Investment Funds and Structured Operations Newsletter – January 2024

The Investment Funds and Structured Operations Newsletter provides information on the main administrative acts, rules, and legal texts on the regulation of investment funds, asset management, and structured operations.

This material is for informative purposes only, and should not be used for decision-making.

Specific legal advice can be provided by our legal team.

The English version of the Investment Funds and Structured Operations Newsletter presents a summary of the Portuguese version, in which we highlight the news most relevant to our international clients. If you want to access a specific article that was not translated into the English version, please contact us. 

HIGHLIGHTS

CVM updates Volume 1 of the Sustainable CVM Guide – “The impact of your investments” 

On January 08, 2024, the Brazilian Securities and Exchange Commission (“CVM”) released the update of Volume 1 of the Educational Series “Sustainable Finance”, which is part of the Sustainable CVM Guide. The updates seek to simplify investor understanding, as well as to include examples of securities that can be structured by integrating environmental, social and governance objectives into their investment strategies.

In addition to these general updates, a specific chapter was created on greenwashing, a subject addressed in the CVM’s Sustainable Finance Policy, and which the guide describes as “behavior or activities that make people believe that the company is doing more to protect the environment than it really is.”

At this point, Brazil stands out for developing an official sustainable taxonomy, which will consist of a classification system that defines in an objective and scientifically-based way the activities, assets and categories of projects that contribute to sustainable objectives through specific criteria. These contribute to greater uniformity, comparability and reliability of financial instruments, functioning as an important tool for mitigating the risk of greenwashing.

For more information, access the Sustainable CVM Guide and the CVM article.

CVM conducts new study on the higher quorum for Real Estate Funds meetings

On January 31, 2024, the CVM released the Evaluation of Regulatory Results on meetings of Real Estate Investment Funds (“FII”) carried out by the Economic Analysis, Risk Management and Integrity Advisory (“ASA”).

The key objectives of the research were to:

1. 1. Verify that current higher quorum limits are able to achieve minority protection objectives and good governance of funds.
   2. Evaluate the results of the rules that establish what constitutes the higher quorum, so that shareholders’ meetings could deliberate on certain sensitive matters.
   3. Determine the evolution and dispersion of the voting power of the FII quota holders between the first research carried out in 2013 by the Superintendence of Institutional Investor Relations (“SIN”) and what is currently in place, as well as its effects on the capacity for deliberation in the general meetings.
   4. Provide contributions on the analysis of potential revaluation of the percentage of the higher quorum.

The current higher quorum rule for FIIs is established by Article 16 of Normative Annex III, of CVM Resolution No. 175, of December 23, 2022. The higher quorum for funds with up to 100 quota holders is reached with at least 50% of the voting capital, while in funds with more than 100 quota holders, this quorum is 25%.

In the evaluation, only funds aimed at investors in general and with at least 500 quota holders were analyzed. FII managers received a survey in which they had to list the general meetings with matters whose approval depended on a higher quorum, also indicating whether the quorum was reached or not. It was also necessary to send the number of quota holders needed to achieve different equity values in quotas for each fund under its management.

The result showed that between 2020 and 2022, 27% of the meetings did not reach the higher quorum for deliberation of certain matters. However, when analyzing only funds with more than 10 thousand quota holders, this percentage rises to 40%. Failure to achieve the higher quorum focuses on more sensitive matters, such as regulatory changes or approval of transactions with potential conflicts of interest.

Although it is not possible to state that the minimum percentages for the higher quorum are a regulatory problem, it is clear that the dispersion of FII quota holders results in two large groups: funds with up to 10 thousand quota holders and funds with more than 10 thousand quota holders.

Regarding the group of funds with up to 10 thousand quota holders, the study concluded that the current rules meet the objectives of protecting minority quota holders and good governance of funds. On the other hand, funds with more than 10 thousand quota holders require a much greater effort to approve deliberations, due to changes in the FII industry and the dispersion of the quota holders.

A simulation was also conducted, reducing the minimum limit from 25% to 15% of the voting capital required to reach the higher quorum. The result of the simulation was a reduction in the percentage of failure, from 40% to less than 10%, a value close to that planned for 2013, when the standard was established.

As such, Bruno Luna, head of ASA, states that it is valid to discuss the results of this study with the FII industry and that, in order to resume the effort required to reach the higher quorum in 2013, it will be necessary to make a regulatory change focused on the groups of funds with more than 10 thousand quota holders.

For more information, access the CVM article.

 CVM Superintendence of Securities Registration publishes guidance on the expiry of automatic registrations

On January 22, 2023, the Superintendence of Securities Registration (“SRE”) released CVM/SRE Circular Letter 1/2024, guiding coordinators on the expiry of public offering registrations.

This expiry was already provided for in Article 47 of CVM Resolution No. 160, of July 13, 2022, which also establishes in its Articles 4 and 96 that the distribution or sales effort with an expired registration constitutes a serious infraction.

In its Annex I, the Letter released a list of the various registrations of offerings that had already expired or would expire in the following ten days. The SRE also contacted the coordinators by email, requesting them to confirm the expiry or update the information on the website by January 29, and to present evidence that the offerings had actually started, in order to avoid the expiry of the registration.

In addition, the SRE reported that, as of January 29, the status of already expired registrations would automatically be changed to “Expired Registration” when announcements of the start of the offering had not been published in the SRE system. This change occurs within 90 business days from the date of registration.

Following the logic of automatic registration change, lead coordinators will no longer be able to make changes to registrations with an expired status, without a provision for issuing a request or the inspection fee for a potential new offering.

For more information, access the CVM article and CVM/SRE Circular Letter 1/2024.