Overview of Portugal Golden Visa Funds
Portugal Golden Visa Investment Funds was introduced as a potential investment option for Golden Visa investors in August 2017. As per SEF statistics, a total of 723 Golden Visa fund investors (until Nov 2023) have already been granted Golden Visa, which corresponds to a total investment of approx. EUR 261mn in this asset class.
While real estate investment has conventionally stood out as the most preferred avenue for Golden Visa investors, Investment Funds have fast gained prominence as an attractive alternative. In the current landscape of 2024, Portugal Golden Visa Fund investment route stands out as the exclusive option offering Golden visa investors with a chance to earn market-linked returns with a reduced risk profile.
What exactly is a Portugal Golden Visa Fund?
Investment Funds, also known as venture capital funds, pool together capital from multiple investors to invest in a diversified portfolio of assets. These funds are professionally managed by investment experts, who aim to generate returns for the fund’s participants.
These Golden Visa funds are regulated by the Portuguese Securities Market Commission (CMVM) and comply with the legal framework for investment funds.
Benefits of investing in a Portugal Golden Visa Investment Fund
Investing in funds offer several benefits, such as
- Diversification: A fund invests its corpus across different eligible assets thereby providing diversification benefits to an investor, as opposed to investing in a single asset. The Golden Visa law provides further flexibility by allowing Golden Visa applicants to choose funds with different investment thresholds to meet the program’s requirements.
- Investment professionals: Investment activities of the fund are carried out by qualified investment professionals who have a strong acumen and superior understanding of local business environment. These fund managers aim to optimize returns while managing risk, allowing Golden Visa applicants to benefit from the expertise of investment professionals without having to actively manage their investments.
- Regulatory oversight: As Golden Visa funds are regulated, an investor has formal mechanisms for grievance redressal in case of any divergence by the Fund.
- Auditor: Funds are also audited, and in some cases by reputed auditors such as the Big 4 firms or BDO. This provides additional security for the investor as all activities and especially expenses carried out by the fund are audited.
- Lower taxes: There are no upfront taxes on investing in funds, unlike the stamp duty and property transfer tax applicable on real estate. Even distribution of income received from funds carries no or low rate of taxation compared to rental income on property.
Choosing the right Portugal Golden Visa Investment Fund
When it comes to choosing the right investment fund under the Portugal Golden Visa program, Golden Visa applicants should consider the following:
A. Considerations for Selecting the Appropriate Investment Fund under the Program
- Define Investment Objectives: Clearly define your investment objectives, such as capital appreciation, regular income, or a balanced approach. This will help narrow down the options and identify funds that align with your goals.
- Assess Risk Tolerance: Understand your risk tolerance level and choose funds that match your risk profile. Some funds may focus on high-growth assets with higher risk, while others may prioritize stability and income generation.
- Conduct Due Diligence: Thoroughly research the investment fund and its management company. Evaluate the fund’s track record, performance history, and reputation in the market. Look for consistency in delivering returns and consider the fund’s experience in the target sectors.
B. Factors to Consider: Fund Reputation, Track Record, Fees, and Management Team
- Fund Reputation: Consider the reputation of the investment fund and the management company behind it. Look for established firms with a proven track record of successful investments. Reputation can provide insight into the trustworthiness and credibility of the fund.
- Track Record and Performance: Evaluate the fund’s historical performance. Analyze its returns over different market cycles and compare them to relevant benchmarks. Consistent and competitive performance is an indication of the fund’s ability to generate returns for its investors.
- Fees and Expenses: Understand the fee structure associated with the investment fund. Review management fees, performance fees, and other expenses. Compare fees across different funds to ensure they are reasonable and aligned with industry standards.
- Management Team Expertise: Assess the expertise and experience of the fund’s management team. Look for qualified professionals with a deep understanding of the target sectors and proven investment acumen. A strong management team is crucial for effective decision-making and risk management.
C. Importance of Diversification and Risk Management
- Investment strategy: Consider the fund’s investment strategy. A well-diversified portfolio reduces the concentration risk associated with investing in a single asset or sector. Look for funds that spread their investments across different asset classes, geographical regions, and sectors.
- Risk Management Approach: Evaluate the fund’s risk management practices. A robust risk management framework helps identify, assess, and mitigate potential risks. Look for funds that have clear risk management strategies in place, including measures to control market, credit, and liquidity risks.
- Transparency and Reporting: Transparency is vital in assessing the fund’s performance and understanding its investment activities. Look for funds that provide regular and comprehensive reporting, including portfolio holdings, performance updates, and risk disclosures. Transparency enhances trust and allows investors to make informed decisions.
- Regulatory Compliance: Ensure that the investment fund operates within the regulatory framework established by the relevant authorities.
Specific requirements and regulations relating to Portugal Golden Visa Funds
- Minimum Investment Thresholds: The minimum investment threshold for investment funds under the Golden Visa program is EUR 500,000.
- Approved Funds: Golden Visa applicants must invest in funds that meet the criteria set by the Portuguese authorities. Typically, at least 60% of the investment corpus of the fund should be invested within Portugal.
- Fund Duration: The investment must be maintained for a minimum period of five years. This means that Golden Visa applicants should keep their investment in the approved fund for at least five years from the date of the initial investment.
- Capital Contributions: The investment must be made in cash, and it cannot be financed by any loans or mortgages within Portugal. There is no restriction on borrowing outside Portugal, for the purpose of investing in a Golden Visa Fund in Portugal.
- KYC: An investor should provide all KYC documents to enable to fund to complete stringent background checks and onboarding to comply with the AML and CFT regulations.
Portugal Golden Visa Fund Investment Risks
While investing in Portugal Golden Visa investment funds presents opportunities, it is crucial to consider the potential risks involved. Some risks to be aware of include:
- Market Risk: Investment funds are exposed to market fluctuations. Economic downturns or adverse market conditions can impact the performance of the fund and the value of the underlying assets.
- Liquidity Risk: Golden Visa investment is subject to a minimum holding period of 5 years. Thereafter, the fund divests its investment and returns monies to the investors. Golden Visa applicants should consider the fund’s liquidity terms and their own liquidity needs.
- Lack of secondary market exit: While investors are permitted to sell their investment holdings after the lock in period of 5 years, currently there is no active secondary trading market for such investment units. This means that investors must largely rely on fund managers to divest assets and return moneys to the investors.
- Regulatory and Legal Risks: Changes in regulations or legal frameworks can impact the fund’s operations and investment strategies. It is essential to monitor regulatory developments and assess the potential impact on the fund’s performance.
