Circular Letter CVM/SIN 02/25

COMISSÃO DE VALORES MOBILIÁRIOS
Rua Sete de Setembro, 111/2-5º e 23-34º Andares – Centro – Rio de Janeiro - RJ – CEP: 20050-901 – Brasil Tel.: (21) 3554-8686 - www.cvm.gov.br Circular Letter No. 2/2025/CVM/SIN Rio de Janeiro, January 23, 2025.

To administrators and managers of investment funds

Subject: Interpretation of provisions of the General Part and Normative Annex IV of CVM Resolution No. 175

Dear Sirs,

This Circular Letter aims to publish additional interpretations by the Institutional Investors Supervision Superintendence (“SIN”) regarding the provisions of the General Part and Normative Annex IV of CVM Resolution No. 175. Thus, this Circular Letter complements Joint Circular Letter No. 1/2023/CVM/SIN/SSE, of April 11, 2023, and Joint Circular Letter No. 2/2023/CVM/SIN/SSE, of September 27, 2023.

For better organization of the subjects, the clarifications will be made through questions and answers that were consolidated from doubts received from the market.

Sincerely,

Digitally signed by
MARCO ANTONIO VELLOSO DE SOUSA
Superintendent of Institutional Investors Supervision

COMISSÃO DE VALORES MOBILIÁRIOS
Rua Sete de Setembro, 111/2-5º e 23-34º Andares – Centro – Rio de Janeiro - RJ – CEP: 20050-901 – Brasil Tel.: (21) 3554-8686 - www.cvm.gov.br

Table of Contents
General Part ..............................................................................................................3

1. Capitalization in Assets ................................................................................3
2. Role of the Fiduciary Administrator...........................................................3
   Normative Annex IV ...............................................................................................4
3. Portfolio Composition ................................................................................4
4. Deadline for Classification of FIP-IE and FIP-PD&I ........................................5
5. Establishment and Competencies of Committees ...................................................5
6. Investment in Simple Loan Contracts .................................................7
7. Investment Limits.................................................................................7
8. List of Charges .............................................................................................8
9. Investment in SCP.....................................................................................8

COMISSÃO DE VALORES MOBILIÁRIOS
Rua Sete de Setembro, 111/2-5º e 23-34º Andares – Centro – Rio de Janeiro - RJ – CEP: 20050-901 – Brasil Tel.: (21) 3554-8686 - www.cvm.gov.br

General Part

1. Capitalization in Assets

Article 30 of the General Part of CVM Resolution No. 175 provides that “capitalization of shares must be made in national currency, except for the hypotheses specifically applicable to certain categories of fund”, while Article 113 of the General Part also determines in its item I the possibility for the regulations of restricted classes to “admit the use of financial assets in the capitalization and redemption of shares, with the establishment of detailed and precise criteria for the adoption of these procedures”.

The provisions of Articles 30 and 113, I of the General Part denote the regulator's concern in not extending to the general public the possibility of capitalization in assets, considering that, in theory, such investors would not have the technical capacity to deliberate on the subject.

Would it be correct to understand that a class intended for the general public may admit receiving capitalization of shares in assets as long as the participation in said class is entirely held by other classes managed by professional managers of third-party resources, including in the case of classes governed by Normative Annex I?

Answer: Yes, the understanding is correct. Capitalization in assets in classes intended for the general public may be admitted in cases where the invested class is entirely held by other classes managed by professional managers of third-party resources, even if intended for the general public, which are classified as professional investors, in accordance with Article 11, item V, of CVM Resolution No. 30. The provisions of each Normative Annex regarding the procedures applicable in capitalization in assets must also be observed, including, for example, the preparation of an appraisal report, when so required by regulation. We emphasize that the possibility of capitalizing with assets does not exempt the manager of the investing fund from special consideration regarding the liquidity aspects associated with the assets it may receive, nor from the portfolio composition and diversification rules imposed by regulation.

2. Role of the Fiduciary Administrator

Question 1: In light of the provisions of RCVM 175, would it be incumbent upon the fiduciary administrator to refuse or prohibit operations carried out by the resource manager on behalf of the respective FIP?

Answer: It is not the duty or responsibility of the fiduciary administrator to control the adequacy and/or classification of operations carried out by resource managers on behalf of the respective FIPs in accordance with current regulations, investment policy, or regulations. Indeed, one of the main foundations brought by CVM Resolution No. 175 was the recognition of the role and relevance of resource managers, establishing a clear division between their attributions and responsibilities and those falling on fiduciary administrators.

Generally, verification activities are restricted to very specific cases, expressly provided for in regulation, and joint liability among essential service providers is no longer the rule but becomes the exception. In cases where a certain essential service provider is required to verify the attributions of another essential service provider, the rule is express – as, for example, in Article 25 of Normative Annex I of RCVM 175.

Question 2: Is it possible to exist situations in which, contractually, the parties assign to the fiduciary administrator the obligation or option to verify or supervise activities inherent to portfolio management, including the obligation or option for the fiduciary administrator to refuse operations carried out by managers on behalf of the FIP that, in their view as fiduciary administrator, are in disagreement with the current regulation applicable to FIPs or with the investment policy of the respective FIP or are prohibited by the respective regulations?

Answer: Yes. Such situations, however, must result exclusively from the will of the parties and not by force of a regulatory requirement, since the regulation attributes exclusively to the manager the responsibility for the management of the FIP's portfolio, including compliance with portfolio composition and diversification requirements. There is no expectation from the regulator that this function be the responsibility of the fiduciary administrator, which does not coincide with the due monitoring, given the verification duties, document custody, and communications specific to the administrator. Without prejudice to the fact that in cases where the operational agreement provides for the action of the fiduciary administrator regarding the verification or supervision of activities inherent to portfolio management, the regulator may request clarifications from the fiduciary administrator regarding its action in cases where it detects any failures.

Normative Annex IV

3. Portfolio Composition

Normative Annex IV of CVM Resolution 175, when dealing with the composition of the portfolio of investment funds in participations (FIP), provides only which assets (Art. 11 c/c Art. 5) must be considered for the composition of the mandatory allocation percentage (of at least 90% of the FIP's net asset value) (“Target Assets”). In this sense, and given that the regulation says nothing about the composition of the remaining portion of net asset value (up to 10%) (“Remaining Allocation”), is it possible to understand that there are no restrictions regarding the type of asset to be allocated in the FIP portfolio within said percentage of the Remaining Allocation?

Answer: Correct. As long as the portfolio composition limits provided by regulation for the minimum portion of the FIP's net asset value that must be applied in Target Assets are observed, as provided by the applicable regulation, and the limitations for certain types of assets (assets abroad, for example) are observed, there is no regulatory restriction for the composition of the Remaining Allocation of FIP portfolios. Therefore, the Remaining Allocation may encompass any financial assets and securities, it being certain that the regulation (and respective annexes) will have freedom to provide for such assets eligible for investment within the percentage of net asset value corresponding to the Remaining Allocation.

COMISSÃO DE VALORES MOBILIÁRIOS
Rua Sete de Setembro, 111/2-5º e 23-34º Andares – Centro – Rio de Janeiro - RJ – CEP: 20050-901 – Brasil Tel.: (21) 3554-8686 - www.cvm.gov.br

4. Deadline for Classification of FIP-IE and FIP-PD&I

On January 9, 2024, Law No. 14.801 was promulgated, which, among other provisions, amended Art. 1, §10 of Law No. 11.478 of May 29, 2007, which provides for the deadline for the start of activities and classification of the portfolio of FIP-IE and FIP-PD&I, now providing that such funds have 360 (three hundred and sixty) days after obtaining the registration of operation at CVM to start their activities and 24 (twenty-four) months to classify themselves at the minimum investment level required by Law.

Given that the wording contained in Art. 16, §3 of Normative Annex IV of CVM Resolution 175 still reflects wording according to which the initial classification deadline for FIP-IE and FIP-PD&I is 180 days from the first capitalization of shares, and the hierarchy between norms (ordinary federal law vs. Resolution issued by CVM), is it correct to understand that the provisions of Art. 16, §3 of Normative Annex IV of CVM Resolution 175 were derogated due to the subsequent alteration of Law, so that the deadlines applicable for classification purposes, including for regulatory purposes, are those provided in Art. 1, §10 of Law No. 11.478?

Answer: Yes, the understanding is correct. Normative Annex IV was published at a time prior to the promulgation of Law 14.801 (a later and specific law), thus the provision in its Art. 16, §3 was derogated. That is, for all regulatory purposes, the deadlines provided in the current wording of Art. 1, §10 of Law No. 11.478 must be observed, namely:
(a) up to 360 (three hundred and sixty) days after obtaining the registration of operation at CVM to start activities; and (b) up to 24 (twenty-four) months to classify themselves at the minimum investment level provided in the legislation and applicable regulation.

Considering the 180-day deadline provided in Law 14.801 for the reversal of eventual portfolio declassification in the case of project closure, is it correct to understand that FIPs may provide in their respective regulations a deadline for reclassification due to divestments of up to 180 days, a period in which resources from divestment will compose the minimum investment percentage of 90% in target assets, the provision of Art. 11, § 4, item II of Normative Annex IV not applying in this case?

5. Establishment and Competencies of Committees

Considering (i) the permission brought by Article 96 of the General Part of CVM Resolution 175 for the establishment of committees or councils, and (ii) recent decisions by the technical area of this Institutional Investors Supervision Superintendence (SIN) authorizing the installation of committees/councils within investment funds in participations with competence to analyze matters within the competence of the unitholders' general meeting, including deliberating on conflicted transactions (“Committees”), can it be understood that the permission of Article 96 mentioned above encompasses the establishment of Committees within investment funds in participations, regardless of the target audience, without the need for a prior unitholders' meeting and without requesting specific dispensation from CVM?

Answer: The so-called “Committees” have already been the subject of specific analysis by the CVM Collegiate and this technical area, in both cases concluding on the possibility of their installation and the benefits that would result from it. It is certain, however, that, given the conferment to such Committees of the competence of the unitholders' assembly, their implementation cannot be done without parameters.

Thus, it is correct to say that the permission of Article 96 of the General Part of CVM Resolution 175 covers the establishment of Committees, without the need for a prior and specific request for dispensation for this purpose, or for the holding of a prior unitholders' meeting, provided that the formation and deliberation mechanisms of such Committees are clear in the regulation; additionally, the referred Committee must observe, at a minimum, the following characteristics:

• The annex of the class provides for the possibility of its installation;
• The Committee has an odd number and a majority of members independent of the class's service providers (essential or not);
• The appointment of members is approved by the general unitholders' meeting, following the profile established in the annex of the respective class;
• Have a determined term of office, which may be automatically renewable;
• It is permitted for unitholders or group of unitholders holding at least 5% of participation to indicate members;
• The Committee's deliberations are taken by majority of votes of its members;
• In the case of a Committee that will deliberate on transactions with related parties, the potential conflicted transactions must observe the following criteria: (a) the object of the transaction constitutes an asset in which the class can invest, as delimited in the respective regulation and annex, (b) the minimum expected return resulting from the transaction is compatible with the preferred return of the shares, if any, (c) the estimated period for return of invested capital to unitholders is, as a result of the transaction, lower than the remaining duration of the class, and (d) the effective value of the transaction is based on an appraisal report of the asset produced by an independent appraiser, as specified below, observed that the transaction price cannot exceed by more than 10% the fair value indicated in the report;
• In the case of the item above, all proposals submitted for Committee evaluation must be accompanied by, at a minimum, (a) material comprising the details of the transaction, and (b) a reasoned report and appraisal report of the transacted asset prepared by an independent appraiser (which may be a big four, an investment bank, or a company specialized in asset appraisal), observed that other information that is relevant for decision-making by Committee members must also be made available; and
• In case of rejection of the aforementioned transaction by the Committee, it cannot be carried out, unless approved by the unitholders' meeting.

COMISSÃO DE VALORES MOBILIÁRIOS
Rua Sete de Setembro, 111/2-5º e 23-34º Andares – Centro – Rio de Janeiro - RJ – CEP: 20050-901 – Brasil Tel.: (21) 3554-8686 - www.cvm.gov.br

6. Investment in Simple Loan Contracts

§7 of Article 5 of Normative Annex IV of CVM Resolution 175 provides for the possibility that FIP share classes invest in target companies “through instruments that confer the right to acquire equity participation, regardless of the moment of effective resource injection, such as purchase or subscription options for shares or quotas, loans convertible into equity participation or other instruments or contractual arrangements that result in capital or debt injection, convertible or not”.

In this sense, would it be correct to interpret that by mentioning “other instruments or contractual arrangements that result in capital or debt injection, convertible or not” the regulation allowed FIPs to invest in simple loan contracts, even if they do not confer the right to acquire equity participation in the investee, as long as the limit of subscribed capital and the other governance rules of the invested companies provided in Normative Annex IV are observed?

Answer: Yes, this understanding is correct. Since the investment in the simple loan contract and the borrowing company observe the other governance requirements provided in the regulation, including participation in the decision-making process of the invested company, with effective influence in defining its strategic policy and its management, the simple loan (non-convertible) may compose the FIP portfolio, observed the current limit of 33% of the aforementioned subscribed capital.

7. Investment Limits

Art. 5, III of AN IV of RCVM 175 authorizes the allocation of FIP resources in “shares of other FIPs”. However, unlike other normative annexes, Normative Annex IV does not provide for the existence of a concentration limit for the acquisition, by a class whose target audience is qualified investors, of shares of FIP classes intended for professional investors. Could you please clarify if there is a limit and, if so, which limit should be considered?

Answer: It is certain that an FIP intended for qualified investors and an FIP intended for professional investors have different risk profiles and structural characteristics, so allowing unlimited allocation of an FIP intended for qualified investors in another FIP only intended for professional investors would distort the regulatory purpose of determining the application of certain characteristics and conditions according to the fund's target audience.

Thus, we clarify that the acquisition of shares of an FIP intended exclusively for professional investors by an FIP intended for qualified investors must observe the concentration limit, corresponding to up to 30% (thirty percent) of the Net Asset Value of the investing FIP, in accordance with Art. 75 of Normative Annex I which establishes that the 15% limit for investment in FIP, provided in item II of Art. 45, is computed in double for investment classes intended for qualified investors.

8. List of Charges

CVM Instruction No. 578 provided for the possibility of including charges beyond those provided in the pre-established list for FIPs, through the deliberation of the general unitholders' meeting (Arts. 24, XIII and 45, §1); however, CVM Resolution No. 175 did not receive the provision within Normative Annex IV with the same wording. Normative Annex IV of CVM Resolution No. 175 incorporated a provision (Art. 21, III) according to which the unitholders' assembly may deliberate the payment of charges not provided in the list established in the General Part and in that Normative Annex (Art. 28).

Despite the asymmetry between the wording of the two norms, CVM Resolution No. 175 brought an even more flexible and unprecedented provision for FIDCs, within Normative Annex II, providing for the possibility for the regulation to expand the list of charges provided in the regulation, see:

Art. 51. The regulation of the restricted class may provide for the existence of charges that are not provided in Arts. 117 of the general part of the Resolution and 53 of this Normative Annex II.

In this sense and considering the multiplicity of investment structures and governance models existing in the universe of FIPs, as well as the authorization already existing in the previous regulatory framework and also in the current one, is the understanding correct that the regulations and respective annexes of FIPs may provide for the payment of charges not taxatively stipulated in Art. 117 of the General Part and in Art. 28 of Normative Annex IV?

Answer: We clarify that it is possible for FIPs to expand the list of charges, through express inclusion in the list provided by the respective annex of the share class, observed that the class annex may, furthermore, establish specific limits for charges that have been subject to such inclusion in excess of the list of the applicable regulation.

9. Investment in SCP

CVM Resolution 175, when dealing with the assets comprising the portfolio of FIPs, uses the term “companies” and the Brazilian legal order provides for several other corporate forms, such as the Limited Partnership (SCP) within which (a) the participating partner has, in a manner similar to partners of limited companies and shareholders of joint-stock companies, their liability limited to the terms and conditions of their participation (Art. 991, Sole Paragraph of the Civil Code); and (b) does not assume operational administration functions of the SCP.

Having this in view the above, would it be possible to understand that, as long as the requirement of effective influence required by Art. 5, §1 of Normative Annex IV is observed, it is permitted for FIPs to allocate resources (for the purpose of composing the mandatory allocation percentage corresponding to 90% of its net asset value) in securities representing participation in SCP in the condition of participating partner?

Answer: Yes, the understanding is correct. It is permitted for the FIP to allocate part of its capital for the purpose of composing the mandatory allocation percentage in securities representing participation in SCP, provided in the condition of participating partner and that the requirement of effective influence required by Art. 5, §1 of Normative Annex IV is fully met.