BRAZIL Law and Practice Contributed by: Guilherme Bueno Malouf, Luciana Costa Engelberg, Bruna Marrara and Thales Saito, Machado Meyer Advogados
funds; please see 2.1.4 Disclosure Require- ments . 3.2 Fund Investment 3.2.1 Types of Investors in Retail Funds Please see 1.1 State of the Market and 2.2.1 Types of Investors in Alternative Funds . 3.2.2 Legal Structures Used by Fund Managers Please see 3.1.1 Fund Structures for more infor- mation on the legal structures used by retail fund managers in Brazil. 3.2.3 Restrictions on Investors There is no legal requirement regarding the type of investor to which retail funds can be marketed in Brazil. 3.3 Regulatory Environment 3.3.1 Regulatory Regime Please see 3.1.1 Fund Structures for more infor- mation on the regulatory regime applicable to retail funds. Limitations on the Composition of the Portfolio A retail fund must invest its equity in financial assets that are registered in a registration sys - tem or that are the object of custody or a central deposit, in all cases with institutions duly author - ised to perform such activities by the Central Bank of Brazil or by CVM. This does not apply to open-ended investment fund quotas duly reg - istered with CVM. A retail fund may not invest in quotas of funds that hold an interest in such retail fund. Foreign assets FIFs are subject to the following concentration limits when investing in financial assets abroad:
• there are no limits for: (a) funds (or class of quota pursuant to CVM Resolution 175) classified as “Fixed Income – External Debt”; (b) funds (or class of quota pursuant to CVM Resolution 175) exclusively targeted at professional investors. • up to 40% of net equity for funds exclusively targeted at qualified investors; • up to 20% of net equity for funds targeted at the general public; and • investment is prohibited for fixed-income funds classified as “simple” (ie, those with 95% of the net equity invested in federal public debt securities, fixed-income securities issued by financial institutions or operations backed by federal public debt securities or by securities issued by institutions authorised). Under CVM Resolution 175, the limits applicable to classes of quotas targeted at qualified inves - tors may be exceeded if certain requirements are met. Limits per issuer The concentration limits per issuer for FIFs are as follows, according to the general rules: • up to 20% of the fund’s net equity when the issuer is a financial institution authorised to operate by the Central Bank of Brazil; • up to 10% of the fund’s net equity when the issuer is a publicly held company; • up to 5% of the fund’s net equity when the issuer is a natural person or a legal entity under private law that is not a publicly held company or financial institution authorised to operate by the Central Bank of Brazil; and • no limits when the issuer is the Federal Union, an investment fund or when the investment policy provides for the acquisition of assets of a single securities issuance.
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