New Regulation of Brazilian Investment Managers

1. New Regulation of Brazilian Investment Managers Pre Dodd-Frank Wall Street Reform Act exempted US and non US fund managers from regulation if they had 14 or fewer US clients (US client = US fund/US client account). Dodd-Frank states that in 2011 all non US managers must count each US investor in a fund (not: US fund itself – look through) plus separate accounts with US clients. Foreign Private Advisors (FPAs) are exempt if they have no US place of business, no US advertising, don't advise US registered funds, have 14 or fewer US investors/US client accounts and less than $25MM in funds under management from US investors/US client accounts -- are still subject to antifraud rules and pay to play. Exempt Reporting Advisors (ERAs) also exempt (but subject to annual reporting) — generally applies to either (1) private fund advisors (i.e., $150MM private fund assets managed from within US) and (2) venture capital fund advisors.

2. New Regulation of Brazilian Investment Managers(Cont’d) Brazilian and other non US funds need to decide whether they are an FPA or an ERA. Registration is costly and time consuming and imposes significant compliance issues. Brazilian funds with US individuals or corporate entities residing/incorporated in US AND Brazilian citizens residing in the US count towards 14 person limitation. Non US corporations don't count as US persons for registration requirement.

3. Private Equity Concerns for US Investors  Contacts with local managers/lawyers - useful to be able to understand local requirements and be able to make decisions on potential investments. BOVESPA/Other Public or Private Markets -- local markets function differently than US markets and may affect investment decisions. Non Resident 2689 Accounts -- required to gain access to Brazilian financial/capital markets. US/NonUS/Brazilian Investment Vehicles -- need to understand tax and other issues to determine best arrangement or vehicle for investments. Currency Considerations -- local investments denominated in local currency involve currency exposure – if unwilling to do so, best alternative is private USD debt or private ADRs.

4. Private Equity Concerns for US Investors(Cont’d) Exit Strategy -- important to have plan in place to allow for exit either at holder's option or upon occurrence of liquidity or other demands, such as IPO, third party sales, puts, tandem rights and buybacks. Arbitration  -- avoids need for local courts and concerns about treatment. Tax issues -- principal issues relate to potential use of non-Brazilian holding companies in order to (i) take advantage of double taxation treaties between Brazil and other jurisdictions facilitating easy and efficient movement of cash/earnings, (ii) move cash within corporate group without creating tax problems under US CFC or PFIC rules and (iii) permit a tax efficient exit strategy.