分类: funds

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Will Next Year’s Price Change Kill Portugal GV’s Fund Investment Category?

In this fourth installment of the Mobility Standard, we spoke to Murat Coskun of Get Golden Visa, a man who’s been closely involved with the Portugal Golden Visa’s fund investment option since the very beginning. We asked him a range of questions about RCBI fund options, including:

  • Which investment migration programs out there, beyond Portugal, have a fund option, either explicitly in their regulations or as a hypothetical possibility under their legal frameworks?
  • Why don’t any of the Caribbean CIPs have such fund investment options?
  • Now that Portugal has decided to raise the minimum investment for the fund category from 350,000 to half a million euros starting next year, will the funds struggle to attract investors?
  • In the last several years, only a double-digit number of golden visa investors have picked the fund option, but there are already more than 20 funds available. With such an unfavorable ratio, how can fund managers expect to raise enough capital?
  • Portugal has proven that there’s an appetite for investment fund options among investor migrants. Which other programs are likely to take advantage of this market next?
  • What are the common pitfalls of fund investment? Which factors should you take into consideration when evaluating a fund? 
  • What are the tax advantages that fund investment has over real estate?

What will happen to the fund option after the price increase next year?

Christian Nesheim: “Someone I spoke to, who’s big in Portugal’s real estate refurbishment option market, told me very bluntly that Portugal’s fund option is “dead in the water” because it’ll go up to EUR 500,000 [from the current EUR 350,000] next year and that will make it uncompetitive. What’s you answer to that, Murat?”

Murat Coskun: “Now that the price is going up for funds next year, a couple of things will happen. First, we are for sure going to have a very busy 2021. Then, because of the price increase, there will be a sudden drop in demand for the fund option at the beginning of 2022, yes, but there will still be demand.”

That demand, Coskun specifies, will remain because of the many inherent advantages that funds have over real estate:

  • They are a completely passive investment, rather than a property that must be visited or managed by the investors, something that’s been complicated by the pandemic.
  • They offer a number of tax advantages of real estate: Little to no capital gains tax upon exit and low roundtrip transaction costs.
  • The rise of American applicants, who are much more used to financial instruments than investors with a shorter history of public markets, will serve to bolster interest in the fund option.

“With the new geographical restrictions on the real estate options coming next year, more investors will opt for the fund option.”

Coskun highlights that the investment fund option has grown from a mere seven applications in 2019 to 48 in 2020 and that there were 18 in the first three months of 2021 alone, and says he expects the total at the end of 2021 will far surpass the 2020 total.

But even if the number of applicants that pick the fund option triples in 2021, those 150-ish investors will have to be split among 20 different funds. How can fund managers expect to raise enough capital?

Coskun concedes that such an unfavorable ratio will spell trouble for some funds and points out that, for precisely that reason, vetting will be crucial.

“There is no doubt that the changes will leave some of the newer funds quite exposed. Some of those will have a tough time raising funds and we may see some of them drop out of the race completely. That means you need to vet the funds when you are investing today so that you’re not left with a dying fund come 2022.”

Since vetting will be so important, what factors should investors place the most weight on when evaluating a fund?

“First and foremost, look at what the fund focuses on,” Coskun says. “What business sectors, what type of assets, what type of business strategy is it going for. Is it going for startups in healthcare? Is it going for real estate? If real estate, is it only Portuguese real estate? Is it focusing on commercial or residential assets? It’s important to know the fund’s investment philosophy. Once you have a good idea of that, the next question is who are the fund managers? Who are they and what is their track record?”

Coskun also cautions people to check whether the people sponsoring the fund are real estate developers. If they are, he says, they might merely be using the fund to sell its own overpriced real estate.

Listen to the full episode to learn more.

The post Will Next Year’s Price Change Kill Portugal GV’s Fund Investment Category? appeared first on Investment Migration Insider.

How to Choose the Right Fund for the Portugal Golden Visa

 

The fund option sounds more complex, more confusing, and scarier than the good old real estate option. That much is true.

As more investors are turning to the fund investment option, their unanswered question is “How will I know if the fund I chose is the right investment for me?”

We learned key lessons about vetting funds, while analyzing over 25 funds and jumping into countless investor calls for Portuguese Golden Visa’s increasingly popular fund option.

I will summarize them in this article on How to Choose the Right Fund for a Golden Visa in Portugal.

Things to Consider before Investing in a Portuguese Golden Visa Fund

Whenever we are vetting a fund for any of our clients, we have a long list of due diligence items we check off.  We will give a glimpse of some of the essentials below: 

Fund Strategy
Funds focus on a wide variety of investment types. These include start-up companies in different industries, real estate investments, yield-generating assets, or even commodities.

You will see that most fund options available in the market have a real estate focus, though.

Based on the fund’s investment strategy, you should assess the below aspects: 

  • Location or Specialization:
    • If real estate; does the fund invest in assets in primary locations, gentrifying areas, regional diversification, or strategic locations nearby a new hospital, airport, etc.?
    • If startup companies; is there a sectoral vertical the fund will concentrate on? What funding stage will the target companies be in; angel, Series A, B, C?
  • Target Return
    • What is the expected Internal Rate of Return (IRR) of the fund? 
    • Are they planning on distributing annual dividends?
  • Target Commitment:
    • How much is the fund trying to raise? Does it sound realistic?
  • Fees:
    • Is there a subscription fee?
    • What is the annual management fee?
    • At the exit, what performance fee will the fund manager charge investors?
    • Are there any other hidden fees you should be aware of?
  • Portfolio Diversification
    • Does the fund make risk diversification through a balanced portfolio selection?
  • Exit Strategy: What is the exit strategy of the fund? 

Make sure and ask about the investor profile in the fund pipeline.

You might not be familiar with all the above factors. In that case, comparing different fund options will give you a better understanding of available opportunities in the market. 

You may consult your independent advisor whether the strategy makes sense based on the market conditions. 

Fund Lifecycle
Before investing in a fund, you need to know how long your money will be locked in for.

  • Learn about these critical dates: 
    • CMVM registration
    • End of the subscription period
    • Fund closing / maturity date
  • Does the fund have any potential extension period? 
    • Unlike real estate, you are not the sole decision-maker for the fund. You need to learn if and for how long the fund manager can extend the fund duration.

It’s always useful to ask how much capital is raised so far, in order to see if it is realistic to reach their target capital within the subscription period.

Fund Manager and Fund Advisor 
The fund manager and advisor will be in the driver’s seat until the fund reaches maturity.  You will rely on them to enjoy a comfortable ride as a passenger.

So, it is absolutely crucial to check their credentials.

For more details, you can check out the comprehensive guide on the Golden Visa program in Portugal.

How do I make sure I don’t lose money investing in a Portuguese GV fund?

Evaluate the fund manager’s market knowledge rather than its track record

The Portugal Golden Visa risk fund investment option was amended from €500,000 to €350,000 in 2017.  The first qualifying risk funds started popping up in the market in 2019.  With that, it is hard to find much of a track record with any of these funds.  That’s why you should evaluate the fund advisor or manager based on their market know-how and past experience.

It’s always useful to arrange a face-to-face meeting with the fund manager or advisor and ask all your questions. Remember, “there’s no such thing as a stupid question”.

See if they give you confidence with their background and their fund management capabilities. 

Needless to say, having an independent professional review the fund options alongside you will save you time, money, and lots of potential headaches.

Do your interests as the investor match those of the fund manager?

Make sure that the fund manager and the fund advisor share the same incentives with you. Most of the time, the fund manager will have a hefty performance fee at the exit.  This fee will be a percentage of the potential profit.

This is actually a fair structure.  This means that the more profit the fund ultimately realizes, the more the fund manager will go home with. It will incentivize the manager to maximise the profits.

Two important tips here:

  • Practice What They Preach
    • Do the fund managers or fund advisors also shoulder responsibility by investing their own money into the fund? It’s not a must, but a great show of confidence when those in charge of running the show also expose themselves to the downside risks of capital loss. 
  • From One Pocket to Another
    • It is common to have real estate developers as fund advisors behind some of these funds.  In those cases, make sure that the developer is not stuffing the fund portfolio with the properties they developed.  Selling their own properties into the fund may mean they are merely liquidating their own properties with the fund they raised from you.
    • This is not a complete red flag, the properties they developed may actually be right for the fund in light of the fund strategy.  Though, it is something to look out for and analyze carefully.

Assess the Risk-Return Profile
The risk-return profile of a fund varies according to its market exposure and portfolio diversification. You should be well aware of your risk appetite and if the corresponding fund fits it. 

If you are looking to preserve your capital and not lose money, that means you are risk averse. In that case, you may look for funds that prioritize protecting investor’s capital. There are some funds in the market that are designed explicitly for Golden Visa investors carrying low to medium risk with low to medium expected returns. Moreover, investing in funds backed by real estate is generally considered a safer option because of the lower capital risk.

If you are in it to earn big or go home, then risk is practically your middle name. In that case, you may want to focus on funds that target startups or other ventures.

How will the Portugal Golden Visa Rule Changes affect the Fund Option?

There were tons of rumours floating around about the changes to the Portugal Golden Visa rules. In February 2021, the wait was over and the verdict came in.

There is not much of a surprise as far as the real estate restrictions.

As for the Portuguese Golden Visa fund option, there will be an increase in the minimum investment for the fund subscription from €350,000 to €500,000.

Well, whether we like it or not, that is the hand we are served. 

Luckily, the change will only come into effect on January 1st, 2022. At least we have the rest of 2021 to capitalise on the €350,000 option.  Let’s make the best of it.

Is the Fund option popular?
In short, yes.

Since the option was amended in 2017, lowered from €500,000 to €350,000, it gathered lots of attention.  In 2020, the fund option accounted for 4% of the Golden Visa investments. In other words, the number of Golden Visa applicants that chose to go ahead with a fund investment increased almost 6-fold compared to 2019.

Can any Portuguese Fund qualify you for a Golden Visa?
No, not quite. It needs to be a Fundo de Capital de Risco, in other words, a Capital Risk Fund.

What on earth is a risk fund? Well, some of the more distinctive requirements of these funds are, they have:

  • The portfolio must be diversified; no single asset, company, or equity can account for more than ⅓ of the complete portfolio,
  • The investor individual must be a savvy investor
  • The fund cannot guarantee a stable dividend, like a government bond would

Are the Funds Safe to Invest in?
Any fund in Portugal must comply with the Portuguese Securities Market Commission (CMVM) rules, which means that the fund is regularly audited by third parties.

Having said that, it is very important to assess the investment strategy of the fund and the track record of the fund managers.

These are risk funds after all. They do not and cannot guarantee your capital. Ultimately, you need to assess that yourself.  Preferably, with an experienced independent advisor.

About Get Golden Visa
Get Golden Visa is a full-service investment immigration agency.  We provide end-to-end solutions on residence and citizenship by investment programs in numerous countries worldwide.

Through our local offices in Portugal, we were involved in Portugal Golden Visa’s investment fund option long before it was initially amended from €500,000 to €350,000.  Over the last couple of years, we helped numerous investors from more than twelve countries choose the right fund and obtain their Golden Visa in Portugal.

Interested in contributing a sponsored feature? Email us on cn@imidaily.com and see all our promotional options here.

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