New rules from Brazil’s Securities and Exchange Commission take effect, allowing local asset managers to allocate up to 100 percent of their investments abroad
April brings new momentum to Brazil’sfund market
In April, the new regulatory framework for investment funds issued by the Securities Commission (CVM) at the end of last year goes into effect.
Why it matters. The new framework is seen as a revolution in the fund market, allowing local asset managers to allocate up to 100percent of their investments abroad and offer them to Brazilian investors.
- The provision enables “qualified” investors with over BRL 1 million(USD 190,000) to access investment options that were previously reserved for professional investors, including global hedge funds.
- Moreover, individual investors can now access a broader selection of investment opportunities, including Tier-1 Brazilian Depositary Receipts (BDRs) — certificates that represent shares issued by companies located in foreign countries.
What they are saying. “This regulatory framework not only corrects anomalies but also aligns the Brazilian market with global standards,” states Bernardo Queima, CEO of Gama Investimentos, an asset management firm that facilitates access for Brazilian investors to opportunities offered by global players such as Oaktree and Bridgewater.
- “Via funds set up by local managers, costs are diluted and investments become more accessible,” says Romeu Amaral, a lawyer specializing in M&A and capital markets. “Many smaller investors would not have access to this type of investment otherwise,” he adds.
Potential. The Brazilian fund market has fewer than 30,000 funds with total equity of nearly BRL 7.5 trillion, according to February data. Ultimately, the CVM’s new resolution will give managers more opportunities to diversify their portfolios, which will lead to growth in this market.
Diversification. Analysts recommend that Brazilian clients take positions abroad in 2023 as a good diversification strategy — a hedge against the inherent risks of the Brazilian market, such as greater volatility.
Good timing. In 2022, central banks in developed economies initiated a monetary tightening process to fight widespread inflationary pressure that hit much of the world. Benchmark U.S. rates are at a 15-year high, following nine consecutive hikes since 2022. It is unclear how far the Federal Reserve will go to cool down inflation, but this window spells opportunity for investors interested not only in equities but also in U.S. fixed-income options.
State of play. “We see local investors wanting to diversify their portfolio beyond local fixed income, and the room for growth is huge. Between the 2008 crisis and the pandemic, we had what I call an abnormal market, with a lot of incentives and very low interest rates. Now I believe that we are returning to normality , which makes fixed income abroad also interesting , “Mr. Queima says.
- He further mentions that including financial assets of non-investment grade foreign companies in one’s portfolio can yield returns of 7-10 percent in U.S. dollars, which is comparable for Brazilians with investment options that provide CDI (the local interbank deposit certificate rate – a benchmark reference for investments) plus an additional 4 to 5 percent.
- Brazil currently has 5.2 million individual investors, an increase of271 percent in three years, which justifies offering more international options to this audience.
What’s more. The CVM’s new regulations also allow established funds to invest in cryptocurrency. The norms regulate crypto investments in such a way that these companies will be able to enjoy the same protections available for other investment assets, such as stocks and bonds.
Publicado por The Brazilian Report
