The main capital allocation of the investment is as follows:
1. at least 60% of the capital must be allocated to commercial entities, Special Purpose Vehicles, registered in Portugal whose underlying asset is commercial real estate.
the remaining 40% can be allocated to other investments like a bond portfolio for instance.
2. The investment must have a minimum maturity of 5 years. This means that the investor can take the funds out after 5 years, or they can keep going if that is their wish.
There are essentially two types of funds:
real estate and private equity.
1. Private Equity: funds more focused on Private Equity are buyouts:(mid-market companies, with target acquisitions of 40-60% stake in the companies and EBITDAS’s of 2-5M.).
They are essentially going in and untying cash flows of good solid companies that over-extended themselves. These PE funds usually have a target of 15-20% returns.
2. Real estate funds target industrial complexes, acquire performing assets. They buy the existing property from the owner and keep charging rents to the tenant.
Both types of funds usually have a portfolio target of 6-10 investments.
There are 7 main parties to the fund. These are:
1. the participant, that can have class A or class B shares. More on this later.
2. the fund manager who manages the fund
3. the fund advisor, who brings in the clients.
4. the depositary bank, who holds the funds, and 5 through 7 are the auditor, the tax advisor, and the legal advisor which is self-explanatory.
The fund is regulated by the Portuguese Securities and Exchange Commission. In the US is the SEC, in Portugal, it is the CMVM.
How the funds acquire the companies:
I’ve been on both sides of this process, both by recommending funds to golden visa clients and by sourcing deals to investment funds, and I have seen firsthand how it is done.
From the fund side when you present them a deal: this is what they look for:
1. typical purchase price from 3M to 10M
2. At least 7% per annum yields on the rents paid.
So, let’s say we have a 5M potential acquisition, this means that the minimum threshold of yearly rents is 350k that the tenant must be paid.
3. the contracts must have a duration of at least 10-15 years, renewable, with no break clauses
4. funds look for top-rated tenants with no history of default, free of debt to both the tax authority and social security.
5. funds have extremely experienced legal and finance professionals that go through the deal within a couple of 2 days. They will call you directly and say yes or no and if no, why.
They are very thorough and explain the key points in their analysis. This gives me a great degree of confidence when presenting this exact same fund to a golden visa investor, as I know where they are coming from.
This means that, when a golden visa investor participates in the fund, they can be rest to sure that they are safe. Portuguese finance professionals are highly qualified and experienced., and you can see this when you watch them conducting their due diligence on a deal you present them. I like that.
Do I have to invest in just one fund?
No. You are required to have 500K of capital invested in Golden visa funds, not a fund.
So for instance, if you want more exposure to private equity and real estate, you can split your capital between 2 funds.
I’ve had clients that did exactly that. In regards to paperwork, it’s the same process. The depositary bank or banks(if they are different) will issue a certificate stating that you have x amount of units in fund A and y amount of units in Fund B. This is what your legal representative needs to present to the Immigration Service Authority.
If you want to learn more, schedule a free complimentary call with us, using the provided calendly link, so we can help you with your process.
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