On August 30, 2016, the Brazilian Securities Exchange Commission
(Comissão de Valores Mobiliários –
"CVM") issued two new sets of rules relating to private
equity funds, (called Fundos de Investimento em
Participações or "FIPs" in Portuguese).
Instruction 578, creates new rules regarding the formation,
management, and operation of FIPs. Instruction 579 addresses the
preparation of the financial statements of FIPs and outlines the
accounting criteria for the recognition, classification, and
measurement of assets and liabilities.
Instruction 578 is the result of discussions between CVM and
Brazilian private equity funds and aims to improve the former
Instruction 391, which is now no longer in effect. According to
Antonio Berwanger, CVM's commissioner overseeing market
development, "the public hearing process permitted a broad
debate with industry participants which brought important changes
to the final wording of the regulations, which are now closer to
international industry standards and more consistent with the
market's operational practice".
Some of the changes introduced by Instruction 578 are:
FIPs can now invest in
non-convertible debentures up to the limit of 33% of the subscribed
capital, and may advance funds for future capital increases of an
FIPs will be classified into one of
five categories: (i) Seed Capital, (ii) Emerging Companies, (iii)
Infrastructure, (iv) Intensive Economic Production in Research,
Development and Innovation (FIP-PD&I) and (v)
Each category shall be allowed its own investment policy. For
example, the Seed Capital and the Emerging Companies FIPs shall be
permitted to invest in limited liability companies, a vital step
for the development of new businesses in Brazil, facilitating the
funding of startups and early stage companies. Multi-strategy FIPs
will be allowed to combine investments across several
All FIPs can now invest up to 20% of
the subscribed capital abroad and Multi-strategy FIPs, designed for
professional investors, may invest 100% of their subscribed capital
Possibility of granting additional
specific economic and financial rights to FIPs' quotas.
The roles and responsibilities of
FIPs' administrators and managers are better defined.
With Instruction 579, CVM establishes the accounting criteria
that must be observed by FIPs regarding the recognition,
classification, and measurement of assets and liabilities, and
recognition of revenues and expenses, and which are the same
applicable to publicly held companies.
Instruction 579 also outlines specific conditions which need to
be met before a fund can be classified as an investment entity. The
fund's administrator is charged with making this classification
pursuant to the criteria laid out in Instruction 579, using as
criteria, the number members participating in a fund, the
fund's portfolio of investments and the influence exercised by
the fund's members participation in or the management of the
fund's portfolio companies.
For more information, please click on the following links to
Instructions 578 and 579.
Both Instructions are effective immediately. The bylaws of
existing funds (either venture capital funds – the so-called
Fundos Mútuos de Ivestimentos em Empresas Emergentes or
"FMIEEs" – or FIPs) should be made compliant with
these new rules either (i) within the next 12 months, or (ii) at
the time, in the next twelve months, when a fund is launching a
registered or unregistered public offering of its quotas. The
funds' financial statements must abide by the criteria brought
by Instruction 579 starting January 1st, 2017.
We are happy to further discuss these new rules.
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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