Brazil: Hedge Fund Regulation in Brazil - Part 1(b)

Last Updated: 23 September 2010
Article by Walter Stuber
This article is part of a series: Click Hedge Fund Regulation in Brazil - Part 1(a) for the previous article.

6.4. Quota Subscription or Acquisition

All quotaholders when enter in the fund shall attest, before an own written term that he has: (a) received the regulations and, if it is the case, the brochure; (b) acknowledged the risk involved and the investment policy; and (c) acknowledged the possibility of occurrence of negative net equity, if that is the case, and in this case of his responsibilities for a further input of additional resources. The administrator shall make available to CVM the term that contains such declarations, duly signed by the investor, or registered in the electronic system. The regulation and, if it is the case, the brochure shall be delivered by the administrator in its current and updated versions.

The administrator shall inform the date of the first payment of the quotas of the fund through the Document Sending System available in the CVM webpage within a term of two business days.

Without harm to eventual sanctions, CVM shall suspend the issuance, subscription and distribution of quotas of the fund made in disagreement with the rules outlined herein.

The investment fund may contract, in writing, intermediate institutions that are part of the securities distribution system to distribute the quotas, and authorize them to conduct the subscription of the quotas for the account and order for its respective clients. For the adoption of the procedure herein, the administrator and the intermediary institution shall establish, in writing, the obligation of the latter in creating a complementary registration of quotaholders that is specific for each fund in which such modality of subscription of quotas might occur, in such a way that:

  1. the intermediary institution inscribe in the quotaholders complimentary registration the title holder of the quotas in the name of the investors, attributing to each quotaholder a client code and informing such code to the fund's administrator; and
  2. the hired, administrator or institution, keeps account of the quotas in a special way in the fund's quotaholders registration, adopting, in the identification of the title holder, the name of the intermediary institution, added by the client's code supplied by the intermediary institution and that identifies the complimentary quotaholder.

The applications or redemptions done in the investment funds by means of intermediary institutions that act on behalf of the clients shall be done in a segregated form, in a way that the goods and rights part of the assets of each of the clients, as well as its fruits and yields, do not communicate with the assets of the intermediary institution. The goods and rights of the clients of the intermediary institutions do not answer directly or indirectly for any obligation contracted by such institutions, being forbidden the constitution, to its own benefit, of the real guarantee burden or rights in favor of third parties over the fund´s quotas.

The intermediary institutions that act on behalf of the clients, assume burden and responsibilities related to the clients, including as to their registration, identification and other procedures that shall be originally to the charge of the administrator, especially in what regards:

  1. the supply of brochures, regulations and terms of adhesion to the clients to be obligatorily sent by the administrators to the intermediaries, for such end;
  2. the responsibility of letting the quotaholder know that the distribution is done on behalf of someone;
  3. the obligation of letting the clients know any requirements formulated by CVM;
  4. the control and maintenance of internal registrations regarding the compatibility between the movement of the client's funds, and his/her financial capacity and economic activities in the terms of the norms of protection and fight against money laundering or hiding of goods, rights and values;
  5. the regularity and guard of the client's registration documentation, in the strict terms of the regulations in force, as well as for the compliance with all the legal requirements as to the aforementioned registration documentation;
  6. the rendering of information directly to CVM about the registration data of the clients that apply the funds, whenever this information is requested;
  7. the communication to the clients about the call for general quotaholders´ meetings and about its deliberations, according to the instructions and information that with a sufficient time and in advance, receive from the administrators of the investment funds;
  8. the maintenance of a customer service for the elucidation of doubts and for the reception of claims;
  9. to the zeal so that the final investor have full access to all documents and information previewed in the regulations, in equality of conditions with the other quotaholders of the investment fund object of this application;
  10. the maintenance of updated information that allow the identification, at any time, of each one of the final investors as well as the updated registration of all applications and redemptions done in the name of each one of the final investors. The documentation referred to herein should remain in the possession of the institution that is acting on behalf of the clients, at the disposal of CVM, for a term of five years; and
  11. the obligation to make retention and the payment of the levied taxes in the applications or redemption in investment funds according to what the tax legislation determines.

Previously to the realization of the general quotaholders´ meeting, the intermediary that is acting on behalf of the clients shall supply to the clients that wish so a declaration of the quantity of quotas held by it, indicating the fund, the client's name or company's name, the client's code and the number of his/her/its enrollment with the Taxpayer's Roll from the Ministry of Finance, according to the case, being such document an appropriate proof of the title holder of the quotas, for the end of the exercise of voting rights. The intermediary that is acting on behalf of the clients can attend and vote in the general quotaholders´ meeting of the fund, representing the interest of its clients, if holding a power of attorney with specific powers, discriminating also the day, hour and place of the afore mentioned meeting.

In case the rescission of the contract signed between the fund and the intermediary that is acting on behalf of the clients, it shall be given the option to the quotaholder to remain as an investor of the fund and in this case the intermediary institution commits to identify and supply to the administrator all registration documents of the client.


It privately competes to the general quotaholders´ assembly to deliberate about:

  1. the accounting statements presented by the administrator;
  2. the substitution of the administrator or manager or custodian of the fund;
  3. the merger, consolidation, division, transformation or liquidation of the fund;
  4. the increase of the administration fee;
  5. the political alteration of investment of the fund;
  6. the issuance of new quotas in the closed-end fund;
  7. the amortization of quotas, in case it is not set forth in the regulation; and
  8. an alteration in the regulation.

The call to the general meeting shall be done by mail sent to each quotaholder and shall expressly list in the order of the day, all the subjects to be deliberated, not admitting that under the item general matters, be matters that depend upon the deliberation of the meeting. It must be done with a ten day notice, at least in the date of its accomplishment. In the call should obligatorily be the date, time and place in which the general meeting is to be held, and shall indicate the place where the quotaholders can examine the documents regarding the proposal to be submitted to the appreciation of the assembly. The presence of the totality of the quotaholders fulfills the lack of call.

Annually the general assembly shall deliberate on the accounting statements of the fund. This must be done up to 120 days after the end of the fiscal year. The general assembly can only be accomplished with a minimum of 30 days after being available to the quotaholders the audited accounting statements regarding the end of the fiscal year. However, the general assembly to which all the quotaholders are present can disregard the term established herein, if it is done by unanimity.

Besides the annual ordinary general assembly, the administrator, manager custodian or quotaholder or group of quotaholders that holds a minimum of five percent of the total number of quotas issued can call an extraordinary general quotaholders´ meeting at any time, to deliberate on an order of the day in the interest of the fund or of the quotaholders. The call by initiative of the manager, custodian or quotaholders shall be directed to the administrator, that shall, within a term of 30 days counted from the reception, make the call of the general meeting, at the expenses of the petitioner, except if the general meeting called in this way deliberates otherwise.

The general assembly shall start in the presence of any number of quotaholders.

The deliberations of the general meeting shall be taken by the majority of the votes, where each quota has the right to one vote. The regulation shall dispose on the possibility of the deliberations of the meeting being adopted before a process of formal consultation without the need of a quotaholders´ meeting. The regulation shall be able to establish a quorum qualified for the deliberations, including the ones regarding the matters of private competence of the annual general quotaholders´assembly. In case the open-end fund administrator is dismissed, the qualified quorum shall not be more than half plus one of the issued quotas.

The fund quotaholders´ register in the registry at the date the meeting is called, their legal representatives or legally constituted attorneys-in-fact less than one year before are the only ones allowed to vote in the general quotaholders´ meeting. The quotaholders can vote by means of a written or electronic communication, if it is received by the administrator before the beginning of the meeting, observing what is disposed in the regulation.

The following persons are not allowed to vote in the general meeting of the quotaholders: (a) the fund administrator and the fund manager; (b) the partners, directors and employees of the administrator or manager; (c) companies linked to the administrator or manager, their partners, directors, employees; and (d) the fund service providers, their partners, directors and employees. This prohibition is not applied when these persons are the sole quotaholders of the fund, or in case of express agreement of the majority of the other quotaholders, manifested in the meeting itself, or in a power of attorney that is referred specifically to the meeting, or in an instrument that refers specifically to the meeting in which the permission of the vote shall occur.

The summary of the general meeting's decisions shall be sent to each quotaholder within a term of 30 days after the date the meeting is held. For such end it is possible to send the account statement that is addressed after the monthly communication the fund administrator is obliged to send to all the quotaholders. In case the general meeting is held in the last ten days of the month, this communication can be done in the account statement regarding the following month to the holding of the meeting.

To read Part 1(a) of this article please click on the 'Previous Page' link at bottom of page

To read Part 2 of this article please click on the 'Next Page' link at bottom of page

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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This article is part of a series: Click Hedge Fund Regulation in Brazil - Part 1(a) for the previous article.
This article is part of a series: Click Hedge Fund Regulation in Brazil - Part 2 for the next article.
Walter Stuber
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