CAPITAL MARKETS IN BRAZIL

Brazil's capital markets are the largest and most dynamic in Latin America, known for their robust trading volumes and diverse investment options. With over 400 companies listed and nearly 20 million individual investors active in the stock exchange, these markets have experienced remarkable growth in recent years. This expansion has been driven by structural reforms, modernization of financial infrastructure, and increased participation from both domestic and international investors.

Investors in Brazil have access to a broad range of financial products, from traditional equities and bonds to sophisticated instruments like ETFs, structured products, and ESG-focused opportunities. This diversity allows investors to tailor their strategies to different risk profiles and market conditions.

On the global stage, Brazil's fund industry ranks as the fourth largest worldwide, according to IOSCO. With assets under management (AuM) totaling approximately USD 1.7 trillion, the sector represents 77% of Brazil's GDP and accounts for 43% of the country's public debt. The market is supported by a well-established infrastructure, including over 100 fiduciary administrators and more than 1,000 asset managers.

Resolution 175: A Game-Changer for Brazilian Funds

With more than 31,000 investment funds available, Resolution 175, introduced by Brazil's Securities and Exchange Commission (CVM), has further enhanced the country's regulatory environment. This new framework represents a significant update to the regulatory framework of investment funds, replacing multiple older rules with a more unified, modernized set of regulations aimed at improving clarity, transparency, and efficiency in the Brazilian investment market.

More than that, it positions Brazil as a key destination for global capital in Latin America, provides more opportunities for global investments from Brazilian investors, and aligns local markets with international standards.

Here are the highlights:

Consolidation of Rules:

The resolution unifies multiple existing regulations into a single framework, simplifying the regulatory environment for investment funds in Brazil.

Multi-Class Structure

Investment funds will operate as a "shell," containing various share classes and subclasses within them. The multi-class structure aims to increase the operational efficiency of the funds.

Overseas Investment

Funds can now invest up to 100% of their net worth overseas, provided they meet additional requirements of Resolution 175.

Responsibilities of Service Providers

The resolution introduces stricter governance standards, including clearer roles and responsibilities for fund managers and administrators. Besides that, fund managers gain the status of essential service providers, alongside administrators. They will share the primary responsibilities of the fund, that before was solely under the administrator.

Limited Liability for Investors

Investment funds can now have limited liability for investors, reducing the risks of unexpected contribution – with that, a new mechanism was implemented for investment funds: the insolvency. Before, if the assets under management (AuM) of an investment fund turned out to be negative, the investors were called to make new contributions to the investment fund to reverse the situation.

Insolvency

Classes with negative AuM can now declare insolvency, and it will not affect other classes within the fund as they have segregated AuM between them.

Compensation and Transparency

The management, administration, and maximum distribution fees of the fund will be disclosed separately, increasing transparency for the investor. Before, investment funds disclosed one unique compensation fee, without informing the value due to each activity.

ESG Funds and Green Assets

ESG funds now have specific identification requirements defined by the CVM – the regulator’s rule is aligned to what was already in place through the self-regulatory rules from ANBIMA. Additionally, decarbonization credits (CBIOs) and carbon credits have been equated as financial assets.

Portfolio Liquidity

Two liquidity management tools have been included in Resolution 175: the side pocket allows for the division of the portfolio into liquid and illiquid assets; the gate sets rules for specific redemption periods.

Credit Rights Investment Funds (FIDCs)

Credit Rights Investment Funds (FIDCs) can now be marketed to retail investors. Previously, they were only allowed for qualified and professional investors.

Cryptoassets

The new regulation equates digital assets as financial assets, provided they are traded on exchanges authorized in Brazil or abroad. The limit will be 10% of the net worth in retail funds.

Click here to read the full text of Resolution 175 in English.