Alternative Funds 2025 Comparisons

Brazil has a modern and robust legal framework governing its investment fund market. The Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários, or CVM) is the main regulatory agency, and the Brazilian fund industry also has very influential self-regulatory agencies, such as the Brazilian Association of Financial and Capital Market Entities (ANBIMA), which has more than 1,500 institutions that follow its self-regulatory codes.

In recent years, several changes have positively impacted the fund industry in Brazil, including the enactment of Federal Law No 13,874, of 20 September 2019, also known as the “Economic Freedom Law” (Lei de Liberdade Econômica). Essentially, this law introduced important changes for investment funds in Brazil, including the provision of limited liability to the amount invested for investors and the possibility of creating classes of quotas with segregated assets and distinct rights.

Resolution No 175 issued at the end of 2022 became the new regulatory framework for investment funds in Brazil, modernising, simplifying and unifying the previous rules – which had been scattered for each type of fund – adopting a more flexible and efficient structure inspired by international models (the umbrella fund model). Resolution No 175 also introduced a model of classes and subclasses, allowing for different investment strategies within a single General Taxpayers’ Registry (CNPJ), which results in greater transparency, diversity of options, and reduced operating costs for managers and investors.

The most commonly used vehicles are Financial Investment Funds (Fundos de Investimento Financeiros) – among which are Multimarket Investment Funds (Fundos de Investimento Financeiros Multimercados) – Credit Rights Investment Funds (Fundos de Investimento em Direitos Creditórios – FIDC), Real Estate Investment Funds (Fundos de Investimento Imobiliários), Investment Funds for Agroindustrial Production Chains (Fundos de Investimento nas Cadeias Produtivas Agroindustriais), and Private Equity and Venture Capital Investment Funds (Fundos de Investimento em Participações). The service chain is mature, with fund managers and fiduciary administrators who need authorisation from the CVM to operate. Additionally, depending on the vehicle and strategy, other service providers – many of whom also require authorisation from the CVM to operate – are necessary, such as custodians, securities registrars, independent auditors, and collateral verification and collection agents.

Currently, with the rise in the basic interest rate (SELIC), investors in Brazil have been seeking fewer variable income assets and more fixed income assets. The scenario has also opened up space for new products for the fund industry and credit market.

This high-interest-rate environment has also been positive for the FIDC industry. The net worth of these vehicles grew by around 10% in the first six months of 2025, reaching BRL687 billion, according to data from ANBIMA. FIDC were also responsible for net inflows of BRL20.7 billion in the period – the second-highest among funds, behind only traditional fixed income.

In a scenario of high interest rates, alternative and fixed income funds in Brazil have become an attractive option for investors and the entire credit market. This includes incentive debenture funds and other alternatives that offer solid returns with lower risk.

On the tax front, new provisional measures and laws are being enacted frequently, such as Law No 14,754/2023, which establishes income tax withholding rules applicable to individuals on investments in offshore assets, such as financial investments, controlled entities and trusts abroad. In addition, this law introduced significant changes in the taxation applicable to investment funds in Brazil.

The main structures of alternative investment funds in Brazil are described in the normative annexes to Resolution No 175. Investment funds may be differentiated primarily by the type of strategy and asset they can invest in, and the following types of vehicles are the most effective structures within the alternative investment funds markets, without limitation:

• Financial Investment Funds – vehicles that invest primarily in traditional assets, particularly liquid assets, and that can be subclassified into: (i) fixed income funds, which seek returns through investments in fixed income assets, allowing strategies that involve interest rate and price index risk; (ii) stock funds, which will have in their portfolio, primarily, variable income assets, such as stocks, share and bond deposit certificates and subscription receipts; (iii) exchange funds, which must invest at least 80% of their portfolio in assets - of any credit risk spectrum - directly related or synthesised, through derivatives, to foreign currency; and (iv) multimarket funds, funds with investment policies that involve several risk factors, without the commitment to concentrate on any particular factor. Nonetheless, multimarket funds are often used, direct or indirectly, within alternative investment funds structures.

Regarding multimarket funds, such vehicles are often used as part of the alternative structures as a carrier or a feeder fund to invest in the funds mentioned herein. Nonetheless, there are multimarket investment funds that can, by their own structure, be created just for specific credit investment, being, in these cases, structures for alternative investments.

• Credit Rights Investment Funds (FIDC) – these are investment vehicles that invest most of their net assets in credit rights. These credit rights can be of several types, such as trade notes, assignments of rights of all sorts, commercial notes, debentures, structured-finance instruments, cheques, and credit card receivables, among others. In Brazil, Credit Rights Investment Funds are a very strong and developed financial instruments used within proprietary and third-party financial structures and projects.
• Real Estate Investment Funds – investment vehicles established for investment in real estate projects, such as real estate companies, real estate credit rights and all sorts of properties.
• Investment Fund for Agroindustrial Production Chains – investment vehicles established for investment in the agro-industrial production chains, serving as vehicles that can focus on agro-industrial real estate, credits and/or companies of the segment.
• Private Equity and Venture Capital Investment Funds – investment vehicles established for investment in publicly held or privately held companies and/or limited liability companies.

Regardless of the above, it should be highlighted that there are specific laws, provisions, and characteristics that must be observed when establishing, structuring, and in the day-to-day operations of each investment fund.

In Brazil, alternative funds must comply with the regulations applicable to them, issued mainly by the CVM (particularly Resolution No 175).

The structuring of an investment fund occurs through joint deliberation by its fiduciary administrator and its resource manager, who are responsible for drafting and approving the vehicle’s bylaws, and the fund’s operation is automatically granted as a result of the submission of documents and information by the fiduciary administrator through the CVM’s electronic system.

Therefore, there is no prior authorisation from the CVM, ie, the fund’s operation does not need to be approved in advance by the CVM but rather depends on the fund’s registration with the CVM, which is granted automatically by sending the applicable documents and information, as mentioned above.

The constitution/registration of the fund is therefore procedural – once the bylaws are ready, the service providers are defined, and the registrations are completed, the vehicle is quickly created and becomes subject to ongoing supervision by the CVM. The pace at which the fund’s quotas go to market depends mainly on the documentation logistics and, if there is fundraising, on the offering process. In offerings, timelines may vary depending on certain variables such as the vehicle’s target audience, whether the offering allows for reservations, bookbuilding procedures, and the type of offering registration (automatic or ordinary), among others.

Investment limits and policies vary mainly according to the product and target audience, being defined by applicable regulations and specified in the fund’s own bylaws. In this sense, in addition to the investment policy that must be observed by each fund, as detailed in general terms in 2.1 Types of Alternative Funds and Structures, funds for retail investors, for example, tend to have more limitations than funds for investors classified by the CVM as qualified or professional investors, who can invest in more flexible funds, including with regard to their investment policy, the charging of fees, and the method of paying for quotas, which may be done by paying in assets in those funds.

Under the Brazilian jurisdiction, there are formal disclosure requirements and mandatory content imposed by the CVM, both for investment fund offering documents and for the ongoing disclosure of information about these funds.

In offering documents, for example, the prospectus (prospecto) shall observe the structure and order imposed by CVM Resolution No 160, of 13 July 2022, as amended, with mandatory chapters, sections, and disclaimers that shall be observed and included in the document.

The documents prepared in connection with the offerings must, under the terms of the applicable rules, contain necessary, sufficient, true, accurate, consistent, and current information, presented in a clear and objective manner in direct and accessible language, so that investors can perform an informed investment decision.

In the context of the continuous disclosure of information on investment funds, Resolution No 175 requires that the disclosure of such information be comprehensive, equitable, and simultaneous to all quota holders in the fund, with documents and information, such as updated bylaws and descriptions of applicable taxation, among others, made available on computerised channels and websites of the fiduciary administrator, fund investment manager, distributor of quotas, and, when appropriate, the entity managing the organised market in which the quotas are admitted to trading. Resolution No 175 also requires public disclosure, in a prominent place and with free access to the general public. The CVM also maintains systems and pages with the documents and data of the investment funds, such as bylaws, prospectuses, when appropriate, portfolio composition, relevant facts, and minutes of general assemblies, among others.       

In Brazil, taxation on investment funds varies depending on the type of investor and the nature of the vehicle.

There are, in summary, two main types of taxation that may be applied to investment funds: taxation on transactions and taxation on invested assets.

In taxation on transactions, taxes are levied whenever there is a movement of resources in the fund, such as a redemption or a distribution of income. In this case, a Withholding Income Tax (WIT) rate is applied to the capital gain, which is calculated as the difference between the sale price of the fund’s quotas and their purchase price.

In the case of taxation on invested assets, taxes are levied twice a year, on the last business day of May and November, based on the income obtained in the period (previous six months) – a mechanism known as come-cotas. Nonetheless, there are special investment funds that can be created to defer this obligation.

For resident investors, whether individuals or legal entities, taxation is generally based on WIT (Imposto de Renda Retido na Fonte – IRRF).

Nonetheless, and especially for alternative investment funds, there are other rates and rules. For instance, for Credit Rights Investment Funds, Multimarket Investment Funds and Private Equity and Venture Capital Investment Funds it is possible to have a fixed tax rate of only 15%, provided that the structure complies with some rules, especially of management control and administrative discretion of the vehicle, as well as certain levels of net liquidity and assets composition.

Furthermore, other types of funds, such as Real Estate Investment Funds and Investment Funds for Agroindustrial Production Chains, have specific tax rates, as well as tax relief for their investors.

Financial investments made by non-resident investors in investment funds generally benefit.

Generally, the fiduciary administrator and the investment fund manager, on behalf of the fund, are prohibited from contracting or granting loans, without prejudice to the manager being able to borrow and lend financial assets of the fund, provided that such loan transactions are conducted exclusively through a service authorised by the Central Bank of Brazil or the CVM.

Notwithstanding the above and depending on the type of fund and if its bylaws permit, funds may contract loans, for example, to cover the default of quota holders who fail to pay their subscribed quotas or to cover the fund’s negative net worth, as applicable.

In the case of Private Equity and Venture Capital Investment Funds, there is no credit granting per se. Still, this type of fund invests in companies, whether through equity, debt, or other financial instruments, to profit from their development and appreciation. As a form of investment in such companies, it may use, among other instruments, convertible loans, which may be converted into equity interests in the referred company.

Although they cannot grant loans directly, Credit Rights Investment Funds are important instruments for granting credit, especially for micro, small, and medium-sized companies, which have greater difficulty accessing credit on adequate terms to finance their working capital. In this sense, the Credit Rights Investment Funds functions as an investment vehicle that acquires the credit rights of such companies, such as sales receivables. In other words, the company that has these receivables can sell them to the fund, receiving cash in advance (at a discount).

In Brazil, the possibility of investing in non-traditional assets depends on the type of the fund and the instrument used to carry the exposure.

Financial Investment Funds may invest in digital assets (cryptocurrencies), provided that the exposure occurs through assets traded on entities authorised by the Central Bank of Brazil or the CVM, or, in the case of foreign transactions, by a local supervisor with legal authority to supervise and oversee the transactions carried out. Investment limits may vary depending on the fund’s target audience.

For consumer credit and other loan portfolios, the best option is investment through Credit Rights Investment Funds, which acquires credit rights (performed or non-standardised receivables, depending on the investment policy and target audience of the vehicle). Non-standardised receivables, such as court orders (precatórios) or litigation receivables, are generally intended for professional investor funds, with specific exceptions provided for in the applicable legislation.

Investments related to cannabis may be and usually are made indirectly, through exchange-traded funds, Brazilian Depositary Receipts, or vehicles abroad under equivalent supervision, in compliance with foreign investment/exchange-traded funds rules.

It is relatively common for investment funds in Brazil to use subsidiaries or dedicated vehicles such as specific purpose entities and/or holding companies to implement specific strategies. In short, such subsidiaries and dedicated vehicles are normally used because they increase legal certainty, structural flexibility, and the feasibility of investment strategies, while preserving the segregation of assets and governance of the fund.       

The management of securities portfolios in Brazil, including investment funds, requires the involvement of service providers authorised by the CVM, namely a fiduciary administrator, responsible for performing the acts necessary for the administration of the investment fund, and a resource manager, responsible for performing the acts necessary for the management of the fund’s asset portfolio.

Under the terms of CVM Resolution No 21 of 25 February 2021, as amended (“Resolution No 21”), in order to be authorised to operate by the CVM, fiduciary administrators and resource managers must, among other requirements, have their headquarters in Brazil; have as part of their corporate purpose the exercise of securities portfolios management and must be regularly constituted and registered with a Corporate Taxpayer Identification Number; must assign responsibility for securities portfolios management to one or more statutory directors authorised to perform the activity by the CVM; assign responsibility for compliance with internal rules, policies, procedures, and controls to a statutory director; must establish and maintain human and computational resources appropriate to the size and area of activity of the legal entity; and, for resource managers specifically, must assign responsibility for risk management to a statutory director.

As mentioned above, the fiduciary administrator and resource manager of an investment fund in Brazil must have their headquarters or domicile in Brazil, as applicable.

In general, the CVM requires that investment fund service providers that perform regulated activities have their headquarters or at least a branch in Brazil and maintain a minimum structure, with internal policies and controls compatible with their size and the activities they perform.

Furthermore, pursuant to Resolution No 175, it is worth mentioning that such a rule assigns to the fiduciary administrator and the resource manager, whom it refers to as essential service providers of the investment fund, the authority to hire certain service providers.

In this regard, the fiduciary administrator is responsible for hiring, among others, and depending on the type of investment fund, duly qualified and authorised third parties to provide the following services: (i) treasury, control, and processing of assets; (ii) book-entry of quotas; and (iii) an independent audit.

The resource manager, in its turn, is responsible for contracting, on behalf of the fund, with duly qualified and authorised third parties, the following services: (i) intermediation of transactions for the asset portfolio; (ii) distribution of quotas; (iii) investment consultancy; (iv) risk rating by a credit risk rating agency; (v) closed-class market maker; and (vi) co-management of the asset portfolio.

Resolution No 175 was published recently. Moreover, there have been several tax changes to the fund market, all equally recent, such as Law No 14,754/2023 and Brazilian Central Bank Resolution No 5,111, of 21 December 2023, which provides definitions of “Investment Entity” (Entidade de Investimento) and “Credit Rights” (Direitos Creditórios) for the purposes of interpreting and applying the provisions established in Law No 14,754/2023 regarding the application or non-application of the come-quotas regime to FIDC and FIP.

In this regard, no further legal changes are expected in the near future, without prejudice to the CVM issuing new official letters containing clarifications on these rules, as it has been doing.       

As a rule, in Brazil there is no formal and regulatory established figure for promoters and sponsors of investment funds. However, if they do exist, they may be predominantly Brazilian, such as local asset managers, investment banks, originators, securitisation companies and incorporators, for example, with recurring participation by non-resident investors in the structures.

In terms of strategy, local domiciles predominate in FIDCs and FIIs/Fiagros, while foreign sponsors appear mainly in PE/VC structures or co-investments with local asset managers.

In Brazil, sponsors, as indicated above, may organise themselves mainly as limited liability companies, due to the simplicity of the corporate structure and flexibility of the articles of association to distribute profits disproportionately.

At the same time, many companies create structures to align incentives and segregate risks, such as specific SPEs for project development in FIIs, SCPs or profit-sharing agreements, and co-investment vehicles. Individual compensation agreements and capital incentives are indeed a major driver of corporate and contractual architecture (often the main one): the possibility of compensating via profits, deferring gains through carry/co-investment, and tying permanence/performance to vesting and clawback often dictates the choice between limited liability companies (more agile and cheaper) and stock company (more robust for long-term equity).

These arrangements are accompanied by partnership agreements and remuneration policies compatible with applicable regulations, including, but not limited to, CVM Resolution No 175/2022 and Brazilian Association of Financial and Capital Market Entities (ANBIMA) codes, with clear rules on entry and exit, succession and disclosure when relevant to fund documents.

In Brazil, asset managers must be authorised by the CVM under CVM Resolution No 21. This regulation governs the professional management of securities portfolios and imposes requirements for registration, structure, conduct rules, and internal controls.

Simultaneously, CVM Resolution No 175 governs fund constitution, operation, and service provision. It assigns specific responsibilities to the asset manager, such as compliance with portfolio composition and concentration limits, and to the fiduciary administrator. It also sets liability parameters for acts and omissions before the CVM.

Regarding fiduciary duty, CVM Resolution No 21 establishes the typical duties of a fiduciary relationship: good faith, diligence, and loyalty. CVM Resolution No 175 supplements these with operational and liability obligations.

For disclosures and advertising, CVM Resolution No 21 requires asset managers to maintain a public page. This page must include a Reference Form, code of ethics, and policies (such as risk management, trading procedures and assessment performing). Asset managers are also required to periodically submit this information to the CVM.

Especially for alternative investment funds, there are other rates and rules. For instance, for Credit Rights Investment Funds, Multimarket Investment Funds and Private Equity and Venture Capital Investment Funds it is possible to have a fixed tax rate of only 15%, provided that the structure complies with some rules, especially of management control and administrative discretion of the vehicle, as well as certain levels of net liquidity and assets composition.

In this sense, it is very important within the process of creation of the vehicle to observe the above-mentioned rules and decide if the fund will be created to reach the tax rate regime enacted by Law No 14.754/2023 (being classified according to Brazilian rules as “investment entities” (entidades de investimento) and adopt the above mentioned regime, as well as observe if it will attend to the differed tax payment or the anticipated tax payment regime (come-cotas).

Furthermore, other types of funds, such as real estate investment funds and Investment Fund for Agroindustrial Production Chains, have specific tax rates, as well as tax reliefs for their investors, if the investment funds attend to specific rules of composition and other provisions of trade and register.

In Brazil, CVM Resolution No 175 and Resolution CVM No 21 provides guidelines for investment funds and establishes that the fund’s fiduciary administrator must be an institution authorised to operate by the CVM and domiciled in Brazil. In addition, the contracted asset manager must also be a legal entity duly registered with the CVM and headquartered in the country.

On the other hand, most alternative investment funds may hire investment consultants or specialised service providers located in other jurisdictions, provided that ultimate responsibility for administration and management remains with the Brazilian entities registered by CVM.

In Brazil, taxation on investment funds varies depending on the type of investor and the nature of the vehicle.

There are, in summary, two main types of taxation that may be applied to investment funds: taxation on transactions and taxation on invested assets.

In taxation on transactions, taxes are levied whenever there is a movement of resources in the fund, such as a redemption or a distribution of income. In this case, a Withholding Income Tax (WIT) rate is applied to the capital gain, which is calculated as the difference between the sale price of the fund’s quotas and their purchase price.

In the case of taxation on invested assets, taxes are levied twice a year, on the last business day of May and November, based on the income obtained in the period (previous six months) – a mechanism known as come-cotas. Nonetheless, there are special investment funds that can be created to defer this obligation.

For resident investors, whether individuals or legal entities, taxation is generally based on WIT (Imposto de Renda Retido na Fonte – IRRF).

Traditionally, such tax may apply in accordance with the following regressive rates:

• short-term fixed income funds in Brazil are taxed at a rate of 22.5% for investments held up to 180 days and 20% for those held from 181 to 360 days.
• long-term fixed income funds follow a regressive schedule: investments held up to 180 days are taxed at 22.5%, from 181 to 360 days at 20%, from 361 to 720 days at 17.5%, and those held for more than 720 days at 15%.

Nonetheless, and especially for alternative investment funds, there are other rates and rules. For instance, for Credit Rights Investment Funds, Multimarket Investment Funds and Private Equity and Venture Capital Investment Funds, it is possible to have a fixed tax rate of only 15%, provided that their structure complies with certain rules, especially of management control and administrative discretion of the vehicle, as well as certain levels of net liquidity and asset composition.

In this sense, it is very important within the process of creation of the vehicle to observe the above-mentioned rules and decide if the fund will be created to reach the tax-rate regime enacted by Law No 14,754/2023 (being classified according to Brazilian rules as “investment entities” (entidades de investimento) and adopt the above-mentioned regime, as well as observe whether it will attend to the deferred tax payment or the anticipated tax-payment regime (come-cotas).

Furthermore, other types of funds, such as Real Estate Investment Funds and Investment Funds for Agroindustrial Production Chains, have specific tax rates as well as tax relief for their investors.

Financial investments made by non-resident investors in investment funds are, typically, benefited.

Generally, in this regard, it should be noted that distributions made to non-resident investors not domiciled in locations considered as tax havens will be subject to WIT at beneficial rates and specific tax relief, depending on the type of investment fund and its portfolio. On the other hand, distributions made to non-resident investors domiciled in locations considered as tax havens will be subject to WIT at a higher rate.

The tax treatment of pension funds in Brazil depends on their legal structure and the type of investment fund allocated. Nevertheless, as a general principle, income and returns earned by Brazilian pension funds are exempt from income tax, and any withholding tax applied to gains is regarded as definitive.

In Brazil, asset managers cannot outsource their duties to the fund. What may occur is the existence of a co-manager in the fund’s structure and, if this is the case, the contract must clearly define the duties of each asset manager, including, at a minimum, the specific market in which each asset manager operates and the class or classes of shares subject to co-management, in accordance with CVM Resolution No 175.

On the other hand, CVM Resolution No 175 establishes that asset managers must hire, on behalf of the fund, third parties duly qualified and authorised to provide the following services: (i) intermediation of transactions for the asset portfolio; (ii) distribution of shares; (iii) investment consulting; (iv) risk rating by a credit rating agency; v) closed-end market making; and (vi) co-management of the asset portfolio.

This is a regulated activity that requires accreditation and authorisation from the Brazilian Securities and Exchange Commission to be performed.

Fiduciary administrators and asset managers must comply with CVM Resolution No 21, which provides for the professional exercise of managing investment funds, an activity which is divided into two categories: fiduciary administration and asset management.

Asset managers are legally responsible for investment decisions, for defining fund limits, and for hiring services such as distribution of quotas, investment consultancy, and risk rating by a credit risk rating agency, among others. The fiduciary administrator is responsible for the fund’s administrative activities, such as accounting, including treasury, control, and processing of assets.

Both the fiduciary administrator and the asset manager must be headquartered in Brazil and are subject to minimum requirements regarding infrastructure, human resources, internal controls, segregation, Chinese Wall rules, and information disclosure, among others.

There is no specific minimum capital/equity requirement for asset managers.

In Brazil, mergers, sales, restructurings or changes of control involving the asset manager (or its parent company) do not, as a rule, require prior approval by the CVM, but they do impose updating and disclosure obligations, and the asset manager must maintain a public page with an updated Reference Form and reflect relevant corporate events (mergers, changes in control, etc), to the extent that they are public.

On the other hand, in the case of ANBIMA, when mergers, sales, restructurings or changes of control involving the asset manager occur, the asset manager must apply for a new membership with ANBIMA, which will request all relevant documents for the application in order to assess whether the change will pose any risk to the continuity of the company’s activities.

On the fund side, the replacement of the asset manager or changes to the regulations normally depend on approval at a shareholders’ meeting, subject to the quorums and exceptions provided for in CVM Resolution No 175. In addition, material facts related to the operation of the fund must be disclosed to quota holders and on the CVM website, and the administrator must maintain an updated list of service providers (including the asset manager) with the CVM.

In Brazil, there is no “special AI” rule for asset managers. However, the use of artificial intelligence, predictive models, and big data must comply with the guidelines provided by CVM and ANBIMA on the subject, as well as Law No 13.709 - Lei Geral de Proteção de Dados.        

There are none at present.

In Brazil, the appetite for alternative investments remains strong, driven by the search for risk premiums above the DI and investment diversification, considering the country’s high interest rates. The most common investors in alternative funds are professional and qualified investors in the domestic ecosystem.

The most challenging profiles, which tend to carry greater risks and increasingly robust and complex structures, are: (i) large pension funds and insurance companies, as they require robust risk tracks, AML, track record and governance, as well as long due diligence periods; and (ii) foreign and retail investors, as they have regulatory eligibility restrictions, liquidity/communication needs, and standardised reporting requirements.

Generally, the establishment and operation of an investment vehicle in Brazil depends on the strategy envisaged for the structure and the investor’s needs.

Nonetheless, in recent years, the development of the alternative investment funds markets has significantly risen, and investors are strongly assessing it. Also, considering that Brazil provides a high domestic basic interest rate, companies are forced to access the alternative investment markets, particularly credit rights investment funds, in order to obtain a more attractive form of fundraising than of those provided by traditional financial institutions and also to enhance its tax and capital structure.

within the search for investors, and particularly for companies to optimise capital structure, it is important to note the robust increase in Credit Rights Investment Funds (Fundos de Investimento em Direitos Creditórios, or FIDCs). ANBIMA disclosed that, within the first half of this year, FIDCs led the investment funds markets with BRL22.5 billion in fund raising.

Execution of Side Letters in the Context of Investment Funds

The execution of side letters is not prohibited. However, their admissibility depends on their compatibility with the general principles applicable to the constitution and management of funds, in particular the principle of equity between investors in the same class or subclass of shares, as provided for in CVM Resolution No 175.

Although the rule does not specifically regulate side letters within in the context of funds, it establishes that certain conditions applicable to the fund, as well as to its classes and subclasses, must be formally incorporated into the respective constitutive documents – including the regulations, class annexes, and subclass appendices. Such documents must comply with the minimum requirements defined by the rule in order to ensure transparency and equal treatment.

Requirements for Entering Into Side Letters

The use of side letters may be permitted, provided that their terms do not result in unfair or preferential treatment among investors of the same class or subclass, do not violate the fiduciary duties of the manager or administrator, and do not modify the economic or governance rights established in the fund’s documents.

In practice, side letters are more common in alternative or structured funds, particularly those aimed at professional and qualified investors, whose profile and trading capacity justify the adoption of specific conditions.

Currently, Brazilian regulations do not impose an express requirement for prior approval or mandatory disclosure of any side letters that may be signed, nor do they require their extension to certain investors. Nevertheless, the validity and effectiveness of these instruments depend on their compliance with the fiduciary duties of the fund’s service providers, and with the principles governing the administration and governance of funds in Brazil.

The distribution of alternative investment funds in Brazil must comply with the guidelines set forth in the respective regulatory documents and be in accordance with the requirements established by the CVM.

Regarding retail investors, Brazilian law allows access to certain alternative funds, provided that such vehicles meet the legal and regulatory criteria applicable. These include Real Estate Investment Funds (FIIs), Agribusiness Production Chain Investment Funds (FIAGROS), Credit Rights Investment Funds (FIDCs) and certain Multimarket Funds that invest in alternative assets in a regulated manner.

With regard to institutional investors, including open supplementary pension entities (EAPCs), closed supplementary pension entities (EFPCs) and Special Social Security Regimes (RPPSs), although there are no general restrictions on allocation to alternative funds, the actual possibility of investment is subject to compliance with specific regulations issued by the Brazilian National Monetary Council and its respective supervisory bodies (such as SUSEP and PREVIC), which impose technical, operational and governance requirements. In practice, these rules limit the scope of vehicles accessible to these entities.

In summary, local investors may invest in alternative funds established in Brazil, provided that the regulatory requirements applicable to the type of investor are met.

Intermediaries Authorised to Distribute Funds

The public distribution of investment fund units in Brazil, whether structured locally or abroad, is subject to specific regulatory rules, which require the use of intermediaries duly authorised by the CVM, such as brokerage firms and securities distributors. In addition, fiduciary administrators and asset managers who do not qualify as members of the distribution system may distribute shares of the funds they administer or manage, provided they comply with CVM standards and applicable self-regulation rules.

Such intermediaries must be formally contracted to perform the function of distributor, as determined by current regulations.

In general, there is no prohibition on the distribution of quotas by authorised intermediaries, provided that the fund’s target audience segmentation – retail, qualified or professional – is respected in accordance with the fund’s regulations and applicable regulations. The offer must adhere to the investor profile, subject to the suitability regime established by CVM Resolution No 30 of 11 May 2021 (“CVM Resolution No 30”).

Registration of Distribution of Open- and Closed-End Funds

With regard to the registration regime for fund distributions, there are relevant distinctions between open-end and closed-end funds. Offers of open-end fund shares, in general, do not require prior registration with the CVM. About the registration regime for public offerings of closed-end funds, CVM Resolution No 160 provides for different applicable registration modalities. Offers may be registered by means of:

• automatic registration, upon filing of standardised documentation;
• automatic registration with prior analysis by an entity authorised by the CVM; or
• ordinary registration, with technical analysis and formal approval by the CVM itself.

Initial and subsequent offerings directed exclusively to qualified or professional investors, in general, may follow the automatic procedure. On the other hand, initial offerings aimed at the retail public require registration with prior analysis, either by an authorised entity or by the CVM itself, as the case may be.

CVM Resolution No 160 also establishes specific cases for exemption from registration of offers of closed-end fund shares, provided that certain conditions are met.

Ongoing Obligations Applicable to Distributors

Distributors are subject to various ongoing obligations throughout the distribution process, including, but not limited to:

• verification of the suitability of the product to the investor’s profile, in accordance with CVM Resolution No 30;
• investor registration and identification procedures, as well as assessment of risks related to the prevention of money laundering and terrorist financing (PLD/FTP), pursuant to CVM Resolution No 50, of 31 August 2021 (“CVM Resolution No 50”);
• in the case of open-ended funds, custody and filing of investment orders; and
• in the case of closed-ended funds offered under CVM Resolution No 160, submission to the CVM, by the fifteenth business day after the end of each month, of the Consolidated Distribution Report, as of the disclosure of the announcement of the start of the offering.

Access to Alternative Funds for High Net Worth and Retail Investors

In Brazil, alternative investment strategies may be accessed by high net worth investors and, in some cases, by the retail public, provided that the applicable regulatory requirements are observed, in particular those set forth in CVM Resolutions No 175 and No 160, as well as in the rules of the market’s self-regulatory entities, as described in item 4.3. Marketing of Alternative Funds to Investors.

Promotional Materials and Disclosure of Strategies

Information about these strategies is disclosed through promotional materials prepared by the fund service providers, which are made available to the public through channels such as the websites of the funds themselves, distributors or managers, and may also be sent directly to potential investors. These materials must comply with specific requirements regarding form, content, language and risks highlighted, as required by regulation and self-regulation.

Mandatory Technical Documentation: Prospectus and Fact Sheet

In addition to commercial material, regulations require the preparation and wide dissemination of technical documents such as prospectuses and fact sheets containing essential information for public offerings of closed-end funds, as provided for in CVM Resolution No 160. These documents must be made available, at a minimum, on the websites of the fund, the distributors, the organised market administrator (when applicable) and the CVM itself.

The requirement for a prospectus and fact sheet will depend on the nature of the fund and the target audience of the offering. In general, alternative fund offerings aimed at non-professional investors, such as qualified or retail investors, must submit these documents. Offers restricted to professional investors may be exempt from this requirement. These mandatory documents must present, in a clear, complete and accessible manner, information about the fund, including its investment policy, fee structure, main risks, tax regime, rights of shareholders, among other relevant aspects.

Listing on Organised Markets and Expanding Reach

Additionally, with a view to expanding the reach of the investor base, it is possible to structure alternative funds with shares admitted to trading on organised or over-the-counter markets managed by entities authorised by the CVM. The listing of shares on such markets allows for greater visibility and liquidity, in addition to facilitating access by a broader public to alternative investment strategies, provided that the investor profile required by the regulations is respected.

Private Placement Regime Under Brazilian Regulations

Although some jurisdictions, such as the United States under Rule 506(c), allow marketing and advertising even in the context of a private placement, it is important to note that Brazilian regulations still take a more conservative and restrictive approach to private placements.

As mentioned in item 4.4 Rules Concerning Marketing of Alternative Funds, CVM Resolution No 160 recognises certain situations that constitute private offerings of investment fund shares, providing, in its Article 8, for cases in which the registration regime for public offerings of securities does not apply.

However, within the context of Brazilian regulations, for an offering to be validly classified as private, it is essential that it does not contain elements that are characteristic of a public offering, which, for the purposes of Brazilian regulations includes:

• disclosure or advertising of the offering to the general public;
• prospecting for indeterminate or large-scale investors;
• conducting market sounding or collecting investment intentions in a generalised manner;
• negotiations in environments open to the public or through public websites; or
• use of standardised marketing materials or materials sent in mass campaigns.

The occurrence of any of the above factors may result in the offer no longer being characterised as private.

Promotional Materials

Informational or promotional materials relating to private offerings must be restricted to a limited group of previously identified investors, preferably being made available only upon direct request from those investors.

Additionally, it is recommended that non-disclosure agreements (NDAs) be entered into with potential investors in order to restrict the improper disclosure of materials and mitigate regulatory risks for participants involved in the offering.

Risks of Replicating Foreign Models and Compliance With Local Regulations

It is essential that sponsors and managers be aware of the limitations imposed by Brazilian law on the structuring and disclosure of private offerings, especially when compared to more flexible regimes in other jurisdictions. Permissive fundraising strategies in other locations – such as those that allow advertising in private offerings – should not be automatically replicated in Brazil without proper adaptation to the national regulatory framework.

Placement Agents in Brazil

The use of placement agents is not widespread in the Brazilian. Currently, there is no specific regulation in Brazil that directly governs the activity of placement agents.

Even in the absence of specific regulations for placement agents, it is essential to assess the specific nature of the activities carried out by such service providers in Brazil. If the functions performed fall within regulated activities – such as securities distribution, investment consulting, or portfolio management – it will be necessary to obtain prior authorisation from the CVM or another competent regulatory body.

Remuneration of Manager Employees for Sales Efforts

If the team of asset manager acts in the distribution of fund shares under its management, as permitted by CVM Resolution No 21 and in compliance with the rules set forth in the regulations and self-regulation, it may be remunerated for its efforts in distributing fund shares under its management. Remuneration related to fund management and remuneration related to distribution activities must be disclosed separately.

The taxation applicable to investment funds in Brazil varies according to the type of investor and the nature of the vehicle.

In general, there are two main taxation regimes that may apply to investment funds: taxation on cash flow events and taxation on invested assets.

Taxation on cash flow events occurs whenever there is a cash flow event in the fund, such as the distribution of income, amortisation or redemption of units. In such cases, withholding income tax (IRRF) is applied to the capital gain, calculated:

• in the case of redemption, based on the difference between the redemption value of the shares and the acquisition value; and
• in the case of amortisation, based on the difference between the amortisation price and the portion of the acquisition cost of the share, calculated based on the proportion that the amortisation price represents of the share’s net asset value.

Under the taxation regime for invested assets, IRRF is paid in advance through the come-cotas system where the tax is levied every six months – on the last business day of May and November – on income earned during the six-month period.

However, there are special investment fund structures that can be set up to defer this tax, subject to specific legal criteria.

General Tax Treatment

For investors residing in Brazil, whether individuals or legal entities, taxation is generally levied through IRRF (Withholding Income Tax, or WIT), whose rates vary according to the term of the investment and the type of fund.

• For short-term fixed income funds, a rate of 22.5% is applied to income when the investment term is up to 180 days. For investments with a term between 181 and 360 days, the rate is reduced to 20%.
• In long-term fixed income funds, taxation also begins with a rate of 22.5% for investments of up to 180 days. For terms between 181 and 360 days, the rate of 20% applies; between 361 and 720 days, the rate drops to 17.5%; and for investments with a term of more than 720 days, the minimum rate of 15% applies.

Treatment of Alternative Funds

In the context of alternative funds, such as Credit Rights Investment Funds (FIDCs), Multimarket Funds (FIMs), Private Equity and Venture Capital Funds (FIPs), a fixed rate of 15% may be applied, provided that the fund meets certain legal conditions that characterise it as an “investment entity”.

For the purposes of this verification, the following requirements, among others provided for in the regulations, must be assessed:

• the absence of direct or indirect control by shareholders over the management of assets;
• the existence of operational discretion on the part of the manager; and
• compliance with requirements related to shareholders and the composition of the portfolio.

Thus, when structuring the fund, it is essential to verify whether it can qualify as an investment entity under the terms of Law No 14,754/2023, and thus opt for the most appropriate tax regime – including with regard to the advance withholding of IRRF (come-quotas) or the deferral of taxation until the moment of redemption or sale of the quotas.

Funds created for specific purposes, such as Real Estate Investment Funds (FIIs) and Agribusiness Production Chain Investment Funds (FIAGROS), have their own taxation regimes.

In FIIs, individuals can enjoy income tax exemption on distributed income, provided that:

• the fund’s shares are traded exclusively on a stock exchange or organised over-the-counter market;
• the fund has at least 50 shareholders; and
• the shareholder benefiting from the exemption does not individually hold 10% or more of the fund’s shares.

Similar rules apply to FIAGROS, provided that the criteria set forth in the specific regulations are met.

Tax Treatment of Non-Resident Investors

In general, investments in Brazilian funds by non-resident investors receive favourable tax treatment, provided that these investors are not domiciled in jurisdictions classified as tax havens or subject to privileged tax regimes.

For qualified foreign investors, income and gains earned through investment funds may be subject to reduced IRRF rates or even exemption, depending on the type of fund and the composition of its portfolio.

On the other hand, investors domiciled in tax havens are subject to a withholding income tax rate of 25% on income earned, regardless of the type of fund or the composition of the portfolio.

Tax Treatment of Pension Funds

The tax treatment applicable to Brazilian pension funds varies according to the legal structure of the entity and the type of fund invested. In general, income and capital gains obtained by closed-end pension funds are exempt from income tax, and any withholding taxes are considered final, ie, not subject to subsequent adjustments.

Under the terms of the Model Convention of the Organisation for Economic Co-operation and Development (OECD) – adopted by Brazil in its policy for negotiating double taxation treaties – transparent funds may qualify as “resident persons” for the purposes of applying international double-taxation treaties entered into by the country only when the fund’s shareholders are residents of the State in which the fund is established.

Otherwise, the benefits provided for in double-taxation treaties – such as reduced tax rates on dividends and interest paid by foreign entities – are not normally directly applicable to Brazilian funds, but rather to their shareholders, provided they meet the eligibility requirements set forth in the respective agreements.

Nevertheless, in more complex structures, it is advisable to assess each case individually, considering the type of fund, the counterparty jurisdiction, and any divergent interpretations by tax authorities.       

FATCA and CRS Compliance in Brazil

Brazil is a signatory to both the Foreign Account Tax Compliance Act (FATCA) - Model 1 (IGA Model 1A) - and the Common Reporting Standard (CRS).

Responsibility of Service Providers

In the context of investment funds, due diligence and reporting obligations are generally assigned to the trustee, as the financial institution responsible for compliance with tax and regulatory obligations.

However, it is essential that asset managers and other service providers cooperate in collecting, updating, and validating investor registration information to ensure full compliance with reporting regimes.

Penalties and Risks for Non-Compliance

Failure to comply with the obligations set forth in FATCA and CRS may result in fines and administrative sanctions imposed by the Brazilian Federal Revenue Service and significant reputational risks for the institutions involved, without prejudice to the penalties provided for in FATCA and CRS themselves, as applicable.       

Brazil has a robust and consolidated regime for the prevention of money laundering and terrorist financing (AML/CFT), in accordance with international standards established by the Financial Action Task Force (FATF), of which the country is a member.

Furthermore, the Brazilian regime establishes specific obligations related to the Know Your Customer (KYC) process.

Obligated institutions must also maintain effective systems for monitoring clients and their transactions, as well as report to the Financial Activities Control Council (COAF) whenever there are indications of illegal activities or activities incompatible.

Data Protection and Privacy Regime

The processing of personal data in the context of investment funds in Brazil is subject to the General Personal Data Protection Law (LGPD – Law No 13,709/2018), which establishes specific rules for the collection, use, storage, and sharing of investor data by managers, trustees, and other service providers.

Information Security and Governance

Those responsible for processing must adopt technical and administrative information security measures in accordance with the LGPD, CVM regulations, and the guidelines of self-regulatory entities such as ANBIMA.

Sharing With Third Parties

The sharing of data with third parties – such as distributors, custodians, auditors, or legal advisors – must be supported by contracts with specific data protection clauses.

Data Subject Rights and Responsibility

Investors have the right to access, correct, limit, or delete their data, among other rights. Managers and administrators must maintain effective channels for responding to these requests.       

The Brazilian regulatory environment, especially with regard to the taxation of investment funds and their investors, has undergone significant changes in recent years and remains subject to frequent regulatory changes, including through laws, infra-legal regulations, and guidelines from the Brazilian Federal Revenue Service.

The enactment of Law No 14,754/2023, which significantly changed the tax regime applicable to investment funds, illustrates the recent trend by lawmakers to review the tax treatment applicable to different types of investment vehicles and their investors, both resident and non-resident.