Over the past two years, the Brazilian fund industry has undergone one of the most significant regulatory transformations in its history. Fund managers rushed to meet the deadline set by CVM Resolution 175, a process review that modernized our regulatory framework and ensured greater alignment with major international markets.

The changes have created a more connected and transparent ecosystem, and with over 80% of companies operating in compliance with CVM Resolution 175, we are entering a new era defined by the speed and agility of operations.

This pace coincided with — and likely also contributed to — a global erosion of the traditional buy-and-hold approach, as investors respond to interest rate cycles, macroeconomic volatility, and global events. In 2016, the average holding period for an equity fund was seven years. By 2024, it had fallen to just four years, a 40% reduction.

The trend is especially pronounced among global equity and bond funds, which have seen their average holding period halved. The result is an increase in global trading volumes. In the Calastone network, we observed 80% growth between 2018 and 2024. This trend is becoming increasingly pronounced in Brazil, and funds need to act to facilitate this new approach.

There is a cost associated with this change in behavior. When investors held a fund for seven years, operating costs were spread over a longer period. When that same investor reallocates their assets more frequently—every four years, every year, or even several times a year—those operating costs multiply.

Manual processes such as exchanging emails, spreadsheets, re-entering orders, and batch cycles do not scale with volume.

If a fund's back office intervenes manually in every transaction, an 80% increase in transaction volume does not correspond to a proportional 80% increase in operational workload. Furthermore, inefficiencies and the potential for delays, inconsistencies, or errors multiply. The inefficiency of manual processes is fixed, but its impact is exponential.

And, since CVM Resolution 175 requires that fees be detailed and disclosed, it is no longer possible to camouflage the inefficiency of fund management operations in opaque fee models. With the arrival of CVM Resolution 175, investors can see exactly what they are paying for, and operational inefficiency becomes a problem for managers, eroding margins and hindering fund growth.

Digital investors, traditional infrastructure

This is where the modern Brazilian investor clashes with the outdated infrastructure. Despite the progress we have observed over the past few years, the reliance on manual processes remains deeply rooted in the sector. Anyone who has worked or currently works in the Brazilian fund industry knows how common it is to still see transactions arriving via email or manually entered into portals.

Transactions made via email are prone to errors and require the manual uploading of spreadsheets, compromising straight-to-process (STP). These batch systems can lead to hours of delays, which, for an investor accustomed to real-time settlement in their daily financial operations, is unacceptable.

Although CVM Resolution 175 modernized the regulatory framework, true transformation depends on updating the operational model.

We have already seen benefits in other markets for funds that adopted direct processing early on. In the UK, around 95% of order routing to funds is automated, a change that has brought significant efficiencies. The infrastructure of these funds smoothly absorbs order spikes generated by market volatility: costs remain stable, operational errors remain low, and operations scale without pressure.

For Brazil, process automation goes beyond cost savings: it allows funds to unlock all the benefits of CVM Resolution 175. The new rules enable cross-border investments for both retail and institutional clients. These flows, however, are more complex, and manual management carries operational and financial risks.

By automating the trade lifecycle, which includes order routing, execution, settlement, reconciliation, and reporting, financial institutions can protect margins, reduce manual errors, and, crucially, deliver the speed and transparency that digital investors have come to expect.

The next leap

Brazilian Securities and Exchange Commission Resolution 175 provided the necessary regulatory framework to compete with the major global fund markets. However, regulation alone does not guarantee competitiveness. As investors trade more frequently, the operational drag generated by manual processing tends to become the main limiting factor in a fund's growth capacity.

The next frontier is what we call "operational alpha": the value generated by adopting more efficient processes and procedures. Managers who embrace automation and operate at the pace of the modern market are able to reduce costs and offer a better investor experience, surpassing those who still rely on a manual and outdated infrastructure.

The Brazilian fund industry has already done the hardest work in driving regulatory transformation. Now, there is an opportunity to build an infrastructure that matches the ambition and pace of the investors it serves.

Nelson Eduardo Pinto Pereira is the head of Calastone for Brazil.