assets.
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