Corporate debt asset managers are once again closing tax-exempt debenture funds to new inflows following a sharp acceleration in demand. In the past week, firms such as Sparta, Legacy, and ARX took that step, and others may soon follow.
The move was driven by a surge in fundraising, intensified by concerns over potential taxation of this type of bond, which companies use to finance infrastructure investments. Adding to the pressure are shrinking yields, as investor appetite pushes down risk premiums.
“Spreads [the difference between the bond yield and its government bond benchmark, in this case inflation-linked NTN-Bs] have compressed to the point where, in some cases, a taxable bond is now more attractive than a tax-exempt one. That hasn’t happened in a long time,” said Ulisses Nehmi, CEO of Sparta.
Last week, Sparta closed its Sparta Debêntures Incentivadas fund, which offers 30-day liquidity, after it reached R$1.3 billion in assets under management. A similar fund, with 45-day liquidity and R$500 million in assets, will stop accepting new capital once it hits R$800 million.
Although the provisional presidential decree proposing a personal income tax on individual investors’ gains from incentivized debentures starting in 2026 has lapsed, interest remains strong, Mr. Nehmi said. “Investors who didn’t factor in the tax risk now are. They see that the exemption could disappear at any moment,” he noted. “It was great marketing for these bonds.”
At Legacy, the surge in inflows also led to the closure of one of its funds, Legacy Capital Compound CDI Ativo, which holds nearly R$4 billion in assets. The fund combines a portfolio of incentivized debentures with active fixed-income management.
“We’ve never experienced anything like this before,” said Leonardo Ono, Legacy’s corporate debt manager. “We’ve always had a more measured pace of inflows. Our liabilities are relatively stable and we’ve grown gradually.” That changed as debate over the tax proposal intensified.
Legacy will keep open other incentivized debenture funds tied to different strategies, such as inflation-indexed or fixed-rate products, which have distinct fundraising dynamics, Mr. Ono said.
At ARX, the approach was similar. The firm shut two incentivized debenture funds linked to the CDI (Interbank Deposit) benchmark but left those tied to the IPCA (Brazil’s consumer inflation index) open.
“We’d like to see more inflows into IPCA-linked funds, where clients are likely to have a better experience,” said Pierre Jadoul, executive director for credit strategies at ARX. “In CDI, new investors are looking too much in the rearview mirror. But with current spreads, it’s hard to deliver the same returns going forward.”
Ibiúna also may suspend fundraising, said Eduardo Alhadeff, partner and head of credit investments at the firm. “Companies have a weaker pipeline, which makes things worse. New issues are still coming, but with even lower risk premiums. Although closing funds isn’t our base-case scenario, we’re monitoring the situation week by week.”
Mr. Alhadeff added that even when spreads are not attractive, managers are required to meet certain fund rules to preserve tax exemptions, meaning they may have to buy bonds even when yields fall below expectations.
In 2024, there were at least two waves of fund closures. The first came in May, after changes in terms for other tax-exempt securities like real estate (LCI) and agribusiness (LCA) credit notes triggered a wave of inflows. The second occurred in September, following a new compression in spreads.
So far in 2025, the rush for tax-exempt assets has driven a sharp drop in yields since June, said Santander strategists Aline Cardoso and Guilherme Motta in a recent report. In August, spreads turned negative versus the NTN-B curve, “illustrating the appeal of net returns after factoring in the tax benefit,” they wrote.
The Idex-Infra index, compiled by JGP and based on more liquid bonds, ended September with a negative spread of 22.5 basis points versus government bonds. In June, the spread had been positive at 30 basis points.
Santander’s research team said the expiry of the presidential decree opens room for some technical correction. However, the prevailing market view is that spreads will remain historically low, driven by factors such as the slow pace of new issuance, structurally strong demand for tax-exempt assets, and a reduced perception of regulatory risk.
Legacy’s Mr. Ono expects some easing of buying pressure as funds close to new inflows. “By closing funds, the market slows the inflow of resources, which helps reduce pressure for further spread compression. But I don’t think spreads will widen,” he said.
Mr. Jadoul agreed, saying, “A correction of 20 to 30 basis points would be healthy,” though he acknowledged it’s difficult to predict if—or when—it will happen.
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