Circular Letter No. 1/2024/CVM/SIN: Concentration Limits for Investment in Foreign Assets

SECURITIES COMMISSION OF BRAZIL
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Circular Letter No. 1/2024/CVM/SIN
Rio de Janeiro, May 29, 2024.

To administrators and managers of investment funds

Subject: Concentration limits for investment in foreign assets.

Dear Sirs,

1. This Circular Letter aims to provide clarifications regarding concentration limits for investment in foreign assets by financial investment funds regulated by Normative Annex I of CVM Resolution No. 175, of December 23, 2022 (“Resolution”).

2. Article 43, III of the Resolution stipulates that FIF share classes must observe a concentration limit of up to 20% (twenty percent) of their net asset value for classes intended for the general public when investing in financial assets abroad.

3. Meanwhile, Paragraph 2 allows for an extrapolation of the 20% limit provided that all investments occur through funds or investment vehicles abroad that contain the apparatus defined in this paragraph, in addition to the requirements established in Paragraph 1. Such requirements aim to ensure the CVM’s supervisory capacity.

4. We understand, as already stated in the public hearing report, that “provided certain requirements are met, even share classes eligible for the general public may be fully exposed to foreign assets.”

5. According to a literal interpretation of Article 43, for a share class intended for the general public to invest more than 20% in foreign assets, it is necessary to use a layer of investments domiciled abroad (“funds or investment vehicles abroad”). Interpreting that the Agency’s intention was to allow retail investors to be exposed to foreign assets solely through foreign vehicles would foster foreign products to the detriment of similar local products.

6. Thus, we clarify that the FIF share class, which possesses the minimum apparatus described in items I to VI of Paragraph 2 in addition to that established in Paragraph 1 of Article 43, may invest directly in foreign assets, exceeding the 20% limit, and receive investments from the general public.

7. We emphasize that foreign assets invested must be equities or have the same level of risk and liquidity as the assets permitted for the Class.

8. Finally, it is worth clarifying that this understanding found its consolidated basis in the decision of the CVM Collegiate Body regarding a Request for Waiver of Normative Requirements, embodied in CVM Process No. 19957.008640/2023-91.

Digitally signed by
MARCO ANTÔNIO VELLOSO DE SOUSA
Superintendent of Institutional Investor Supervision