New funds framework increases security and diversification – 03/26/2023 – Market

The new regulatory framework for investment funds, published by the CVM (Comissão de Valores Mobiliários) in December last year and expected to come into force on April 3, should contribute to the development of the industry in the country and to the empowerment of individual investors. retail physics.

The set of measures, in the opinion of market specialists, increases security and transparency to attract investors to the capital market at a time of high interest rates, in addition to expanding the range of possibilities available to the general public.

Vice-president of Anbima (Brazilian Association of Financial and Capital Market Entities), Pedro Rudge says that many of the changes brought about by the funds framework derive from the 2019 Economic Freedom Law, which brought important advances to the market, but which still lacked regulation by the CVM to come into force.

Among the main changes, Rudge points out the limitation of each investor’s liability to the value of subscribed shares.

Under previous legislation, fund shareholders could be required to deposit additional amounts in relation to the volume already contributed, in case of loss as a result of the strategy adopted by the manager.

With the new framework, the investor becomes responsible only for the volume contributed, and no longer for the fund’s consolidated equity, eliminating the risk of additional contributions to remedy the fund’s losses.

According to the vice-president of Anbima, limited liability can contribute to the development of funds with bolder strategies, involving, for example, stressed assets such as defaulted loan portfolios, since investors can feel more comfortable putting money in a background of sorts.

Rudge adds that the new framework also provides for the possibility for funds to have different share classes within the same vehicle.

He explains that the measure tends to bring efficiency gains to the market, with a possible reduction in costs for the investor, by allowing a series of funds that only replicate similar strategies to be eliminated, allowing a single fund to encompass options for different profiles of investors via different classes.

“Limited liability and classes within the same fund bring us very close to international standards”, says the vice-president of Anbima.

Still on the subject of fund costs, Luiz Felippo, partner and fund analyst at Nord Research, highlights the increase in transparency regarding the fees charged to investors. Under the current model, the management, administration and distribution fee is consolidated into a single charge, which prevents investors from knowing how much they are paying for each of the parties involved in the business. With the new milestone, the fee charged by each will have to be disclosed separately.

“This will bring more transparency to the industry, especially in that part of costs, which today is very obscure for the investor. Such level of clarity will make clear the incentives present in the industry, mainly in the layer of distributors”, says Felippo.

“In general, the new resolution greatly empowered investors”, says Rudge, from Anbima.

Expansion of the range of investments for the retail public

Also among the main highlights of the funds framework is the expansion of the range of investment alternatives available to individual retail investors.

Funds that allocate in global assets intended for common investors, for example, may have exposure of up to 100% of the portfolio abroad.

In the current format, retail funds are limited to an overseas allocation of just 20%. Only funds aimed at investors considered professionals by market legislation, which are those with BRL 10 million in financial investments, can access funds that allocate their entire portfolio abroad.

“The changes are welcome, after all, they open even more the range of opportunities for diversification to the investor”, says the Nord partner.

Partner at VBSO Advogados, Erik Oioli says that another novelty is the possibility for funds to invest in “environmental assets”, such as carbon credits, which is an important step towards directing resources towards the so-called green economy.

Oioli adds that the norm also now allows funds to invest directly in crypto assets, which until then was only allowed for investment funds abroad and indirectly. “This is another important step towards the development and consolidation of this industry in the country.”

The framework also foresees the possibility for retail investors to allocate resources in FIDCs (Credit Rights Investment Funds), investment funds restricted until now to qualified investors (with at least R$ 1 million in financial investments) that invest in credit backed by debts to be paid.

FIDCs are structured with different quotas, the most common being senior and subordinate. The subordinates, which usually correspond to a portion between 20% and 30% of the total value of the fund, are the ones that are first affected in case of default. Only if the default exceeds the percentage allocated to subordinates does it also affect the senior quotas.

In order to protect retail investors, the rule imposed by the CVM allows this public to invest only in senior shares.

“The senior quota has a structure of risk versus return more appropriate to the profile of the general public”, says Nathalie Vidual, CVM’s securitization supervision manager.

According to her, one of the objectives on the CVM’s agenda is the empowerment of retailers. “Part of that purpose is to make more products available to common investors, especially those that can generate greater diversification of their investments, such as alternative structured funds”, says Nathalie.

“In the case of FIDCs, it is worth mentioning that it is an instrument that will require more attention from the investor than usual to the embedded risks, such as understanding subordination structures, such as senior and subordinated quotas”, says Felippo, from Nord.

Market pleads for postponement of the beginning of the validity of the new framework

The new regulatory framework for investment funds comes into effect as of April 3, but only for funds that are created as of that date. Funds that already exist on the effective date of the resolution must be adapted by December 31, 2024, with the exception of FIDCs, which have a deadline until the end of this year.

Despite the longer period for existing funds, the market is asking the CVM for an extension of the period for the rule to come into effect for funds yet to be created, in order to prepare the structures for the new rules. The request is for the new milestone to come into effect only as of October.

“The CVM confirms the receipt of the request mentioned [de extensão do prazo para início da vigência da Resolução 175] and informs that the matter will be analyzed in due course”, said the autarchy in a note.

Main changes brought about by the new regulatory framework for investment funds

• Limitation of the liability of each shareholder to the amount invested in the fund, ruling out the possibility of additional contributions due to losses;

• Possibility for funds to have different classes of quotas within the same vehicle, with a possible reduction in costs for the investor;

• Greater transparency on the fee charged by managers, administrators and distributors;

• Allocation of up to 100% of funds from investment funds abroad intended for individual retail investors;

• Possibility of funds investing in “environmental assets”, such as carbon credits;

• Permission for funds to invest directly in crypto assets;

• Offers of FIDCs (credit rights funds) aimed at the general public.

  
  

  Source: CVM