The FIP is a closed-end mutual fund structure under Brazilian law that allows qualified investors to pool funds for private equity and venture capital projects. At least 90% of a FIP's assets must be invested in stocks, debentures, and other securities of special purpose companies. FIPs are mainly governed by CVM Instruction 391 and can be used for various sectors and tax planning purposes. Notable features include a fixed maturity, different quota classes, and investment limits for pension funds.

1. Private Equity Funds
in Brazil
Fundo de Investimento
em Participações - FIP
Luiz Otávio P. Villela
June 2011

2. Brazilian PE Fund (“FIP”)
General Information
• Closed-end mutual fund
• At least 90% of fund’s assets must be invested in
stocks, debentures, subscription warrants and other
securities issued by a special purpose company
(SPC) which qualifies as a target for the FIP.
• Mainly ruled by CVM Instruction nº 391 (2003) and
the Infrastructure FIP by CVM Instruction nº 460
(2007) which mirrors Law nº 11.478/2007.

3. Brazilian PE Fund (“FIP”)
General Information
• Most suitable vehicle in Brazil for Venture Capital
and Private Equity projects
• May be used in tax plannings to reduce the taxable
income in sale of assets
• May be used in insolvency restructuring processes
• FIP’s allocation can be made by business sector,
multisector, single SPC or by other criterion.
• Fund raising through registered public offerings or
limited efforts’ offering exemption (similar to a
private placement)

4. Brazilian PE Fund (“FIP”)
General Information
• Fixed maturity subject to extension for a pre-
established period of time
• May adopt different types of quotas with
distinguished seniority claim levels, which are held
either in electronic scrip or book-entry
• Investors: financial institutions, insurers, pension
funds and other qualified investors holding other
investments exceeding R$ 300,000
• FIP’s minimum investment value: R$ 100,000
• FIP shall exert active influence over the
management of the invested SPC.

5. Brazilian PE Fund (“FIP”)
General Information
• Allows channeling funds into specific sectors or
projects which meet certain parameters.
• An “Investment Committee” formed by members
indicated by the fund’s manager and its top
investors according to the fund’s internal rules
may be adopted to decide on the allocation of
fund’s assets.

6. Brazilian PE Fund (“FIP”)
General Information
• FIP must be audited by an independent auditor
• Charges: Management Fee (%) varies according to
the FIP’s assets. Extra performance fee may be
charged upon achievement of benchmarks.
Custody and other fees may also apply.
• FIP does not qualify for the guarantee of the
Brazilian deposit guarantee fund (FGC)
• Pre-established investment and desinvestment
periods are usual
• Desinvestment occurs through IPO, secondary
market sale or repurchase.

7. Brazilian PE Fund (“FIP”)
Pension fund Investment Limit
Pension fund and official funds investment limits:
• Pension Fund:
May invest up to 20% of its assets in FIP’s
The pension fund investment is limited to 25% of
the FIP’s cotas/assets
• Retirement institutes sponsored by federal, state
and municipal governments:
May invest up to 5% of its assets in FIP’s
The institute’s investment is limited to 20% of
the FIP’s cotas/assets

8. Brazilian PE Fund (“FIP”)
Management and Governance of
Invested SPC’s
The fund may participate in the SPC’s decisions in any
of the following manners:
I. Relevant shareholding (corporate control block)
II. Shareholders Agreement
III. Appointment of Board members; and
IV. Other arrangement securing active influence on
the company’s strategy and management control.

9. Brazilian PE Fund (“FIP”)
SPC’s Eligibility Criteria
Eligible SPC’s: Corporation, publicly-held or not, which:
- Has not issued “parte beneficiária” (profit-sharing
security)
- Adopts an uniform office term of 1 year for the Board
of Directors (or 2 years in case of a “FIP-IE”)
- Discloses contracts with related parties, Shareholders
Agreements, SOP’s and other relevant contracts
- Adopts arbitration clause for corporate disputes
- Balance sheets are audited by independent auditors
- Commits to join one of BM&FBovespa’s special stock
exchange segments if the SPC goes public.

10. Brazilian PE Fund (“FIP”)
CVM Filings
CVM Filings:
1. The FIP requires a prior registration at CVM, which
is accomplished upon filing the documents listed in
CVM’s Instruction 391 (Meeting Minutes, FIP’s
Regulation (Charter), Affidavits etc.)
2. Each new offering also requires a registration
statement with CVM (except for public offerings
with limited efforts pursuant to CVM Instruction
476/09).

11. Brazilian PE Fund (“FIP”)
Dropdowns and noncash withdrawals
Noncash payments:
CVM Instruction 391 allows creditors of an invested
company under reorganization to acquire FIP’s cotas
paying with assets or credit rights enforceable
against the invested company supported by a
valuation report. In practice, any investors may
acquire FIP cotas paying with any securities or credit
rights.
If the fund’s rules allow, the investors’ withdrawal
may also be made with assets and rights (including
securities).

12. Brazilian PE Fund (“FIP”)
Chart Flow
Investors: Custody, treasury
QUALIFIED and back-office
INVESTORS CUSTODY
may also be
R$ discharged by the
Administrator
FIP ADMINISTRATOR
Administrator may
Securities Firm,
Bank etc. also manage the
fund’s assets if
SPC’s MANAGER
licensed by CVM
Asset Management

13. Brazilian PE Fund (“FIP”)
Tax Matters
Tax Status (Law 11.312/06):
Upon repayment, Redemption value less Acquisition
value = taxable gain: 15% Income tax
(FIP must have 67% or more of its investments
composed of stocks, convertible debentures and
subscription warrants issued by Brazilian corporations)
No semestral share-deduction taxation
Dividend received by FIP from invested companies may
be rolled-over to investors, pro rata to their fund’s
cotas, totally tax-free.

14. Brazilian PE Fund (“FIP”)
Tax Matters
Income tax rate for nonresident investors is 0% if:
(a) investor and related parties hold less than 40% of
the FIP cotas (or corresponding rights); and
(b) FIP’s investment has up to 5% in debt securities
(except convertible debentures and government
bonds).
This tax benefit does not apply to parties domiciled or
resident in “Tax Heaven” jurisdictions.

15. Brazilian PE Fund (“FIP”)
Tax Matters
IOF on entry of funds from offshore investors:
Brazil levies an IOF tax on nonresident investments
in FIP’s at a 2% rate, which is due upon the FX
conversion into Brazilian currency after the funds
enter Brazil for credit into the fund account.

16. Brazilian PE Fund (“FIP”)
Infrastructure FIP
Infrastruture FIP (FIP-IE): CVM 460/07 & Law 11.478/07
⇒ May qualify for credit support from Brazilian
development agencies (e.g. BNDES programs)
⇒ Within 180 days from incorporation, fund must have
95% of its assets invested in stocks or subscription
warrants issued by companies or projects of energy,
transportation, water and sewerage and irrigation
⇒ SPC’s project must have started after Jan 22, 2007
⇒FIP-IE must have at least 10 investors, each one
having 20% or less of the fund cotas or its
corresponding rights