Find out which asset is next to benefit from the change in exempt securities – 02/10/2024 – From Grão to Grão

Last Saturday, I anticipated here in this column that the change that the National Monetary Council (CMN) promoted in exempt securities should promote investor demand for other exempt securities. However, I underestimated how quickly this would happen. However, one of the products that I mentioned as a possible benefit has not yet had a major price change.

On Thursday (01/Feb), the National Monetary Council (CMN), in an extraordinary meeting, released measures that changed deadlines and conditions for issuing LCI, LCA, LIG, CRI and CRA. These changes restricted the issuance of these assets.

The movement occurred precisely at a time when more investors were seeking these securities. The end of the IR deferral benefit for exclusive funds caused several investors who had these funds to start migrating by investing in exempt securities.

Knowing the restriction on new emissions, the market rushed to buy. This additional demand, combined with a seasonality of lower supply of new securities that occurs in January, led to a sharp drop in the spread credit in exempt titles this week.

Part of this spread reduction movement can be seen in JGP’s Idex Infra shown in the figure below (Source: This is an index calculated by the manager of the same name that tracks the average spread of securities on the market. The credit spread is the additional rate what investors receive for investing in a private credit security in relation to a public security.

The fall in spreads it was on average 0.4%. The number seems small, but it is possible to see from the graph that the speed, represented by the slope of the graph, and the magnitude of the fall stand out. I emphasize that a reduction in the rate means an increase in the price of securities, that is, appreciation.

This meant that bonds and funds that invest in incentivized debentures had an exceptional performance this week.

However, CRI real estate funds (FIIs) did not follow. Part of the reason can be explained by the bad mood of investors with this asset class.

In fact, I have been restricting suggestions for allocation to FIIs for some time now. There is still the specter of dividend taxation risk that haunts investors.

However, the stronger movement in fixed income securities promoted a relative improvement in real estate funds that invest in CRIs. FIIs in this category are similar to exempt private credit fixed income funds, as their investment is only in real estate credit securities that are also exempt from IR.

When choosing these FIIs, it is not enough to evaluate those that distribute the highest dividend rate. Among other criteria, it is important to analyze at least the three below:
– “LTV” (Loan-to-Value) or “Guarantee ratio”: This index represents the ratio between the value of the property guaranteeing the operation and the value of the credit. For example, if in an operation with a outstanding balance of R$100 million, there are properties in guarantee that are worth R$200 million, your LTV is 50%. The lower the LTV, the greater the guarantee on the title.
– Type and location of collateralized properties: In this case, the investor needs to see the quality of the collateralized properties. In general, you need to be very careful with FIIs that have CRIs whose collateral is subdivisions and multi-property assets. Types of properties with the best guarantee are logistics and shopping, for example. But, even in these segments, it is also important to evaluate the location. For example, a logistics warehouse near São Paulo as collateral poses less risk to a CRI than a warehouse in the interior of a less developed region in Brazil.
– Manager and team: When choosing the FII, prefer those from reputable managers, with qualified teams and a history of investing in these assets. The specialization of managers and analysts in choosing the assets to make up the fund makes a big difference.

Despite the price improvement that occurred this week, there is still room for investors to benefit from investing in private credit securities exempt from IR and referenced to the IPCA.

The fall in the Selic rate that should occur this year means that these bonds have a considerable advantage in the long term, that is, for more than 5 years. I remember that a rate of IPCA+6% per year exempt from IR is equivalent to a return of IPCA+7.7% per year gross of IR. Therefore, more than 2% per year above the government bond rate.

Some CRI real estate funds from excellent managers have securities in their portfolios with rates much higher than this mentioned rate and with better guarantees than incentivized debentures traded on the market. Therefore, presenting itself as an opportunity.

Michael Viriato is an investment advisor and founding partner of Investor’s House.

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