For investors looking to gain the right to live, work, and study in a European country, Portugal with its rich history, vibrant culture, high standard of living, and friendly people is considered a desirable destination.
Investors can obtain Portugal Golden Visa permit by investing a minimum of €500,000, which is considered one of Europe’s most affordable investment thresholds. Golden Visa holders can apply for citizenship after five years while keeping other citizenships.
To qualify for the Golden Visa Permit, applicants have the option to invest in several routes, including qualified investment fund, such as a private equity fund, venture capital fund, or mutual fund with a minimum of €500,000, excluding any fund that has direct or indirect real estate ties.
Portugal Golden Visa
Investment Qualifications
To qualify for the capital transfer path for the Portuguese Golden Visa, the following five essential conditions must be met:
- The fund must be approved and regulated by the CMVM (Portuguese Securities Market Commission).
- At least 60% of the fund’s capital must be invested in companies headquartered in Portugal.
- The investor must purchase fund units with a minimum value of €500,000.
- The investment must be maintained throughout the entire Golden Visa process until permanent residency or citizenship is obtained, typically requiring a period of at least 5 years (often extending to 6-7 years).
- The fund is prohibited from investing in real estate, either directly or indirectly.
Types of Portugal Golden Visa funds
Private Equity Funds
Private equity funds usually invest in companies with positive cash flow and strong prospects for expansion, both within Portugal and in international markets.
These investments often span a variety of sectors, including healthcare, agriculture, manufacturing, IT, renewable energy, hospitality, and education[1]. While some private equity funds focus exclusively on one sector, others diversify their investments across multiple sectors.
The typical strategy of these funds involves acquiring a controlling interest in an operating business and actively participating in its management to increase its value. Consequently, private equity funds generally exhibit a medium to high-risk profile, with expected yields reflecting this risk level. The lifecycle of private equity funds usually ranges from 6 to 10 years.
Private equity funds usually have lower risk compared to venture capital funds, offering higher downside protection. Private equity funds also provide some dividend payments, however, expected returns could be lower compared to venture capital funds.
Venture Capital Funds
Venture capital funds concentrate on early-stage startups with global potential, often before these companies become profitable. This makes venture capital riskier but also offers higher expected returns. The most common sectors include technology, Artificial Intelligence (AI), E-Commerce, Life Sciences, and renewable energy.
Venture Capital funds usually do not pay out annual dividends; instead, they focus on maximizing returns at the time of exit, however, their risk profile is high.
The fund term is generally longer, ranging from 8 to 10 years, which means the investment is locked in for longer compared with other fund types. It is worth noting that it is difficult to evaluate venture capital funds without industry expertise.
Portugal[2] is expected to reach a Total Capital Raised of $50.7 million in the Venture Capital market market by 2024. The Early-stage market is forecasted to lead the market with a projected market volume of US$36 million in 2024. Portugal’s Venture Capital market shows a growing interest in tech startups, attracting diverse international investors seeking innovation and potential high returns.
Mutual Funds
Mutual funds, unlike private equity, make investments in stock market-traded businesses. The primary objective is to outperform the PSI-20 index, which is the Portuguese version of the S&P 500 index and measures the performance of the 20 biggest national firms based on market capitalization.
Since mutual funds often invest in the same companies as the PSI-20, albeit in varying proportions, their overall returns do not deviate significantly from the index. To diversify their portfolios and perhaps increase returns, some mutual funds invest up to 40% in foreign equities or bonds.
Since there is no set fund term for mutual funds, investors can leave or exit the fund at any time. But in such a scenario, investors would forfeit their Golden Visa. Mutual funds are considered more flexible for entering and exiting the fund since it is traded on a stock exchange. It doesn’t require a performance fee, but there are some exceptions, and performance can be tracked daily.
Moreover, there are very few mutual funds in Portugal to select from, and most of them invest in energy and utility companies, telcos, and financial services.
There are mainly 30 eligible funds of two hundred Portuguese investment funds registered with the Commission for the Securities Market and can qualify you for Portugal Golden Visa.
Portuguese Golden Visa Investment Fund’s Fee
Investors are required to pay subscription, management, and investment exit fees. Private equity and venture capital[3] funds typically charge management fees of 1.5% to 2% and setup fees of 0% to 3%. Performance fees vary greatly, generally around 20% to 25%, with a hurdle rate of 5% to 8% annually.
Mutual funds usually have annual management fees of 1.5% to 2%, though sometimes lower. They typically include a setup fee of 1% to 2% and do not charge performance fees.
Critical Aspects
When considering different funds, the first step is to clarify the investment goals and narrow your focus. The following questions can help guide you:
- What is my preferred investment strategy? Is capital preservation or maximizing potential returns more important? How much risk am I willing to take?
- Which sector do I want to invest in (e.g., tech companies, farmland, healthcare, renewable energy, education, wine industry)?
- Is it important for the fund to be ESG-compliant?
- How long can I keep my capital locked in?
- Do I want to invest in a single fund or diversify across multiple funds? Most funds have a minimum investment requirement between €50,000 and €250,000, allowing for the possibility of splitting investments across several funds.
Sources
[1]https://www.mlgts.pt/xms/files/site_2018/publicacoes/2020/Thomson_Reuters_Global_Guide_Private_equity_in_Portugal_-_market_and_regulatory_overview.pdf
[2] https://www.statista.com/outlook/fmo/capital-raising/traditional-capital-raising/venture-capital/portugal
[3] https://www.investopedia.com/articles/investing/072115/private-equity-management-fees-regulation.asp