The current pandemic is negatively impacting most investment funds operating in Brazil, and fund managers have a fiduciary obligation to act to protect the fund’s assets under the risk of liability to investors and regulators.
Fund’s portfolio is composed, according to its class, of shares, receivables, movable assets and real estate linked to industry, commerce and services. Except for specific sectors, such as agribusiness and pharmaceuticals, the value of portfolio assets derived from other segments of the economy are, in general, having their prices marked down sharply.
This context includes venture capital and private equity funds (FIPs), receivables investment funds (FIDCs), real estate investment funds (FIIs), and multimarket credit funds (FIMCs), among others.
Brazilian Securities and Exchange Commission (CVM) recently issued guidance through Circular 06/2020 which, together with specific regulations, lists the obligations of fund managers in the event of default and asset depreciation, being the main one the “obligation to act”.
To “act and ensure that all rights relating to the fund’s assets and activities are exercised” is an affirmative covenant to protect interests of fund’s investors.
Fund managers in Brazil must take extra care to act and document their actions in exercising the rights of their funds during this pandemic period to avoid the risk of liability to investors and regulators.