Super-rich: discover exclusive funds that add up to BRL 880 billion – 07/20/2023 – Market

To increase revenue with the aim of balancing the accounts and controlling the public debt, one of the measures being studied by the government is the taxation of exclusive investment funds, aimed at the high-income public.

The Minister of Finance, Fernando Haddad, said this Wednesday (19) that the government will submit a bill to tax exclusive funds, in a second stage of the tax reform scheduled for the second half of the year.

These funds, intended only for those investors with a few million in their portfolio, totaled assets of approximately R$877.4 billion, divided into around 2,800 funds and 3,500 quota holders, according to data from TC/Economatica.

Find out below the main characteristics of the product that is in the government’s sights.

What are exclusive funds?

Exclusive funds can follow different investment strategies in equities, fixed income or a combination of both classes through multimarkets.

Data from TC/Economatica indicate that there are 2,826 exclusive funds in the market. In terms of the number of funds, the multimarkets lead the way, with 2,705 products structured under the exclusive fund format, with another 331 in fixed income and 279 in equities.

When considering the amount invested, exclusive fixed income funds lead, with BRL 461.5 billion, followed by multimarket funds, with BRL 376.4 billion, and equity funds, with BRL 39.5 billion.

Market professional in the area of ​​wealth management, Francisco Levy says that, in most cases, exclusive funds are individual, but there are also some less common cases of products of the type that aggregate a larger group of people, who generally have some family relationship with each other.

Who are they for?

The expert claims that these funds are aimed only at millionaire investors. On average, you need to have between R$20 million and R$30 million to consider structuring an exclusive fund, estimates Levy.

The high amount is necessary to cover the fixed costs of the product, such as the fees charged by the fund manager, the administrator and the custodian, in addition to periodic charges by B3.

A year, the cost of an exclusive fund is around R$ 15,000 to R$ 20,000, with variations depending on the bank responsible for structuring and the total amount invested, calculates the specialist.

What are the tax advantages?

Levy states that one of the main advantages of exclusive funds is the fact that they are not subject to quota eaters.

Come-quotas is an advance payment of tax made every six months in the months of May and November, which is levied on income from fixed-income, stock and exchange funds. The rate varies between 15% and 22.5%, depending on the period the investment was held in the portfolio.

In the exclusive fund, as there is no charge for quota eaters, the money that would be passed on to the Federal Revenue continues to yield within the investment portfolio until the redemption is made, which represents an important advantage in relation to other funds that suffer a reduction in the amount invested and, therefore, in the total amount that will be profitable, says Levy.

“While the common citizen pays the quotas of the investment funds, the wealthy do not pay, which does not seem socially fair”, says the specialist. He recalls that the proposal for taxation of exclusive funds is not new and was discussed in the previous administration of former minister Paulo Guedes, but faced resistance in Congress and did not go ahead.

Levy adds that investors who invest in exclusive funds still have the prerogative of, in case of need for the applied resources, to make an amortization of the resources instead of requesting redemption.

In practice, the effect ends up being the same in both modalities, but while redemption reduces the number of existing shares within the fund, which characterizes withdrawal, in amortization, there is no reduction in the number of shares, but only in the total amount invested, with each share having a lower value. It is an accounting issue that allows the exclusive fund investor to withdraw funds without the action being classified as redemption, explains Levy.

The expert claims that, in addition to the advantage of not having the quota eater, the exclusive funds also have the prerogative of being exempt from taxation in relation to movements within the portfolio.

If the investor makes, for example, the sale of a fixed income investment to buy shares, the operation will be taxed within the band between 15% and 22.5% depending on the term. In the exclusive fund, this sale is not taxed.

Is an exclusive fund a succession planning tool?

Levy adds that a third advantage of exclusive funds concerns succession planning. This is because the investor who owns the fund can donate shares in life to his heirs, without having to sell the portfolio investments that would go into probate, in a process that may take a few months or years to complete.

As the government’s idea is to start taxing exclusive funds for quota eaters, even so, the fund will continue to appeal to high net worth investors, whether due to the free movement of investments in the portfolio or the issue of succession, says Levy.

What is the return on exclusive funds?

According to data from TC/Economatica, the average return of multimarket exclusive funds in the first half of 2023 was 5.4%, reaching 6.5% in fixed income funds, and 10.8% in equities. In the period, the Ibovespa appreciated by 7.6%, while the CDI yield reached 6.5%.

How much does the collection of exclusive funds add up to?

According to a survey by Einar Rivero, from TradeMap, after registering positive net inflows of BRL 61.5 billion in 2022, the movement reversed in 2023. In the year, until July 18, the category registered net redemptions of BRL 27 billion.

“This information indicates a significant movement in the exclusive funds market, possibly influenced by the change in the perspectives of taxation and other economic factors”, points out Rivero.