Circular Letter No. 2/2024/CVM/SIN

COMMISSION OF SECURITIES AND EXCHANGE COMMISSION Rua Sete de Setembro, 111/2-5th and 23-34th Floors – Center – Rio de Janeiro - RJ – ZIP Code: 20050-901 – Brazil Tel.: (21) 3554-8686 - www.cvm.gov.br Circular Letter No. 2/2024/CVM/SIN Rio de Janeiro, June 6, 2024

To administrators and managers of investment funds Subject: Interpretation of provisions of CVM Resolution No. 175

Dear Sirs,

This Circular Letter aims to disclose additional interpretations by the Superintendency of Supervision of Institutional Investors (“SIN”) regarding other provisions of the general part of the Resolution, as well as provisions of Annex I. 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, and follow as an annex to this Circular Letter.

We also inform you that other Circular Letters will be released opportune with clarifications regarding doubts related to the general part and the Normative Annexes of the Resolution, and, as the case may be, by the respective superintendency that is competent for the supervision of the category of funds treated therein.

Sincerely,

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

Charging of Fees in the Class or Sub-class
Section 5, Article 5 of CVM Resolution 175 establishes the situations by which sub-classes may be differentiated and establishes that in terms of fees, these may differ by administration, management, maximum distribution, entry, and exit fees. In addition, the CVM clarified through question 1.7 of Joint Circular Letter No. 2/2023/CVM/SIN/SSE that the performance fee may be calculated both at the class and sub-class level. Is it correct to state that service providers may freely agree among themselves whether the fund’s fees, including the custody fee, will be charged at the class or sub-class level?

Answer: Yes, all fees may be charged, alternatively, in the class structure or in the sub-class structure. However, it is not possible to charge the same type of fee at both levels (class and sub-class) of the same structure, with the objective of avoiding that investors are charged in duplicate.

Maximum Fee – Hypothesis of Fee Consolidation
Article 98 of RCVM 175 provides for the consolidation of invested fund fees and the situations of exceptions. ICVM 555, Article 85, Section 6, contained a provision that in consolidation, fees of index funds and real estate funds admitted to trading in organized markets or funds managed by parties unrelated to the investing fund’s manager should not be considered. However, the wording of Section 2 of Article 98 of RCVM 175 replaces the conjunction “or” with the conjunction “and”. Could you confirm that the change did not represent a practical alteration in the interpretation of the provision?

Answer: The new wording does not alter the previous interpretation on the subject, namely, that both hypotheses provided for in the subsections are exempt from the obligation to consolidate fees. The conjunction “and”, within a negative sentence, indicates that “both one and the other” are excluded from the obligation provided in the caput, without it being necessary to observe both hypotheses simultaneously.

Rearrangement of fees throughout the life of the fund
Question 35 of Joint Circular Letter No. 1/2023/CVM/SIN/SSE clarified that it is possible to rearrange administration, management, and/or maximum distribution fees of the fund through a unilateral act of the administrator/manager both at the time of adaptation and during the life of the fund, provided that it does not increase the total cost of the structure to final investors. Is this interpretation applicable not only to the rearrangement of administration, management, and/or maximum distribution fees of the fund, but also to the rearrangement of any fund fee, such as custody and structuring of pension plans?

Answer: Yes, all fees can be rearranged during the life of the fund through a unilateral act, provided that it does not imply an increase in total cost to final investors.

Clarifications regarding the provision of guarantees by funds
Question 1: Regarding Article 86, Sections 1 and 2 of the general part of CVM Resolution 175, we would like to ratify that such provisions (namely, the need for the fund’s regulations to provide that portfolio management reaches the use of assets in the provision of surety, guarantee, acceptance, or any other form of retention, and, in the case of funds intended for the general public, the additional need for approval in a shareholders’ meeting) do not apply in situations where the respective fund provides guarantees, with assets from its portfolio, for operations of its own portfolio, such as, for example, in the case of derivative operations (with or without a central counterparty), where there may be a need to deposit margin with the exchange or, in the case of over-the-counter operations, with the respective counterparty. Still in the context of own operations, to avoid any doubt, we would like to confirm that the permission is not limited to derivative operations, but may extend to obligations related to own operations of a diverse nature, if there are any. It is worth remembering that these possibilities already exist under CVM Instruction 555, Article 89, sole paragraph, in the context of own operations, and that a different reading could make the regime of Res. CVM 175 more restrictive, in this aspect, than the regime of CVM Instruction 555, which would be a contradiction with the spirit of flexibilization of the subject “guarantees” in Res. CVM 175.

Answer: Correct. It is regular for funds to provide guarantees for operations of their own portfolio (such as, exemplarily, derivatives), provided that the fund is able to perform such operations in accordance with the limits and conditions applicable to it due to the provisions of the respective regulations (including annex and appendix) and current regulations, according to the fund’s type classification (multi-market, equity, fixed income, etc.), without the application of the provisions of Article 86, Sections 1 and 2. It is clarified here that such provisions (Article 86, Sections 1 and 2) deal with a distinct situation. They represent a flexibilization introduced by CVM Resolution 175 compared to what CVM Instruction 555 provided in its Article 125, item V, which deals with the hypothesis of provision of guarantee by the Fund for the benefit of operations of interest, but which are not necessarily directly from its portfolio; such as those carried out by an invested company (e.g., of a FIP) or investment fund (in Brazil or abroad) that receives investments from the fund that will provide the guarantee. It is emphasized that regarding restricted funds (i.e., those intended for qualified or professional investors only), in addition to the provisions of Article 86, Section 1, the provisions of Art. 113, IV of the general part of CVM Resolution 175 also apply.

Question 2: Considering the affirmative answer to the previous question, can we consider own operations, and equally permitted, without the need for regulation (restricted funds) or approval in a shareholders’ meeting (funds intended for the general public), operations of the portfolios of invested funds (local or abroad) from which the investing fund holds all the quotas, managed by the same manager or group? Regarding funds abroad, do we include in this understanding situations in which the fund’s manager holds influence over the investment decisions of funds or invested vehicles abroad?

Answer: Yes, in the described hypothesis, we consider comparable to the fund’s own portfolio operations, for the purposes of the previous question, operations of the portfolios of invested funds (local or abroad) from which the investing fund holds all the quotas.

Question 3: Section 2 of Article 86 provides:
“Article 86. ...
...
§ 2nd If the share class is intended for the general public, the risk retention referred to in Section 1 must be previously authorized by the shareholders’ meeting and include a prominent alert in the disclosure material.”
In order for the flexibilization, very welcome, of the possibility of using the mechanism in share classes intended for the general public to be effective, we understand that the approval in the meeting may be given in more general terms that stipulate the general conditions for the provision of guarantees and the modalities of operations that would be guaranteed by the fund. The meeting would specify: (i) the guarantor/guaranteed, (ii) the modalities of operations guaranteed by the guarantee class, (iii) the modality of guarantees and assets that would be delivered as collateral, (iv) the beneficiaries of the guarantees and any other information necessary for evaluation by the shareholders in the meeting, as well as provide for the alteration of the regulations to ensure transparency. However, it would not be necessary to hold a new meeting for each operation or guarantee offered. Otherwise, the practical difficulties with convening and holding meetings, and the known absenteeism in fund meetings would ultimately make it impossible to provide guarantees in the case of share classes intended for the general public.

Answer: Regarding the requirement of meetings in the case of providing guarantees in the share class intended for the general public, as referred to in Article 86, Section 2, it is possible for the shareholders’ meeting to approve, through a more general but sufficiently informative description, as described in the question, the possibility of providing guarantees in favor of third parties, in operations indirectly related to the fund’s portfolio, without it being necessary to hold a new meeting for each guarantee provision by the local class for each loan or derivative operation performed. However, in the case of future operations that diverge from the general informative description contained in the meeting approval, a new approval meeting will be necessary.

Monitoring – Minimum Daily Net Asset Value
Section 3, Article 7 of RCVM 175 establishes that share classes must maintain daily net asset value above R$ 1,000,000.00 (one million reais). As follows:
“Article 7. The investment fund must be constituted by joint decision of the essential service providers, who are responsible for approving, in the same act, its regulations.
(...)
§ 3rd After 90 (ninety) days of commencement of activities, the share class that maintains, at any time, daily net asset value below R$ 1,000,000.00 (one million reais) for a period of 90 (ninety) consecutive days must be immediately liquidated or incorporated into another share class by the administrator.”
Considering that the monitoring of this provision is currently carried out by the CVM through the information received in the daily report, which may be reported at the sub-class level from 10/01/2024 (if the fund has a sub-class), is it correct to state that this monitoring will be carried out in a consolidated manner considering all sub-classes of a specific class?

Answer: Yes, the control will be carried out through the consolidation of the assets of all sub-classes belonging to the same class to confirm if the net asset value remains above R$ 1 million. In addition, we confirm that from RCVM 175, the control of net asset value must be done by the criterion established in this resolution, namely, by daily net asset value for all funds, even those still governed by ICVM 555.

Sub-class Code
Could you confirm what the taxonomy of the sub-class code will be?

Answer: We rectify the answer to question 11 of Joint Circular Letter No. 1/2023/CVM/SIN/SSE and clarify that the sub-class code will be alphanumeric containing 10 characters.

Registration of corporate acts in a notary office
It was noted that, compared to what CVM Instruction 555 (and other specific regulations for structured funds) provided, provisions of the regulation determining the registration in the Registry of Titles and Documents of corporate documents of investment funds (especially minutes of shareholders’ meetings and instruments of alteration of the regulations by the administrator’s act) were revoked. Therefore, is it correct to interpret that the registration of such corporate documents in the Registry of Titles and Documents is now exempt under the regime of CVM Resolution 175?

Answer: Yes, correct. Initially, it is worth clarifying that the term “regulations” provided in Article 1,368-C, Section 3rd, of Law No. 13.874 has acquired a new meaning with the issuance of CVM Resolution No. 175, in order to include not only the regulations specifically regulated there, but also the descriptive annexes of the classes and the appendices of the sub-classes.

Thus, any alteration made to the content of any of these documents, in the interpretation of this technical area, is covered by the aforementioned legal provision and, consequently, exempt from registration in a notary office for titles and documents.

In this context, and considering that corporate operations in general will involve the alteration or extinction, as the case may be, of some of these documents, we confirm, in line with the same rationale adopted by Circular Letter CVM/SIN No. 12/2019, that there is no obligation to register the corporate acts of investment funds in a registry of titles and documents, provided that the due publicity of such documents to third parties is given through the availability, by the fiduciary administrator of the respective document, on the CVM website platform – SGF (Investment Fund Management System). Additionally, we clarify that such corporate documents, when they do not accompany the respective regulations altered by them, must be published in the CVMweb system in the “document upload” section > “delivery for other reasons”.

Operational process for adapting funds to CVM Resolution No. 175
In question 1.9 of Joint Circular Letter No. 2/2023/CVM/SIN/SSE, it was instructed that administrators inform the CVM quarterly about the list of adapted funds by 04/30/2024. Since the final adaptation deadline was postponed as well as the entry into force of the constitution of multiple classes and sub-classes, does this reporting obligation for adapted funds remain in force?

Answer: Yes, administrators must continue to send the information of funds adapted to CVM Resolution 175 until the end of the adaptation deadline, 06/30/2025, through a message directed to the address edyr@cvm.gov.br according to the Excel format provided in Joint Circular Letter No. 2/2023/CVM/SIN/SSE. The new dates for sending the information are: 06/28/2024, 09/30/2024, 12/27/2024, 03/31/2025, and 06/30/2025. On these dates, it must be informed which funds have already been adapted to the new Resolution since the last information and up to that date, so that such information can impact the Autarchy’s database in a structured manner.

Annex I – Financial Investment Funds (FIFs)

Clarification regarding the provisions of Article 49 of Annex I of RCVM 175 regarding the performance fee in fixed-income funds

As provided in Article 49, Annex I of RCVM 175, the CVM prohibits the charging of performance fees in fixed-income funds except when (i) it is a class or sub-class exclusively intended for qualified investors or (ii) classes that establish in the regulations the commitment to obtain the tax treatment intended for long-term funds provided for in current tax regulations.

We understand that the intention of the prohibition seeks to prevent short-term funds, i.e., those whose average maturity of portfolio securities is equal to or less than 365 days according to IN RFB 1.585, from charging a performance fee on the previously established reference index. This type of fund is, as a general rule, more conservative, tending to have an objective more linked to capital preservation rather than return maximization. Thus, we agree that the manager should prioritize the safety and liquidity of assets in short-term funds intended for the general public, and therefore, the charging of a performance fee may not make sense.

However, long-term fixed-income funds, i.e., those whose portfolio of securities has an average maturity greater than 365 days according to IN RFB 1.585, must seek greater diversification in search of higher returns, given that the investor of this type of fund is willing to keep the invested resource for a longer time horizon in search of higher profitability. In these funds, managers explore a wider range of investment opportunities, which demands more sophisticated management. Therefore, the charging of a performance fee is justified.

The wording of item II of Article 49, which flexibilizes the prohibition of charging performance when the class has “commitment to obtain the tax treatment intended for long-term funds,” raises doubts in the market regarding the understanding stated above, especially when we think of Infrastructure Incentivized Funds. This is because these funds have a specific tax regime regarding portfolio classification to provide tax benefits to some shareholders (Law No. 12.431, of 2011) that does not coincide with the control of the portfolio for the purpose of classifying the fund as short or long-term. Thus, despite infrastructure debentures generally having maturities much higher than 365 days, which would fully meet the criteria for classifying the portfolio of Infrastructure Funds defined by the Federal Revenue as long-term, their own tax regime may not meet the literal provisions of Item II of Article 49. The essential service providers themselves maintain independent classification controls; thus, considering a scenario of declassification of the infrastructure fund condition, the long-term tax regime is observed. In addition to the points presented above, it is worth highlighting that a FIDC structured based on Article 3 of Law No. 12.431, regardless of its target audience, may have a performance fee, since Article 13 of Normative Annex II does not prohibit the subscription by the general public of shares of a FIDC with a performance fee. In addition, Article 20, item III of the same Normative Annex establishes that the FIDC regulations must provide for the performance fee, if any, without restrictions for its implementation, observing the provisions of Normative Annex I regarding performance fee, insofar as applicable. Thus, we understand that the equivalence of parameters between Infra funds, structured under the terms of Normative Annex I, and Infra FIDCs, structured under the terms of Normative Annex II, is beneficial, so that no regulatory arbitrage occurs at the time of defining the structuring of the product. Thus, is it correct to state that Item II of Article 49 allows the charging of performance fees in fixed-income funds intended for the general public, provided they maintain a portfolio of assets with an average maturity greater than 365 days, including in this permission Infrastructure Funds, which have a specific tax treatment?

Answer: Yes, the flexibilization of Item II of Article 49 refers to the “investment strategy of the long-term fund portfolio” and not exclusively its tax treatment. Thus, general-purpose long-term infrastructure fixed-income funds, which in essence are long-term funds, that present portfolios of assets that require more robust and sophisticated management are subject to charging a performance fee.

Investment Abroad
Item II, Section 1, Article 43 of Annex I of RCVM 175 provides for the indication in the regulations of the country in which the assets were issued, while CVM Instruction 555 provided for the geographic region of the referred assets. Is it possible to provide in the regulations that a certain class aims to apply its resources to countries of a specific geographic region, for example?

Answer: The change of the word “geographic region” to “country” aims to bring greater transparency regarding the location where the manager intends to obtain exposure abroad, but without losing sight of alignment with international practices. In this sense, if the manager’s objective is to acquire assets in a set of countries of the same region or similarity of profile reflecting common use groupings, it is possible to provide in the regulations in a generic manner that the manager’s objective is to acquire assets from countries of a specific geographic region or from said groupings, such as the examples below:

Countries of South America
Countries of North America
Countries of Central America
Countries of Latin America
Countries of Europe
Countries of Asia
Countries of Oceania
Countries of Africa
Countries of the United Kingdom
Countries of Eastern Europe
Countries of Western Europe
Emerging Countries
Global

Monthly Profile - FIF
The CVM clarified in Circular Letter No. 863/2023/CVM/SIN/GIFI doubts regarding the completion of fields 13 to 16 of the monthly profile in response to the ANBIMA consultation addressed on 01/15/2021. However, despite the circular dealing with fields of the monthly profile related to the fund’s risk (sensitivity analysis), an activity that from CVM Resolution 175 becomes clearer to be within the scope of managers, the Autarchy mentions only the fiduciary administrator in this document. In question 17 of Joint Circular Letter No. 1/2023/CVM/SIN/SSE, the CVM clarifies:

SECURITIES AND EXCHANGE COMMISSION OF BRAZIL
Seven of September Street, 111/2-5th and 23-34th Floors – Center – Rio de Janeiro - RJ – CEP: 20050-901 – Brazil Tel.: (21) 3554-8686 - www.cvm.gov.br

Considering that the manager is responsible for risk management and periodic stress testing, will the CVM review the information provided in the Monthly Profile under the administrator's responsibility? (Questions 5, 6, 11, 12, 13, 14, 15, 16)
Answer: Even though the responsibility for calculating some of that information lies with the manager, the manager must pass it on to the administrator for submission of the document to the CVM.
Thus, the understanding remains that the manager is responsible for calculating the information related to risk management and periodic stress testing in the regulatory reports of RCVM 175?
Answer: Yes, the manager remains responsible for the assessment and calculation of this information, and the fiduciary administrator must retransmit them to the CVM.
Account Statement
ICVM 555 provided that sending the account statement to unitholders was one of the administrator's responsibilities, as detailed in art. 56, which also specified the information the statement should contain:
“Art. 56. The fund administrator is responsible for:
(...)
II – making available monthly to unitholders an account statement containing:
a) the name of the fund and its CNPJ registration number; b) the name, address, and CNPJ registration number of the administrator; c) the name of the unitholder; d) the balance and value of the shares at the beginning and end of the period and the transactions occurring during the month; e) the fund’s performance earned between the last business day of the previous month and the last business day of the reference month of the statement; f) the date of issuance of the account statement; and g) the phone number, email address, and mailing address for the service mentioned in item VII of art. 90.”

The public hearing report of Res. 175 stated that despite the suggestion received by the authority to eliminate the account statement for FIFs, only the possibility of exemption for the unitholder who expressly agrees not to receive the document was accepted, as provided in art. 22, § 2º of Annex I:
“Art. 22. The fund administrator is responsible for:
(...)
§ 2º The administrator is exempt from making the account statement available to unitholders who expressly agree not to receive the document.”

Thus, we would like to confirm that the obligation to make the statement available remains in force and that the information in the document must be detailed as previously provided in ICVM 555, despite the lack of express provision in the Annex I of the current resolution.
Answer: Yes, the obligation to make the account statement available continues to be necessary, with the exemption applying only to unitholders who expressly agree not to

Obtaining ISIN Prior to Asset Acquisition
The CVM addressed, in item 33 of Circular-Official No. 2/2023/CVM/SIN, the need to obtain the ISIN code as a prior condition for the acquisition of financial assets of funds constituted in accordance with CVM Resolution 175. However, it is verified that some instruments, mainly those with primary issuance and originated by financial institutions, do not have a registered ISIN code at the time of their issuance. In practice, these assets receive said code within up to 05 business days of their issuance, which ends up hindering compliance with the guidance brought by the CVM. Considering this issue, we would like to confirm the possibility for funds to acquire assets without an ISIN at the time of issuance, but with the obligation to report the code in the submission of the CDA of the reference portfolio. Answer: We agree with the observance of the procedure described above in case of impossibility of obtaining the ISIN at the time of asset acquisition by the classes.
Dynamics of CNPJ Creation for Funds and Classes
Question: What will be the dynamics of CNPJ creation for single-class and multi-class funds?
Answer: Differently from the signal provided through Joint Circular-Official No. 1/2023/CVM/SIN/SSE, the CVM opted to maintain a dynamic that allows for better organization and traceability of CNPJs. Thus, we clarify that two attributes will be maintained in the CVMWeb system:
i. Registered funds with the Single-Class attribute: the use of the same CNPJ for the shell fund and for the single class will be permitted.
ii. Registered funds with the Multi-Class attribute: the use of two distinct CNPJs will be mandatory (1 for the shell fund and 1 for the 1st class), and with the creation of new classes, new CNPJs will be created.

If essential service providers decide to create additional classes in a fund that is in the single-class fund attribute, it will be necessary to register a new multi-class fund, and the single class of the single-class fund must be migrated to this new multi-class fund structure, keeping the original CNPJ of the single-class structure in the migrated class. The original shell fund will have its registration cancelled with the CVM; however, its traceability and history will be maintained in the Authority's database.

Emphasizing that this move may occur by unilateral act of the administrator, except in cases where it is expressly provided in regulations that the fund is single-class, in which case the convening of an Assembly will be necessary. Therefore, the answer to item 2 of Circular-Official 01/2023/CVM/SIN/SSE is hereby rectified.

Margin Compensation in Local and Offshore Vehicles
Question: As provided in Circular-Official No. 10/2023/CVM/SIN, the Fund Capital Risk metric (“RCF”), established by B3, may be used in substitution for the required margin value, to comply with the provisions of art. 73, of Normative Annex I of Res. CVM 175. In this sense, given the absence of RCF for offshore vehicles, we would like to ratify the authority's understanding regarding the possibility for the manager to calculate the margin by compensating the portion of the local vehicle with the positions of the offshore vehicle invested by it in Long & Short strategies, aiming thus for compensation analogous to the RCF in the local market. Answer: According to the premises above, we understand that compensation of margin positions of a local vehicle that invests in an offshore vehicle of the same manager is permitted, or, if the manager of the local vehicle has influence over the investment decisions of the offshore vehicle, it is up to the manager to control and report to the administrator of the investment fund class.

Circular Letter No. 2/2024/CVM/SIN

Lineage: In force