Investment funds are being used more and more by Brazilian and foreign investors as a vehicle for acquisitions of startups, real estate investments and credit for companies.
Regulated and submitted to the supervision of the Brazilian Securities and Exchange Commission (CVM), funds can be constituted by a single investor or by a condominium of investors, whether individuals or legal entities (eg family offices, companies, funds, etc.), and enable investors to implement asset and tax planning of acquisitions and sales of the invested portfolio.
See below 3 of the main funds used by venture capital, real estate and credit investors in Brazil:
1. Equity Investment Fund (Fundo de Investimento em Participação – FIP) (Venture Capital): regulated by CVM Regulation 578, FIP is the vehicle used by the venture capital and private equity industry for the acquisition of minority or majority interest in the equity of target companies or convertible debt instruments issued by them. FIPs are classified as Seed Capital, Emerging Companies, Infrastructure, R&D and Multi-strategy.
2. Real Estate Investment Fund (Fundo de Investimento Imobiliário – FII) (Real Estate): regulated by Law 8.668 and CVM Regulation 472, FIIs are constituted for investments in real estate ventures, including any real estate, shares of special purpose company (SPE) linked to real estate ventures, bonds and securities (eg Certificates of Real Estate Receivables (CRIs)) issued by developers and securitizers, among other securities in the sector.
3. Receivables Investment Fund (Fundo de Investimento em Direitos Creditórios – FIDC) (Credit): regulated by CVM Regulation 356, FIDCs are structured by investors, lenders, fintechs and companies for the acquisition of receivables originated from operations carried out in the financial, commercial, industrial, real estate, leasing and services, and warrants, contracts and bonds.
Funds are by nature legal entities in the form of condominiums called “no-brains”. They have their own CNPJ but are managed exclusively by an administrator qualified by the CVM for the management of securities portfolios. Its investment portfolio is managed by a manager also qualified by the CVM and hired by the administrator.
In addition to the 3 categories of funds above, there are several others, all regulated by the CVM. The most recent created was FIAgro, which is a fund destined for investments in agribusiness and which is still pending regulation. With its popularity and the drop in structuring and operating costs, funds such as FIPs, FIIs and FIDCs will be increasingly used by investors to structure their investments, as is already the case in developed markets.