The Securities and Exchange Commission (CVM) published on May 31, 2023, CVM Resolution No. 184, which amends CVM Resolution No. 175 of December 23, 2022, with the particular purpose of including the awaited Appendixes regulating, among others, Real Estate Investment Funds (FII), Equity Investment Funds (FIP) and Market Index Investment Funds (ETF).
CVM Resolution No. 175 constitutes the new regulatory framework responsible for modernizing the investment fund industry in Brazil, and placing the country in a position closer to its international peers, as we detailed at that time.
Despite the innovations brought by CVM Resolution No. 184 to the different categories of funds, it is expected that the CVM will open public hearings over the next few months to debate with the market broader reforms to investment funds, especially real estate investment funds, and equity investment funds.
The Appendixes to CVM Resolution No. 175 deal individually with the category of funds, a classification that results from the investment policy of each one of them, except Pension Funds (as described in Appendix XI of CVM Resolution No. 184), which will choose the category in the act that constitutes it.
It is worth pointing out that CVM has also reserved Regulatory Appendix VI for the Agribusiness Productive Chain Investment Funds (FIAGRO), as created by Law No. 14,130, of March 29, 2021, and provisionally regulated by CVM Resolution No. 39, of July 13, 2021, and which will be the object of specific regulation still in 2023, as stated in the regulatory agenda published by CVM for the current fiscal year.
CVM Resolution No. 184 takes into effect on October 2, 2023, on the same date that CVM Resolution No. 175 also comes into effect.
The rule did not address other specific deadlines for the adaptation of the funds that are the object of the new Regulatory Appendixes in operation. That is why December 31, 2024 is the deadline for adaptation, according to the general rule contained in CVM Resolution No. 175, except FIDCs, whose deadline is April 1st, 2024.
Below, we list the main updates presented by CVM Resolution No. 184, didactically divided into two sectors: (i) specific changes to the general rule contained in CVM Resolution No. 175 and (ii) presentation of new Normative Appendixes:
Adjustments to CVM Resolution No. 175
- Class voting policy at meetings of security holders: Resolution No. 184 included as item III, to article 47 of Resolution No. 175 (which provides for the list of information that must be presented to shareholders), the duty to also disclose in the applicable channels, the class voting policy at securities meetings.
- Replacement of the term "socio-environmental" for "social, environmental or governance": Resolution No. 184 also changed the wording in the sole paragraph of article 49 of Resolution No. 175 by replacing the term "socio-environmental" for "social, environmental or governance", encompassing and modernizing the prohibition described in the aforementioned article.
- Inclusion of the Individual Programmed Retirement Funds - FAPI: The inclusion of subsection VIII next to Normative Appendix I that rules about the Financial Investment Funds (FIF), which will be dedicated to the Individual Programmed Retirement Funds (FAPI).
New Normative Appendixes:
Under Article 3 of CVM Resolution No. 184, the following ones were added as normative appendixes:
- Normative Appendix III: Real Estate Investment Funds (FII);
- Normative Appendix IV: Equity Investment Funds (FIP);
- Normative Appendix V: Market Index Investment Funds (ETF);
- Normative Appendix VII: Mutual Privatization Funds (FMP-FGTS);
- Normative Appendix VIII: Investment Funds in the Brazilian National Film Industry (FUNCINE);
- Normative Appendix IX: Incentive Share Mutual Funds (FMAI);
- Normative Appendix X: Cultural and Artistic Investment Funds (FICART);
- Normative Appendix XI: Pension Funds; and
- Normative Appendix XII: Investment Funds in Credit Rights Investment Funds under the Program to Encourage the Implementation of Projects of Social Interest (FIDC-PIPS).
It is worth noting that such Appendixes bring few substantial changes when compared to the wording of the previous rules – for example, we can cite the FII and FIP, which maintained provisions of previous rules, namely CVM Instruction No. 472, of October 31, 2008, and CVM Instruction No. 578, of August 20, 2016, respectively. This is explained because the new Appendixes have not yet been submitted to public consultations aiming at the exhaustive analysis of these topics with the market in general.
Find below the main changes introduced by the new Normative Appendixes introduced by CVM Resolution No. 184:
Real Estate Investment Funds - FII (Appendix III)
1. Flexibilization of the Administrator and Manager attributions
Appendix III, presented by CVM Resolution No. 184, made the duties of FII administrators and managers more flexible by providing that the administrator may appear as the fund's sole "essential service provider", encompassing in its duties both the fiduciary administration and the management of the portfolio, reaffirming that the responsibility for the management of the real estate assets of the portfolio is the exclusive responsibility of the administrator. According to the general rule outlined in CVM Resolution No. 175, the administrator has the power to perform all of the acts necessary to manage the fund portfolio, and in the FII the administrator will continue to be the principal agent and responsible for the choice of assets.
This theme was already a concern for the industry, since Law No. 8,668, of June 25, 1993, disposes of in its 5th article that the FIIs will be managed, exclusively, by "an administrating institution authorized by CVM", given the concerns about who will hold the fiduciary property of the portfolio and the communications of the assets, so that the 25th article of Appendix III, maintained the same concern addressed by Law No. 8,668, by keeping the same rationale of the rule, as follows:
|
Law No. 8,668 |
Appendix III |
|
Art. 5 - The Real Estate Investment Funds will be managed by a managing institution authorized by the Brazilian Securities and Exchange Commission (CVM), which must be, exclusively, multiple banks with an investment portfolio or a real estate credit portfolio, an investment bank, a real estate credit company, a brokerage house or a securities distribution company, or other entities legally equivalent to them. |
Art. 25 The administration of the fund is the exclusive responsibility of commercial banks, multiple banks with an investment portfolio or a real estate credit portfolio, investment banks, brokerage firms or brokerage houses or securities distributing companies, real estate credit companies, savings banks, and mortgage companies. |
This way, article 28, of Appendix III, made clear the possibility of the administrator being the only "essential service provider" of the FII, in such a way that the manager's duties contained in the general rule of CVM Resolution No. 175 (article 84 and following) may also be encompassed by the administrator.
2. Share buyback
Article 6 of Appendix III innovated by providing, albeit in a generic way, the rules for repurchasing quotas by real estate investment funds.
According to the new rule, repurchases aimed at the acquisition of part or all of the quotas of a quota class must obey the rules and operational procedures established by the managing entity of the organized market in which the quotas are admitted for trading.
Equity Investment Funds – FIP (Appendix IV)
1. Possibility of investment by convertible loan in equity
As expected by the industry, article 5, §7, establishes the understanding that the quota class may invest in target companies using "instruments that confer the right to acquire participation", among them the convertible loan in equity interests, or any other instruments or contractual arrangements that result in a capital contribution or debt, convertible or not. This is a relevant innovation brought about by the rule, given that in practice the use of mutual investment already occurred in some cases, despite there being no express regulatory reference in this regard.
2. Commercial Notes and exclusion of the limit of non-convertible debentures for FIP of the categories "Seed Capital", "Infrastructure" and "RD&I" (Intensive Economic Production in Research, Development, and Innovation)
The item I of Article 5 of the FIP Appendix expressly mentions the possibility of allocating resources in commercial notes in the list of eligible assets for the composition of the FIP portfolio, together with convertible loans and other credit arrangements. In other words, an important path is opened for the consolidation of an industry composed of the so-called private credit FIPs. Along these lines, the 33% limit on investment in non-convertible debentures for the Seed Capital, Infrastructure, and RD&I categories is also excluded.
3. Increasing the investment limit for foreign assets
The new rule established the increase to 33% (thirty-three percent) of the capital subscribed by FIP in assets abroad, modifying the percentage contained in the former CVM Instruction No. 578.
|
CVM Instruction No. 578 |
Appendix IV |
|
Art. 12. FIP may invest up to 20% (twenty percent) of its subscribed capital in assets abroad, provided such assets have the same economic nature as the assets referred to in Art. 5. |
Art. 12 - The share class may invest up to 33% (thirty-three percent) of its subscribed capital in assets abroad, as long as these assets have the same economic nature as the assets referred to in Art. 5 of this Normative Appendix IV.
|
4. Increasing revenue as a governance criterion for investments by Seed Capital FIP
Appendix IV also (i) has increased the maximum annual revenue of the companies in which "Seed Capital FIPs" may invest, as well as (ii) the maximum allowed revenue for the investee company's parent companies or group, as amended below:
|
CVM Instruction No. 578 |
Appendix IV |
|
Art. 15 - The companies or limited liability corporations invested by Seed Capital FIP:
I - must have annual gross revenue of up to R$ 16,000,000.00 (sixteen million reais) ascertained in the fiscal year ended in the year before the first contribution from the fund, without having presented revenue exceeding this limit in the last 3 (three) fiscal years; and
§3. The companies or limited liability companies referred to in the caput cannot be controlled, directly or indirectly, by a company or group of companies, in fact, in law, that presents total assets greater than R$ 80,000,000.00 (eighty million reais) or annual gross income greater than R$ 100,000,000.00 (one hundred million reais) at the end of the fiscal year immediately preceding the first contribution of the FIP. |
Art. 14 - The companies invested by the Seed Capital class:
I - must have annual gross revenue of up to R$ 20,000,000.00 (twenty million reais), ascertained in the fiscal year ended in the year before the first contribution of the class, without having presented revenue exceeding this limit in the last 3 (three) fiscal years; and
§3. The invested companies referred to in the caput cannot be controlled, directly or indirectly, by a company or group of companies, de facto or de jure, that presents more than one hundred million reais (R$ 100,000,000.00) or annual gross income higher than one hundred and fifty million reais (R$ 150,000,000.00) at the end of the fiscal year immediately preceding the first contribution of the class. |
5. Increasing turnover for investments by "Emerging Companies”
The maximum annual turnover of the companies in which the FIP Emerging Companies can invest is also increased, as well as the maximum turnover for the companies or controlling group of the funded company:
|
CVM Instruction No. 578 |
Appendix IV |
|
Art. 15 - The companies invested in the Emerging Companies class:
I - must have annual gross revenue of up to R$ 300,000,000.00 (three hundred million reais), ascertained in the fiscal year ended in the year before the first investment, without having presented revenue exceeding this limit in the last 3 (three) fiscal years […]. |
Art. 16 - The companies invested in the Emerging Companies FIP class:
I - must have annual gross revenue of up to R$ 400,000,000.00 (four hundred million reais), ascertained in the fiscal year ended in the year before the first investment, without having presented revenue exceeding this limit in the last 3 (three) fiscal years […]. |
6. Alteration of the initial deadline for counting the period of Investment Funds for Participation in Infrastructure and Intensive Economic Production in Research
The new rule also changed the initialization criteria of the 180 days for Investment Funds for Participation in Infrastructure (FIP-IE) and Intensive Economic Production in Research, Development, and Innovation (FIP PD&I) to start their activities and fit in the minimum investment level established, changing the initial deadline that previously started from the registration date with the CVM, and started to be counted from the date of the first payment of quotas:
|
CVM Instruction No. 578 |
Appendix IV |
|
§3 – FIP-IE and FIP-PD&I have a period of 180 (one hundred and eighty) days after obtaining the registration of their operations at the CVM to begin their activities and to comply with the minimum level of investment established in art. 11, observing the provisions in the caption. |
Art. 16 – § 3 The Infrastructure and PD&I share classes have a period of 180 (one hundred and eighty) days, counting from the date of the first payment of shares, to begin their activities and to fit into the minimum level of investment established in art. 11 of this Normative Appendix IV, also observing the provisions in the caption.
|
7. Alteration of the private role of the Assembly of FIP's Quota holders
The new rule has excluded the provision previously contained in item XI, of article 24 of CVM Instruction No. 578, excluding the exclusive duty of the Quota holders' Meeting to deliberate on (i) the rendering of surety, aval, acceptance, or any other form of co-obligation and real guarantees, on behalf of the fund – in case this possibility is already foreseen in the regulations; and on (ii) the Term of Duration of the Fund, as contained in item VII, of article 24 of CVM Instruction No. 578.
8. Freedom to allocate capital
Appendix IV also presented flexibilities in the terms referring to the framing of the portfolio in such a way that the term for the application of resources, as of each payment of quotas, should be determined by the Fund Regulation.
