BRAZIL Law and Practice Contributed by: Guilherme Bueno Malouf, Luciana Costa Engelberg, Bruna Marrara and Thales Saito, Machado Meyer Advogados
Retail funds are regulated mainly by CVM Reso - lution 175 Normative Annex I of CVM Resolution 175 (called FIFs) and are classified as follows. • Fixed Income Fund: the main risk factor for the portfolio of such fund must be the vari - ation of the interest rate, the price index, or both. Such funds must have at least 80% of their portfolio in assets directly related, or synthesised via derivatives, to the risk factor that names this class of funds. In this catego - ry of funds, there is also the incentivised infra - structure fund aimed at investing in infrastruc - ture assets with an incentivised tax treatment pursuant to Federal Law No 12,431/2011. • Equity Fund: the main risk factor for the port - folio of such fund must be the variation of the prices of shares admitted for trading in the organised market. At least 67% of the equity fund’s net worth must be represented by: (a) shares admitted for trading in the organ - ised market; (b) warrants or subscription receipts and depositary certificates of shares admitted for trading in the organised market; (c) equity fund quotas and quotas of share- based index funds; and (d) Brazilian Depositary Receipts (BDR) clas - sified as level II and III (BDR-Shares and BDR-ETF Shares). • Foreign Exchange Fund: the main portfo - lio risk factor for such a fund must be the variation of foreign currency prices or the variation of the exchange rate coupon. Such funds must have at least 80% of their portfo - lio assets directly related, or synthesised via derivatives, to the risk factor that names this category of funds. • Multimarket Fund: such funds must have investment policies involving several risk fac - tors without the commitment to concentrate on any particular factor.
In addition, Normative Annex V of CVM Reso - lution 175 regulates exchange-traded funds (ETFs), which are retail funds formed as open- ended funds. ETFs’ quotas are required to be admitted for trading in stock exchanges or organised markets. Brazilian-formed ETFs may be backed by variable-income and fixed index - es, and at least 95% of their net equity must be invested in: • financial assets composing the index; • liquidity positions in future contracts, which shall be traded on a commodities and futures exchange and settled in clearing and settle - ment chambers and service providers that assume the position of central counterparty; and • quotas of other index funds that aim to reflect the variations and profitability of the investor ETF’s benchmark index. 3.1.2 Common Process for Setting Up Investment Funds The process for setting up the common struc - tures used for retail funds in Brazil is similar to the process for alternative investment funds; please see 2.1.2 Common Process for Setting Up Investment Funds . Retail funds are automatically registered with CVM when the requested set of documents is filed. 3.1.3 Limited Liability The rules regarding the limited liability of retail fund investors are the same as for alternative investment fund investors; please see 2.1.3 Lim- ited Liability . 3.1.4 Disclosure Requirements The disclosure requirements for retail funds are the same as provided for alternative investment
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