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AdvancedBrazilian REITs · Lesson A2.4 · Module A2

Representative, proxies and the minority voice

Module A2: Governance: the unitholder's power

11 slides~5 minquiz at the end

In this lesson

  • Proxy request with 0.5%, paid by the fund
  • Agenda and representative with 3%
  • The watchdog's powers and who can't serve
See the slides
Keys in the lock of a white door

Brazilian REITs · Lesson A2.4

Three keys for small shareholders

An elected watchdog, a proxy request paid by the fund and the agenda. Almost nobody uses them.

Each key opens a door

How much of the fund each tool needs

Proxy request

0.5%

  • Makes the administrator ask everyone for votes

Agenda and watchdog

3%

  • Adds items to the annual meeting and elects a representative

Call a meeting

5%

  • Calls the shareholder meeting (lesson A2.3)

Percentages of issued shares. Electing the watchdog takes 5% in funds with up to 100 holders.

The 0.5% key

A megaphone paid for by the fund

  1. Group with 0.5%drafts the proxy request
  2. Administratorhas 5 business days to send it
  3. Every shareholderreceives the request for votes
  4. Fund's expensethe fund pays, not the group

CVM Resolution 175, Annex III, art. 17.

The 3% key

The shareholders' representative

Shareholderselect at a meeting
Representativethe shareholders' watchdog
Oversees service providers
Weighs in on offerings and mergers
Reports errors and fraud

Also reviews quarterly information and the financial statements (Annex III, art. 22).

Who can serve

The watchdog can't be an insider

Must

  • Be a shareholder of the fund
  • Have no conflict of interest

Can't

  • Hold a position at the administrator, manager or developer
  • Administer, manage or advise another REIT

CVM Resolution 175, Annex III, art. 21.

In reais

A fund with 10 million shares at R$ 10

10,000,000×0.5%=50,000R$ 500k: proxy request
10,000,000×3%=300,000R$ 3 mn: agenda or watchdog

To elect the watchdog, those 300,000 shares must vote yes among those present.

A lock on the watchdog too

Left the post? Wait before trading

3 months

after leaving, trading shares creates a presumption of insider trading

CVM Resolution 175, Annex III, art. 39.

Remember this

Three ideas from this lesson

  1. 0.5%: proxy requestThe administrator asks everyone for votes, and the fund pays.
  2. 3%: agenda and watchdogAdds items to the annual meeting and elects an independent representative.
  3. 5%: calling a meetingCalls the meeting, including to replace the manager.

Quick quiz · 1 of 2

What share lets a group force the administrator to send a proxy request to everyone?

See answer

0.5% of issued shares, and the mailing cost falls on the fund, not the group.

Quick quiz · 2 of 2

An executive at the fund's manager wants to be the shareholders' representative. Allowed?

See answer

Not allowed. The watchdog exists to watch the manager: anyone holding a position there is barred.

Lesson complete

Next lesson

A3.1Advanced · Lesson A3.1How much the manager and administrator earnFees come out before your income, and the fee base shapes the incentive of whoever charges it.Continue
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Image credits
  • Alena Darmel · Pexels · Pexels License — Pexels
  • Dave Dugdale · Wikimedia Commons · CC BY-SA 2.0 — Wikimedia Commons

Educational content, written for learners. Not investment advice.