30.1. Investment funds
Investment funds are created in order to allow the application of financial resources of its various participants in the financial market, through the establishment of a condominium, as a form of collective investment. Investment funds are created under their own regulation being divided into shares (quotas) that are equivalent to a fraction of its shareholders’ equity. In Brazil, all investment funds are subject to the Brazilian Securities and Exchange Commission (“CVM”) specific legislation rules, created in order to maintain national and global financial market compliance standards.
That way, the investor can purchase a certain number of shares (quotas) and, if the fund’s net equity increases over time, the value of the share will consequently increase, as well as the total amount available to the investor in case of share redemption.
There are two types of Investment funds in Brazil, open and closed funds. In the open funds, the entry of new shareholders through new investments in the fund is allowed, as well as the departure of shareholders through the sale of their quotas to the own fund. As for the closed funds, the entry and exit of participants cannot be made freely as well as allowed in the open funds, being possible to enter and exit after the fund-raising period only through the alienation (selling) or acquisition (buying) of pre-existing shares (quotas).
Despite the mandatory existence of an administrator, responsible for monitoring and administrating the fund, managing an investment fund is considered to be a collective task, since relevant decisions are often taken in periodic general assemblies, which allow the investment fund shareholders’ participation.
The above-mentioned aspect is particularly beneficial to small investors that can gather up in larger groups in order to increase negotiation power within the investment fund and the financial market itself through their resources concentration. Also, another advantage is that fund management and administration costs can be diluted among all its shareholders increasing profit margins.
However, it is important to emphasize that investment fund shareholders (investors) are always submitted to pre-established rules of its own regulations, as well as being obliged to delegate the management of their resources to a third part manager (administrator).
30.2. Structured Funds
As already mentioned, among all the existent investment fund categories, some are subject to specific rules edited by the Brazilian Securities and Exchange Commission (“CVM”). These are called structured funds.
Among the best-known types of structured funds there are real estate investment funds, receivables’ investment funds and private equity funds.
Real estate investment funds are intended to investors interested in applying their resources in assets on the real estate market, like property acquisition, real estate notes, certificate of real estate receivables, stocks of real estate sector companies, participation in others real estate funds, etc.
Regarding the receivables’ investment funds, also known as ‘FDICs’, 50% of the fund’s equity is destined to investment in credit rights, that are credits owned by other companies. For example, a company makes a sale, anticipating the (financial) resources of the sale to the investment fund, in exchange to a discount rate that remunerates its investors. From this moment on, the fund will have full responsibility regarding any risks of the receivables sold by the company.
Private equity funds, also known as ‘FIPs’, perform resource investments on companies in development, through the participation in open or closed companies or even limited liability companies. That way, the fund starts participating in the decision process of those companies, since the private equity funds’ primarily goal is to develop and expand the invested companies’ business, being necessary that the fund is managed by a professional administrator, due to the active participation in strategic politics and the management of the companies. According to existent legal regulation, 90% of the equity of these kinds of funds needs to be invested on stocks, simple debentures, subscription bonus or other securities values convertible in stocks (companies) or participation (limited societies).
Debentures are debt’s instruments emitted by joint-stock companies, that transfer to the holder credit rights against the issuer company.
Debentures are meant to raise funds in the capital market for companies interested in financing their projects or managing their debts. The resources captured by the company through the distribution of debentures can have different uses: investments in new facilities, improvement of the company’s debt profile rating, financing of working capital, among others.
When acquiring debentures, the investor does not become a shareholder of the invested company. In fact, the debenture’s holder is actually lending money to the company, which commits to return back the borrowed resources with interest, according to deadlines and conditions previously adjusted in the issuance debenture deed.
Such issuance deed must have the intervention of a “fiduciary agent” from the debenture’s holders, that may be an individual who meets the requirements for the post in the company’s administration division, or in a financial institution specialized in the administration or custody of third-part assets.
The fiduciary agent represents the bondholders’ interests, verifying the compliance of the conditions agreed in the deed issued, besides being responsible for the elaboration of follow-up reports.
30.4. Equity Crowdfunding
Equity Crowdfunding is the form of crowdfunding in which investors receive shares of the company in exchange to their investment, being most of the processes and investments made online. Two of the main types of capital crowdfunding were shaped by the market: (i) by companies and by (ii) investors. “CVM” instruction no. 588/17 regulates the public offering of securities issued by small companies and allows the exemption of registration through an electronic cooperative investment’s platform.
Author: Alberto Itiro, Julia Mahler and Rodrigo Lazaro
FCR Law / Fleury, Coimbra & Rhomberg Advogados
Rua do Rócio, 350 – 10º andar
Tel.:(11) 3294 1600
E-mail: [email protected]