What is the Fundo de Investimento em Direitos Creditórios?
An FIDC (Fundo de Investimento em Direitos Creditórios) is a type of fixed-income investment widely used in Brazilian credit markets. The funds are backed by receivables, including car loans, credit cards and trade assets. The majority of FIDCs come from loans to public and private pension beneficiaries.
Key takeaways
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FIDCs are fixed-income investments in Brazilian credit markets backed by receivables like car loans, credit cards, and pension beneficiary loans.
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Brazilian banks package individual and corporate receivables into FIDC funds that are split into tranches with varying risk levels.
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The tranched structure improves the FIDC's credit rating compared to the original underlying loans packaged within the fund.
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Regulatory changes now allow non-Brazilian asset managers to offer FIDCs and have tightened transparency rules on receivable quality.
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FIDCs attract international investors and hedge funds due to their relatively high yields and diversification benefits.
Where have you heard about the Fundo de Investimento em Direitos Creditórios?
This type of fund provides an opportunity for investors to enter Brazil’s emerging market. The rules have now been relaxed to allow non-Brazilian asset managers to offer FIDCs to their domestic clients.
What you need to know about the Fundo de Investimento em Direitos Creditórios.
Brazilian banks that lend to individuals or companies package these receivables into FIDC funds to sell to the public. Many of these funds are split into tranches, where each tranche has a varying degree of risk attached to it. Therefore, the credit rating of the FIDC is better than that of the original loan.
FIDCs are traded by international investors and hedge funds. They appeal to investors because of their relatively high yields and diversification benefits. In the past there has been a lack of transparency surrounding the quality of the receivable, but the rules have now been tightened on this.