What is a 'Limited Partnership Agreement' (LPA), and why is it important for me to understand it when investing in a Golden Visa fund?

The LPA is like the rulebook for the private equity fund. It's a legal contract that explains everything from how long the fund will last, how fees are charged, how profits are shared, and what your rights and responsibilities are as an investor. Understanding it is crucial because it directly impacts your financial commitment and how you'll eventually get your money back.

What are the different stages or periods a private equity fund goes through?

Private equity funds typically go through three main stages: the 'Subscription Period' (when you can invest your money), the 'Investment Period' (when the fund uses your money to make investments), and the 'Divestment (Exit) Period' (when the fund sells its investments and returns money to you).

Are the fees I pay as a Golden Visa investor the same as what big institutions pay in the same fund?

Not always. Golden Visa investors often face higher subscription fees (typically 2% to 3%) and sometimes different fee structures compared to institutional investors like pension funds, who might have lower fees or more flexible payment terms. It's important to check if the fee structure is uniform for all investor types.

How do different types of fees (like subscription, management, and performance fees) affect my overall return?

All fees reduce your net return. The 'subscription fee' is typically taken from your initial investment. The 'management fee' is an annual charge, usually around 2%, and whether it's based on your total commitment or the actual invested amount can make a difference. The 'performance fee' (or 'carried interest') is the fund manager's share of profits, but they only get it after you've received your initial capital back plus a 'preferred return' (hurdle rate).

What is a 'capital waterfall' and how does it determine when I get my money and profits back?

The 'capital waterfall' is the structured order in which the fund distributes money to investors. First, you get your initial investment back ('Return of Capital'). Then, you receive a 'Hurdle Rate' (a preferred return, usually 3% to 8% annually) on your invested capital. After that, the fund manager might get a 'Catch-Up Phase' of profits, and finally, remaining profits are split between you and the manager (e.g., 80% to you, 20% to the manager).

What's the difference between receiving 'capital reduction' and 'dividends,' and why does it matter for my Golden Visa?

'Capital reduction' means getting a portion of your initial investment back, which can be risky for your Golden Visa status during the mandatory 5-year holding period as it might reduce your investment below the required €500,000. 'Dividends,' on the other hand, are considered income and don't reduce your initial committed capital, making them generally more favorable for maintaining your Golden Visa eligibility.

If my investment value drops below €500,000 due to market changes or fees, do I need to add more money to keep my Golden Visa?

No, generally you don't. The Golden Visa program focuses on your initial capital commitment. Market-driven decreases in the fund's value or fund-level fees and expenses that affect the Net Asset Value (NAV) do not require you to top up your capital, as long as the fund doesn't return capital to you that reduces your invested amount below the threshold.

What are some of the main risks I should be aware of when investing in a Golden Visa private equity fund?

Key risks include 'Exit Risk' (the fund struggling to sell investments), 'Leverage Risk' (using borrowed money can boost returns but also increase losses), 'Fee Impact' (higher fees eating into your returns), 'Investment Alignment' (institutional investors sometimes having more influence), and the 'Complexity in Distribution Waterfall' (how profits are paid out can be tricky to understand).

Are there any 'shady practices' I should watch out for when choosing a Golden Visa fund?

Yes, be cautious of funds promising 'buy-backs' (which are often unregulated and risky), those that blur the lines with 'real estate loopholes' by investing in businesses that mostly own property, or 'conflict of interest schemes' where insiders might benefit unfairly from fund loans.

What's the best way for me to thoroughly check out a Golden Visa fund before investing?

You should thoroughly review the Limited Partnership Agreement (LPA) to understand all the terms. Assess the fee structure to see if all investors pay the same fees. Look into the fund's exit strategies and how it plans to return capital (dividends vs. capital reduction). Check if the fund uses leverage and if it's managed by experienced professionals with a good track record.

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Portugal Golden Visa Funds: Understanding Key Insights for Investors

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Cristóvão Matos

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Nomera Capital

Published: Feb 20, 2025Updated: May 5, 2025