The governance structure of private equity funds has started to change. Proof of this is Brasil Energia I, managed by Rio Bravo, which will invest R$ 300 million this year — already committed by investors - in opportunities in the electricity sector. In its charter, the fund covers the right of representatives of 12% of the shares (alone or as a group) to indicate members for a compliance committee. The entity will consist of up to eight people and will meet soon after the meetings of the investment committee.

Unique in the history of Rio Bravo, the compliance committee has the function of supervising whether the investment policy of the fund is being fulfilled and to recommend a firm to audit the portfolio. But it does not have veto power over allocation decisions. With this novelty, the 20 pension funds that invest in Brasil Energia I have agreed to forego participation in the investment committee. The Itaipu Brasil Foundation, Chesf and Eletros are among the shareholders. The largest pension funds, however, did not take part.

“Those not open to the governance structure preferred not to participate”, says Paulo Silvestri, private equity director at Rio Bravo. The compliance committee is in line with preferences of foreign investors, who are against the concept of outsourcing asset management while still participating in investment decisions. The code of good conduct in this sector covers this structure, to which it attributes the name supervision committee.

Created by the Brazilian Association of Private Equity and Venture Capital (ABVCap) in partnership with the Brazilian Financial and Capital Market Entities Association (Anbima), the document created three categories for funds, defined by the structure of governance chosen. Type 1 are those that accept representatives from shareholders on the investment committee; type 2 only allow administrative or management members at the front of investment decisions; and type 3 are those that do not cover the installation or operation of an investment committee. For the second type, the code demands the installation of a supervision committee.