What is the purpose of conducting due diligence on a Portuguese Golden Visa fund?

The purpose of conducting due diligence on a Portuguese Golden Visa fund is to thoroughly assess its operations, strategy, and risk management approach. This helps reveal both opportunities and potential risks, enabling investors to make informed decisions about their €500,000 investment.

What kind of questions should I ask about a fund manager's background and track record?

You should ask about their total assets under management (excluding Golden Visa funds), the percentage of capital from institutional investors, the number and geographical distribution of current Golden Visa investors, if the fund is open to non-Golden Visa investors and their current mix, examples of past exits and returns, their track record in target sectors, and the size and roles of their investment team.

What financial aspects and alignment questions are important to ask a fund manager?

Key questions include whether the management team is personally invested in the fund and to what percentage, a breakdown of all fees (subscription, management, and any other fees with their calculation basis), the target return (net of all fees and carried interest) and its underlying assumptions, and details on the performance structure (hurdle rate, carried interest structure, and waterfall distribution).

What should I inquire about regarding the fund's investment strategy and deal sourcing?

Ask about their target sectors and the rationale behind choosing them, their typical investment size and stage preference, the number of companies they plan to invest in, whether they take controlling or minority positions and why, how they source deals (network and deal flow), if they have identified target companies, and what specific value they add to portfolio companies beyond capital.

What questions are crucial for understanding a fund's performance and risk management?

You should ask for a spreadsheet simulation for their target case scenario, their expected holding periods for investments, their worst-performing investment and lessons learned, how they structure deals to protect downside risk, what happens if a portfolio company underperforms, how many board seats they typically take, how they manage concentration risk, how their portfolio performed during significant events like COVID and lessons learned, and their strategy for a potential market downturn.

What are some red flags to watch for during the due diligence process?

Red flags include vague or evasive answers about track record, reluctance to discuss past failures, overemphasis on Golden Visa investors compared to institutional investors, unclear exit strategies or unrealistic return expectations, limited team capacity or over-reliance on key individuals, and weak reporting and communication structures.

What qualities should I look for in a fund manager's responses?

Look for transparency about both successes and failures, a clear understanding of risks and mitigation strategies, realistic approaches to challenges, strong governance and investor communication practices, and a balanced focus between Golden Visa requirements and investment performance.

How does the fund communicate with investors?

You should ask about how frequently they report to investors and what information is included in these reports, as well as how they communicate with investors when things do not go as planned.

What should I ask about the fund's exit strategy and liquidity?

Inquire about their typical buyers and relationships with potential acquirers, what happens if market conditions prevent an exit at fund maturity, whether investors can exit after the 5-year Golden Visa holding period, their experience with secondary market sales, and how they maintain relationships with potential buyers throughout the investment period.

What is the importance of team capacity in fund operations?

It is important to understand the investment team's capacity, especially in relation to their other managed funds, to ensure they have sufficient resources to effectively manage your investment and pursue the fund's strategy.

A due diligence binder rests atop financial charts displaying line and bar graphs, with a pen and a pair of glasses alongside.

FUNDS

Due Diligence Questions for Golden Visa Fund Managers: A Practical Guide

GET IN TOUCH INITIAL CONSULTATION

Cristóvão Matos

Managing Director

Nomera Capital

Published: Jan 27, 2025Updated: Mar 11, 2025