Public Investment Funds 2018 - The International Comparative Legal Guide to: Pinheiro Neto Advogados
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ICLG The International Comparative Legal Guide to: Public Investment Funds 2018 1st Edition A practical cross-border insight into public investment funds Published by Global Legal Group, with contributions from: Advokatfirmaet Grette AS Johnson Winter & Slattery Allen & Overy LLP Kromann Reumert Arthur Cox Lenz & Staehelin Bödecker Ernst & Partner mbB McCarthy Tétrault LLP Burges Salmon LLP Nishimura & Asahi Cases & Lacambra Pinheiro Neto Advogados Davis Polk & Wardwell LLP PricewaterhouseCoopers Ltd Deacons Ropes & Gray LLP Dikaion Law Group WH Partners Harvest Advokatbyrå AB Wildgen
The International Comparative Legal Guide to: Public Investment Funds 2018
General Chapters:
1 U.S. Regulatory Reforms and Proposals Regarding Registered Funds Post-Financial Crisis –
Gregory S. Rowland & Sarah E. Kim, Davis Polk & Wardwell LLP 1
2 Registered Investment Companies – Commercial Considerations for First Timers –
Contributing Editors Marc Ponchione & Sheena Paul, Allen & Overy LLP 8
Gregory S. Rowland &
Sarah E. Kim, Davis Polk 3 Credit Facilities for Registered Investment Funds – Alyson Gal & Tom Draper, Ropes & Gray LLP 12
& Wardwell LLP
Sales Director 4 Brexit – Implications for the Asset Management Sector – Cormac Commins, Arthur Cox 17
Florjan Osmani
Account Director
Oliver Smith Country Question and Answer Chapters:
Sales Support Manager
5 Andorra Cases & Lacambra: Marc Ambrós Pujol & Pablo José Asensio Torres 20
Toni Hayward
Sub Editor
Oliver Chang 6 Australia Johnson Winter & Slattery: Shelley Hemmings & Andy Milidoni 26
Senior Editors
Suzie Levy 7 Brazil Pinheiro Neto Advogados: Fernando J. Prado Ferreira &
Caroline Collingwood José Paulo Pimentel Duarte 33
Chief Operating Officer
Dror Levy 8 Canada McCarthy Tétrault LLP: Sean D. Sadler & Nigel P. J. Johnston 37
Group Consulting Editor
Alan Falach
9 Cyprus PricewaterhouseCoopers Ltd: Andreas Yiasemides & Christophoros Soteriou 43
Publisher
Rory Smith
10 Denmark Kromann Reumert: Jacob Høeg Madsen & Christian U. Weiss Bruhn 49
Published by
Global Legal Group Ltd.
59 Tanner Street
11 Germany Bödecker Ernst & Partner mbB: Dr. Carsten Bödecker & Harald Kuhn 56
London SE1 3PL, UK
Tel: +44 20 7367 0720 12 Hong Kong Deacons: Alwyn Li & Lawson Tam 61
Fax: +44 20 7407 5255
Email: info@glgroup.co.uk
URL: www.glgroup.co.uk 13 Ireland Arthur Cox: Ian Dillon & Cormac Commins 67
GLG Cover Design
F&F Studio Design 14 Japan Nishimura & Asahi: Yusuke Motoyanagi & Takuya Wada 71
GLG Cover Image Source
iStockphoto 15 Korea Dikaion Law Group: Weon Eui Hong & Chiyoon Oh 76
Printed by
Ashford Colour Press Ltd 16 Luxembourg Wildgen: Samia Rabia & Antonios Nezeritis 80
April 2018
17 Malta WH Partners: Gabriella Zammit & Rachel Vella Baldacchino 85
Copyright © 2018
Global Legal Group Ltd.
All rights reserved 18 Netherlands Allen & Overy LLP: Ellen Cramer-de Jong & Jochem Kin 91
No photocopying
19 Norway Advokatfirmaet Grette AS: Karl Rosén & Elin Haugen 97
ISBN 978-1-912509-00-3
ISSN 2516-4821
20 Spain Cases & Lacambra: Miguel Cases & Galo Juan Sastre 103
Strategic Partners
21 Sweden Harvest Advokatbyrå AB: Björn Wendleby & Rakey Renström Secka 109
22 Switzerland Lenz & Staehelin: Shelby R. du Pasquier & Maria Chiriaeva 114
23 United Kingdom Burges Salmon LLP: Tom Dunn & Gareth Malna 120
24 USA Davis Polk & Wardwell LLP: Gregory S. Rowland & Sarah E. Kim 126
Further copies of this book and others in the series can be ordered from the publisher. Please call +44 20 7367 0720
Disclaimer
This publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice.
Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication.
This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified
professional when dealing with specific situations.
WWW.ICLG.COMChapter 7
Brazil Fernando J. Prado Ferreira
Pinheiro Neto Advogados José Paulo Pimentel Duarte
(a) warning;
1 Registration
(b) fine;
(c) suspension from duties of a director or member of the audit
1.1 Are funds that are offered to the public required committee of a public company, from an entity taking part
to be registered under the securities laws of your in the distribution system (see question 3.2 below), or from
jurisdiction? If so, what are the factors and criteria other bodies which require authorisation by, or registration
that determine whether a fund is required to be with, the CVM;
registered?
(d) temporary disqualification, up to a maximum period of 20
years, from occupying the posts mentioned in point (c) above;
Yes, funds that are offered to the public in Brazil are required to be
(e) suspension of the authorisation or registration for the
registered with the Brazilian Securities Commission (CVM – Comissão
execution of the activities which require authorisation by, or
de Valores Mobiliários). The main factor that determines whether a registration with, the CVM;
fund is required to be registered is precisely its public offering.
(f) temporary prohibition, up to a maximum period of 20 years,
The CVM sets forth specific rules regarding the types of funds that from practising certain activities or transactions, to the
may be incorporated in Brazil, as well as the rules for their operation entities that compose the distribution system or other entities
and their public offering. In case a fund is not registered with the that depend on authorisation by, or registration with, the
CVM, it will not be considered a public fund in Brazil and thus may CVM; and/or
not be offered publicly (see question 1.3 below with regard to the (g) temporary prohibition, for a maximum period of 10 years,
penalties for offering an unregistered fund in Brazil). to operate, directly or indirectly, in one or more types of
transaction in the securities market.
1.2 What does the fund registration process involve, e.g.,
what documents are required to be filed? 1.4 Are there local residency or other local qualification
requirements that a fund must meet in order to
In order to be registered, the fund’s fiduciary administrator (see register in your jurisdiction? Or are foreign funds
permitted to register in your jurisdiction?
question 2.1 below) must file a registration request with the CVM
accompanied by the following documents:
As a rule, foreign funds are not eligible for registration in Brazil and,
(a) the fund’s bylaws;
therefore, may not be publicly offered in the country.
(b) statement of the fund’s fiduciary administrator attesting
that such bylaws are fully compliant with the prevailing
legislation; 2 Regulatory Framework
(c) evidence of the registration of the fund’s bylaws with the
Registry of Deeds and Documents;
2.1 What are the main regulatory restrictions and
(d) statement of the fiduciary administrator attesting that it
requirements that a public fund must comply with
has entered into the required agreements (e.g. investment
in the following areas, if any? Are there other main
management, distribution and custody) and that such
areas of regulation that are imposed on public funds?
documents are at the disposal of the CVM;
(e) name of the independent accounting firm;
i. Governance
(f) enrolment of the fund with the Legal Entities Taxpayer’s
Under Brazilian law, public funds are characterised as a pool of
Register (CNPJ – Cadastro Nacional de Pessoas Jurídicas); and
funds incorporated under the form of a condominium (i.e. they are
(g) the fund’s factsheet, if applicable.
not legal entities) intended for investments in assets traded in the
financial and capital markets, pursuant to the terms and conditions
1.3 What are the consequences for failing to register set forth in their bylaws.
a fund that is required to be registered in your
A condominium is a type of unincorporated entity in which two
jurisdiction?
or more persons hold joint title to certain assets, being attributed a
notional part (quota).
The distribution of funds not registered with the CVM is considered
a serious infraction and is subject to the following penalties:
ICLG TO: PUBLIC INVESTMENT FUNDS 2018 WWW.ICLG.COM 33
© Published and reproduced with kind permission by Global Legal Group Ltd, LondonPinheiro Neto Advogados Brazil
Even though they do not have a legal personality apart from that of limits per type of asset and issuer, as well as limits for investing
their quotaholders, orders for the purchase and sale of securities are offshore. Such limits vary according to the target public of
carried out in the fund’s name. the relevant fund. For instance, funds targeted to qualified or
Public funds can be divided into closed-ended and open-ended funds. professional investors have, in general, higher regulatory thresholds
Generally, open-ended funds are characterised by the possibility of than funds targeted to retail investors (see question 2.1(vii) below
quotaholders to redeem their quotas at any time, and a prohibition, regarding investor classification).
as a general rule, on quotas being assigned or transferred. The bylaws of the fund may nevertheless set forth lower thresholds
Brazil
Closed-ended funds, on the other hand, do not allow the redemption than the ones provided for in the regulations.
of quotas at any time, except in case of liquidation of the fund; and v. Conflicts of interest
their quotas may be transferred, by means of a term of assignment The CVM imposes several rules to be observed by fiduciary
and transference, or through a stock exchange or over-the-counter administrators and investment managers in order to avoid potential
(OTC) market. conflicts of interest involved in the management of public funds.
Brazilian public funds are incorporated and legally represented In addition to rules of conduct and transparency required from such
by fiduciary administrators, who are, inter alia, responsible for entities, CVM regulations also impose strict segregation rules. For
registering the fund with the CVM, controlling the fund’s assets, instance, the area responsible for securities portfolio management
and their compliance with the regulations and the fund’s bylaws, as activities (see question 2.2 below) must be physically segregated
well as communicating with investors and the CVM. from the securities distribution activities, if applicable. Moreover,
The investment decisions of the fund are subject to the discretionary securities portfolio managers must appoint different officers to be
management of investment managers, pursuant to the investment responsible for (i) the securities portfolio management activities,
and (ii) compliance and risk management.
policy outlined in the fund’s bylaws.
In order to obtain their authorisation from the CVM, the entities
The fiduciary administrator is responsible for hiring the fund’s
in question must also adopt internal controls for the purposes of
investment manager as well as other service providers on behalf of
mitigating potential conflicts of interests and demonstrating their
the fund (e.g. custodians and distributors).
efficiency.
The bylaws are the fund’s main document, containing, inter alia,
It is also worth mentioning that CVM rules, as a rule, establish that
the fund’s type, target public, service providers, management fees,
any remuneration or benefit (e.g. rebate fees) received by portfolio
investment policy, conditions for investments and redemptions,
managers, directly or indirectly through related parties, must be
concentration limits and risk factors.
transferred to their clients.
Additionally, under CVM regulations, the following matters are vi. Reporting and recordkeeping
subject to the approval of the fund’s quotaholders at a meeting in
order to be implemented: The fund’s fiduciary administrator is responsible for carrying out
all communications and disclosing all mandatory information to
(a) the fund’s financial statements;
the investors, which include the fund’s net asset value and portfolio
(b) the replacement of the fund’s fiduciary administrator, composition.
investment manager or custodian;
The fiduciary administrator is also responsible for keeping the
(c) the fund’s merger, spin-off, transformation or winding-up;
required documentation for a minimum period of five years.
(d) the increase of the management fee, performance fee or
vii. Other
maximum custody fees;
CVM rules set forth three types of investor categories: (i) retail; (ii)
(e) the amendment to the fund’s investment policy;
qualified; and (iii) professional.
(f) the issuance of new quotas, in case of closed-ended funds;
Apart from specific entities that are automatically classified either
(g) the mandatory amortisation or redemption of quotas, in case
as professional or qualified investors, the rule generally defines that
they are not provided for in the bylaws; and
professional investors are individuals or entities with total financial
(h) the amendment to the fund’s bylaws. investments in excess of BRL 10 million, and that qualified investors
The bylaws may include additional matters to be subject to the are individuals or entities with minimum financial investments in
general meeting of quotaholders and shall outline the procedures excess of BRL 1 million.
for calling and instating such meetings, as well as the respective Retail investors are, therefore, those that do not fall under the
quorums of approval. previous categories (by exclusion).
ii. Selection of investment adviser, and review and approval As mentioned above, public funds must define its target public or,
of investment advisory agreement
in order words, the type of investors that it will be open to. Public
The selection of the fund’s investment manager is carried out by the funds targeted exclusively to qualified or professional investors
fund’s fiduciary administrator, both of which must be duly authorised are generally subject to less strict rules than those targeted to retail
to perform securities portfolio management activities by the CVM. investors, thus having more freedom to determine their structure.
The investment management agreement is privately negotiated and
entered into between the fiduciary administrator and the investment 2.2 Are investment advisers that advise public funds
manager. That is, such agreement is not subject to any review or required to be registered and/or regulated in your
approval by regulatory agencies. jurisdiction? If so, what does the registration process
involve?
iii. Capital structure
There are no capital structure rules applicable to public funds in
The local professional management of securities portfolios can
Brazil. All quotaholders must be treated equally, holding a notional
only be carried out in Brazil by a natural person or a legal entity
percentage of the fund’s assets pro rata to their investments.
duly authorised by the CVM. It is important to highlight that, for
iv. Limits on portfolio investments such purposes, the natural person must reside in Brazil and the legal
CVM regulations set forth several rules regarding concentration entity must be organised and headquartered in Brazil.
34 WWW.ICLG.COM ICLG TO: PUBLIC INVESTMENT FUNDS 2018
© Published and reproduced with kind permission by Global Legal Group Ltd, LondonPinheiro Neto Advogados Brazil
Pursuant to CVM rules, there are two categories of securities The distributors may also hire investment agents, who are subject to
portfolio managers: (i) fiduciary administrators, with direct or another set of regulations, to assist in the distribution of public funds.
indirect responsibility for the custody and control of assets and Nevertheless, provided the marketing materials follow the rules
liabilities and, generally, for the supervision of the markets; and (ii) mentioned in question 3.1 above and contain reference to the
investment managers, with responsibility for the decision-making fund’s distributors for purposes of effectively proceeding with the
process on investments. investment, the investment manager and the fiduciary administrator
As a result, securities portfolio managers, depending on the activities may assist in the marketing efforts of the fund.
Brazil
they perform, shall request their registration under the fiduciary
administrator category, under the investment manager category, or
3.3 What are the main regulatory restrictions and
under both. requirements in the following areas, if any, that must
For purposes of requesting an accreditation as a securities portfolio be complied with by entities that are involved in
manager, the relevant entity must assign the portfolio management marketing public funds?
as well as compliance and risk management responsibilities to
statutory officers. i. Distribution fees or other charges
Further, portfolio managers must prepare a reference form similar to a There are no specific regulatory restrictions applicable to distribution
prospectus applicable to listed companies. This reference form must fees, which are generally calculated based on the average monthly
be annually filed with the CVM and posted on the portfolio manager’s investments made by the distributor’s clients, and are deducted from
website, where it shall be kept up-to-date. Portfolio managers must the management fee.
also publish their internal policies and manuals on their website. As mentioned above, it is worth stressing that securities portfolio
managers may not receive any indirect remuneration or benefit from
2.3 In addition to the requirements above, are there related parties that would hinder their independency when carrying
additional regulatory restrictions and requirements out the portfolio management activities. Any such indirect benefit
imposed on investment advisers that advise public must be transferred to the client.
funds? ii. Advertising
See question 3.2 above.
In addition to the rules described above, it is important to mention
iii. Investor suitability
that portfolio managers must also observe specific anti-money
laundering rules, as well as the best practices codes established by Investor suitability is mandatorily carried out by the funds’
the Brazilian Financial and Capital Markets Association (ANBIMA distributors (see question 3.1 above) in connection with the relevant
– Associação Brasileira das Entidades dos Mercados Financeiros e fund’s target public.
de Capitais), the industry’s self-regulatory agency. iv. Custody of investor funds or securities
Custody fees are generally charged directly from the fund pursuant
to the terms of the fund’s bylaws.
3 Marketing of Public Funds
3.4 Are there restrictions on to whom public funds may
3.1 What regulatory frameworks apply to the marketing of be marketed or sold?
public funds?
Registered funds may be marketed publicly, provided the relevant
CVM regulations set forth the rules applicable to the marketing requirements mentioned in question 3.1 above are observed.
material of registered funds, including the minimum documents that
In addition, distributors must observe the suitability of the fund
must be made available to investors as well as the information that
pursuant to its target public (i.e. retail, qualified or professional
must be included in any such material.
investors).
The distribution of open-ended public funds does not require
registration with the CVM, being subject only to the rules described
above. On the other hand, the distribution of closed-ended funds, 3.5 Are there other main areas of regulation that are
imposed with respect to the marketing of public
either through a traditional public offering or a public offering with
funds?
restricted efforts, must be previously registered with the CVM.
Such rules are complemented by the codes set forth by ANBIMA. No. The main areas of regulation with respect to the marketing
of public funds in Brazil are the ones set forth by the CVM and
3.2 Is licensure with a regulatory authority required of ANBIMA, as described above.
persons (whether entities or natural persons) engaged
in marketing activities? If so: (i) are there commonly
available exceptions that may be relied on?; and (ii) 4 Tax Treatment
describe the level of substantive regulation applied to
licensed persons.
4.1 What are the types of entities that can be public funds
in your jurisdiction?
The distribution of public funds in Brazil is privy of duly licensed
financial dealerships authorised by the Brazilian Central Bank to act
as securities dealerships, and which comprise the so-called Brazilian Under Brazilian law, public funds are treated as condominiums and
distribution system. regulated by the CVM as described hereinabove.
ICLG TO: PUBLIC INVESTMENT FUNDS 2018 WWW.ICLG.COM 35
© Published and reproduced with kind permission by Global Legal Group Ltd, LondonPinheiro Neto Advogados Brazil
4.2 What is the tax treatment of each such entity (both 4.3 If a public fund, or a type of entity that may be a public
entity-level tax and taxation of investors in respect fund, qualifies for a special tax regime, what are the
of allocations of income or distributions, as the case requirements necessary to permit the entity to qualify
may be)? for this special tax regime?
As mentioned above, Brazilian public funds are treated as As mentioned above, investment funds are not taxable entities.
condominiums and not as legal taxable entities. Therefore, income Therefore, income earned by the investment funds and distributed to
Brazil
earned by investment funds will only be subject to taxation, as the its quotaholders will be taxable according to its portfolio assets, the
case may be, upon its distribution to the fund quotaholders. assets’ maturity term and the investor nature (Brazilian or foreign
In respect to the taxation applicable to the distributions made by the investor for tax purposes).
investment fund to its quotaholders, it is important to note that the Brazilian tax law does not provide any special tax regime due to
tax treatment of each investment relies on several aspects related the public offering of quotas by a fund. This means that, in order
to the fund’s nature and portfolio maturity term, as well as the to assess whether a fund may or may not be subject to a special tax
investor’s tax qualification and the investment term. regime, it is important to analyse the abovementioned aspects.
It is worth also mentioning that non-resident investors are generally
subject to a more favourable tax regime on distributions by Brazilian
public funds.
Fernando J. Prado Ferreira José Paulo Pimentel Duarte
Pinheiro Neto Advogados Pinheiro Neto Advogados
Rua Hungria, 1100 Rua Hungria, 1100
São Paulo, SP São Paulo, SP
Brazil Brazil
Tel: +55 11 3247 8400 Tel: +55 11 3247 8400
Fax: +55 11 3247 8600 Fax: +55 11 3247 8600
Email: fpradoferreira@pn.com.br Email: jduarte@pn.com.br
URL: www.pinheironeto.com.br URL: www.pinheironeto.com.br
Fernando J. Prado Ferreira is a partner in Pinheiro Neto Advogados’ José Paulo Pimentel Duarte is a mid-level associate in Pinheiro Neto
corporate department, and has practised in the São Paulo office Advogados’ corporate department, and has practised in the São Paulo
for over 30 years. He advises corporate, banking and investment office for six years. He advises corporate, banking and investment
management clients on corporate and regulatory matters, such as management clients on corporate and regulatory matters, such as
the incorporation of companies in Brazil, M&A transactions, foreign the incorporation of companies in Brazil, M&A transactions, foreign
investments in Brazil, as well as the incorporation and accreditation investments in Brazil, as well as the incorporation and accreditation
of asset managers. Mr. Ferreira holds an LL.M. from the University of asset managers.
of Michigan, U.S. He worked as a foreign associate at Sullivan and
Cromwell, New York between 1989 and 1990.
Pinheiro Neto Advogados is a Brazilian, independent, full-service firm specialising in multi-disciplinary deals and in translating the Brazilian legal
environment for the benefit of local and foreign clients.
Founded in 1942, Pinheiro Neto Advogados was one of the first Brazilian law firms to serve foreign clients as well as the first Brazilian law firm to
specialise in corporate clients. With clients in almost 60 countries, the firm was recognised in 2014 by the Brazilian government as the number one
exporter of legal services from Brazil.
The firm has grown organically, and developed a distinctive, tight-knit culture, with a low associate-to-partner ratio. Its unique, democratic governance
structure promotes transparency and consensus-building among the partners.
With a focus on innovation, the firm has kept its competitive edge throughout the years, and is widely hailed as an institution of the Brazilian legal
market.
In order to maintain its status as a valued strategic partner to its clients, the firm invests heavily in professional development, not only through strong
on-the-job training, but also by means of the highly structured Pinheiro Neto Professional Development Program, the first of its kind in Brazil. In
addition, our lawyers can take advantage of the largest and most complete private legal library in Brazil.
The firm advises and represents both local and international clients in a broad range of sectors, including automotive, banking and financial services,
construction and materials, energy and natural resources, environment and waste management, health care, oil and gas, real estate and technology.
36 WWW.ICLG.COM ICLG TO: PUBLIC INVESTMENT FUNDS 2018
© Published and reproduced with kind permission by Global Legal Group Ltd, LondonCurrent titles in the ICLG series include:
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■ Corporate Tax ■ Product Liability
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■ Fintech ■ Telecoms, Media & Internet
■ Franchise ■ Trade Marks
■ Gambling ■ Vertical Agreements and Dominant Firms
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