Fund Structuring and Governance for Brazilian Precatorio Strategies

Design the vehicle around the assets it will actually hold

A portfolio of issued precatorios differs from one that also buys disputed claims, partial interests or credits at earlier procedural stages. A mandate should identify those distinctions before setting liquidity, concentration or reporting terms.

For Brazilian funds, CVM Resolution 175 and the relevant annexes are the regulatory starting point. Normative Annex II addresses receivables investment funds, or FIDCs. The intended class, assets, investors and service arrangements must be assessed under the applicable rules and governing documents. A general description of judicial credits does not establish that a proposed acquisition is eligible for a particular fund.

Asset classification matters. Normative Annex II, Article 2, XIII, identifies non-standardized receivables; Article 15 generally restricts subscription to classes admitting those assets to professional investors, subject to its exceptions. Article 2, paragraph 1, II contains a specific exception for federal precatorios without challenges that have already been issued and forwarded to the competent Regional Federal Court. An issued requisition is not, by itself, enough to apply that exception to every public debtor or claim. Counsel should document the classification before assuming an investor base.

Convert the investment thesis into enforceable limits

“Invest in precatorios” leaves too many operational decisions open. Define the permitted procedural stages, public debtors, claim categories, transfer conditions, valuation inputs and treatment of exceptions. State who can approve an exception and which matters require external legal analysis or committee reconsideration.

A useful test is whether two analysts reading the mandate would reach the same conclusion on a disputed partial assignment. If not, the policy needs clearer eligibility and escalation criteria before the ambiguity is priced into a portfolio.

Make responsibilities visible at each decision

The following matrix is a proposed governance design, not a restatement of statutory duties. The legally assigned duties of the administrator, manager and other providers depend on the applicable regulation and contracts.

Where origination and investment decisions involve related parties or shared incentives, document the conflict and the control used to address it. A disclosure alone does not demonstrate that a price or transaction is fair.

Align liquidity terms with uncertain receipt dates

A judicial-credit strategy can face a mismatch between expected receipts and investor liquidity. Stress the portfolio against delayed public funding, release bottlenecks, valuation changes and the inability to sell a position promptly.

An illustrative liquidity review might compare available cash and expected near-term receipts with operating costs and contractual obligations. Show a case in which forecast receipts move outside the planning window. Identify which obligations remain payable and which actions are actually permitted under the fund documents.

Do not assume a secondary sale is available at the last valuation. The existence of a mark is different from an executable bid. Equally, a longer redemption period does not by itself resolve asset eligibility or concentration risk.

Separate accounting value from operational progress

A monthly report should distinguish acquisition cost, carrying value, expected receipts, realized cash and unresolved legal events. “Assignment filed,” “funding deposited” and “cash released” should be separate milestones.

For each material revision, show the prior assumption, new evidence and approval. Track concentration by public debtor and shared legal issue as well as by individual asset. Several small positions can create one large dependency if they rely on the same funding source or precedent.

For the sensitivity behind delayed receipts in the matrix above, see the Duration Framework. The Jurisdiction Framework explains how to document the evidence behind legal assumptions.

Ask for evidence that a control has operated

An allocator can request an anonymized example of an exception rejected, a forecast revised and a cash receipt reconciled. These examples test whether governance is practiced rather than merely described. Access should respect confidentiality and data protection requirements.

A diligence pack should also explain provider selection, replacement arrangements, access to documents and continuity if a key individual becomes unavailable. The operational question is whether another authorized team could reconstruct ownership, valuation and the next required action for each position.

References and scope

• CVM Resolution 175, consolidated texts and annexes: fund regulation and Annex II for FIDCs.
• CVM public fund consultation: official consultation resources for checking the relevant registered vehicle.

Regulatory registration does not, by itself, validate an asset, guarantee liquidity or endorse an investment thesis.