A recent discussion held by the Administrative Council for Economic Defense (CADE) has raised questions about the criteria applicable when calculating the turnover of an economic group of investment funds, an exercise necessary to evaluate the need to submit mergers involving funds to the agency's scrutiny.

CADE’s rule (Resolution No. 2/12, amended in 2014) provides that, for this purpose, members of the economic group of an investment fund are considered to be the group of each quotaholder that holds a stake equal to or greater than 50% of the quotas of the fund (individually or per a quotaholders' agreement), the companies controlled by the fund, and the companies in which this fund directly or indirectly holds a stake equal to or greater than 20% of the total or voting capital.

In the present case, the investor fund, managed by Tarpon Gestora de Recursos S.A., asked CADE's General Superintendence to recognize that submission of the transaction was mandatory on the grounds that the manager should be seen as a member of its economic group, because it had autonomy and control over its investments.

In its decision, the General Superintendence chose to consider the manager to be a member of the fund’s group. However, it made reference to the fact that, originally, Resolution No. 2/2012 considered the manager to be a member of the fund's group for the purpose of calculating turnover, but when reviewing this rule in 2014, CADE opted to limit the group to the quotaholders with a substantial percentage of the quotas and to the fund's portfolio companies, even knowing the role exercised by the manager. It also mentioned that recent judgements by CADE have confirmed the understanding that the applicable rule disregards fund managers. It stressed, finally, that in that specific case the manager was considered a part of the group of the purchasing fund under a conservative approach, especially because of the repeated statement that the fund is under its control.

In short, although the decision of the General Superintendence did not expressly mention the exceptional nature of the understanding adopted, its content would authorize such conclusion.

This conclusion was reinforced in light of the discussions held during the trial session of CADE’s Tribunal held on March 4 of this year. On that occasion, one of its members submitted a proposal for review of the General Superintendence decision on the ground that the tribunal should deal with the issue of defining an economic group of investment funds in a more precise and definitive manner, given the possibility that such decision might give rise to legal uncertainty in future cases. The proposal was rejected because the perception prevailed among the members of the tribunal that the General Superintendence had not adopted an interpretation contrary to the current text of Resolution No. 2/12, nor one that generated legal uncertainty. Finally, CADE’s chairman suggested the formation of a working group to discuss the possibility of revising the standard in question.

Therefore, until the rule is amended or CADE perchance adopts a non-literal interpretation of its provisions in repeated decisions, a scenario that at this moment seems unlikely, it is not necessary to take into account the manager when calculating the turnover of an investment fund's group.