The most recent changes to the Golden Visa (GV) program, which came into force with the passing of the "More Housing" Bill, excluded all real estate-related investments from being eligible options (as well as capital transfers of €1.5m), says Lourenço Alvares, Funds Product Specialist at Global Citizen Solutions. 

This limitation came as an attempt by the government to address the housing issue in Portugal, and so property acquisition and subscription of funds that invest directly or indirectly in real estate no longer qualify for the GV.

The new law also replaced the wording for the eligible investment funds clause. Where it previously read "investing in capital at risk funds" (the Portuguese definition for Venture Capital funds, in a broad sense), it now reads "collective investment undertakings." An effort to harmonize it with recent European Union directives that were transposed and to consolidate dispersed national legislation into a single regulatory framework.  

Understanding the New Investment Fund Landscape

From now on, only investments in non-real estate collective investment undertakings will continue to qualify for Portugal's Golden Visa program. Unfortunately, the legislator fell short (perhaps on purpose?) in giving a clearer definition of what makes a real estate collective investment undertaking.  

It's clear that funds pursuing property development (especially residential), for example, no longer qualify for the Portuguese Golden Visa.

But what about funds that require land purchase to support their agricultural operations? What about funds aiming to develop hospitality or industrial units to support their respective businesses? 

Also, what makes a fund qualify as a real estate collective investment undertaking? Is it based on the investment policy established in the Management Regulations? Is it determined by the Economic Activity Code of the fund's SPVs? Or is it how the fund's returns are generated? Or the weight of the real estate assets in the balance sheets? Many questions remain unanswered. 

The funds themselves, their respective management entities, and even lawyers are trying to tackle the uncertainty by issuing compliance declarations to ease investors' minds and ultimately have the approval from the regulator and SEF itself (the Portuguese Immigration and Border Service, which is the governmental agency responsible for processing GV applications). 

But why focus on the excluded funds (or the doubtful ones) when we can talk about the certainly eligible ones? And there are plenty! Even more being launched as we speak, as companies look for alternative ways of financing to avoid the high interest rates from banks, with the advantage of getting valuable input from knowledgeable fund managers and advisers, that untap those opportunities. 

Portugal has long been recognized for its rich investment landscape, characterized by steady economic growth and a welcoming environment for foreign investors. While the country's real estate sector has historically been a magnet for international capital, Portugal's investment horizon extends far beyond. 

The Remaining Investment Choices in the Golden Visa Program

So, what are the types of investment funds that remain eligible? Venture Capital and Private Equity are the most popular ones. 

Venture Capital funds invest in early-stage startups with high growth potential. VC investments are inherently risky, as many startups fail, but successful investments can yield substantial returns, more than compensating the less fortunate ones.

When talking about Venture Capital funds, it's important to note that Portugal has become an attractive destination for entrepreneurs not only for the exceptional quality of life and pleasant year-round weather but also for its strategic location and the specialized Portuguese workforce, which are considered crucial elements for the accelerating growth of the country's startup ecosystem.  

Private Equity funds usually invest in privately held companies, typically established SMEs or mid-caps. The goal is to acquire (minority or majority stakes), restructure, and eventually sell these companies at a profit. 

In Portugal, it is estimated that family businesses may represent between 70% to 80% of national companies, employing 50% of the workforce and contributing to 2/3 of the GDP - such figures present opportunities for funds to help grow these businesses.

Balancing Risk and Return in Investment Funds

Before delving into the risk-return relationship and how investors can and should balance it, it's important to note that investment funds eligible for Golden Visa do not inherently have more or less risk than other funds not structured to attract Golden Visa investors. Capital at Risk Funds, as dubbed in Portugal, already existed before the program began, so most of them opened themselves to this new source of funding in order to raise more capital, create special categories for Golden Visa investors, or alter their management regulations accordingly. 

The typical initial path for capital raising has often involved attempting to secure institutional investors both domestic and international, such as banks, pension funds, etc., followed by domestic private investors. Afterward, the door is opened to Golden Visa investors who, with this preceding traction in fundraising, will have more confidence in the fund's launch and trust that it won't jeopardize their visa application (keeping the investment for over five years is one of the requirements to apply for Portuguese citizenship). This has been the rule, of course, with some exceptions, including funds that are solely looking for private investors, such as Golden Visa candidates. 

Returning to the central topic here, Golden Visa investors and others, as well, should conduct a combined analysis of risk and return before deciding to proceed with an investment (in funds, in this case). They should consider not only the initial fundraising traction indicator but also other factors, such as the fund investment strategy, reputation and track record of fund management teams, portfolio diversification, fees and costs associated with these funds and of course, due diligence on invested companies 

These are just some of the key considerations that investors can and should consider when analyzing the potential risk-return of an investment in funds. In many cases, seeking guidance from a financial professional before making significant investment decisions is advisable. 

By Lourenço Alvares, Funds Product Specialist at Global Citizen Solutions