Published in May of last year, Resolution No. 4661 of the National Monetary Council (CMN) established new guidelines for investment of funds by plans managed by private complementary pension entities (EFPC) and changed some benchmarks for the investments made by these institutions, raising doubts and causing challenges for their managers.

One issue to be solved is the allocation of investments in real estate assets, specifically direct investments in real estate, since Resolution No. 4,661 determined that EFPCs may no longer acquire real estate and must conduct a procedure to divest the properties held in their own portfolio within 12 years.

To make this change, the resolution authorizes these institutions to set up real estate investment funds (FIIs), of which they may hold up to 25% of the units issued. If the FII is organized with properties within the EFPC’s inventory prior to the issuance of the new rule, there will be no concentration limit, that is, the entity may hold up to 100% of the units issued by the FII.

It is precisely this point in the new resolution that raises doubts about the allocation of real estate as a result of EFPCs’ investments. Let us imagine that an entity has invested in credit instruments whose collateral is a property, a perfectly ordinary circumstance and permitted by CMN Resolution No. 3,792, which regulated the matter previously. Should the EFPC execute this guarantee today, under the aegis of Resolution No. 4,661, it will no longer be able to hold the property directly.

It is clear that the objective of the rule was not to prevent the recovery of a secured credit, causing losses to the EFPC. As the institution can no longer acquire/own the property directly, would it be necessary to set up an FII for this? Would it be possible to equate this property with those held in inventory, taking into account that, strictly speaking, it was not owned by the EFPC when Resolution No. 4,661 entered into force? Since the rule does not present an obvious answer to this situation, an expansive interpretation of the concept of inventory would be necessary in order for the entity to recover on its investment in a viable and balanced way from an economic and financial point of view.

If such a property cannot be considered part of the inventory, the solution presented by Resolution No. 4,661 to organize an FII to house it (with concentration per issuer limited to 25%) reveals itself to be complex for EFPC managers, who often will not find partner investors to organize the FII and be able to respect the concentration limit. What then would be the option available to the entity to recover its credit with a property as collateral considering that it cannot hold real estate directly?

Moreover, even if the issue of the concentration limit is overcome, it is necessary to consider that the structure of FIIs presents a series of high costs due to their administration and, as such, represents an unattractive option for the implementation of this change in the rules imposed on EFPCs.

In this context, the National Supplementary Pension Board (Previc) needs to clarify what treatment should be given to real estate subject to recovery of credit instruments granted prior to Resolution No. 4,661 and possibly to relax the restrictions applicable to investments in the real estate segment, seeking to offer EFPCs more interesting options and cost-effective ways of adapting to the provisions and limits of the rule.