Portugal private equity funds (PE Funds) provide private investors with unique investment alternatives to traditional investment options such as publicly traded stocks and bonds in the country. Before making a private equity transaction and investing in this type of fund, it is important to understand more about these funds in Portugal, their structure, and their benefits and shortcomings.
In this article, we’ll provide you with everything you need to know about the topic, including the time and money needed to contribute to Portugal’s private equity funds, management and performance fees, responsibilities, and much more.
Below, we’ll explore the following:
What is a Portugal Private Equity Fund?
Private equity funds are professionally managed funds that pool capital from multiple investors to invest in private companies, startups, real estate, or other assets. These funds are regulated and typically managed by experienced financial institutions.
If you aren’t familiar with the jargon of the financial world, it’s easier to explain it this way: Imagine you and a group of friends each put some money into a big pot of cash. You then give that pot to a trusted expert who invests it in different businesses to try to make more money for everyone. That’s basically what a private equity fund is.
In the context of immigration, private equity funds are one of the available options for the Portugal Golden Visa, which requires investing at least €500,000 in one of these special funds. Instead of restoring a building or starting a business yourself, you’re letting professionals handle your money and invest in things like tech companies, hotels, or green energy projects.
A few advantages of a private equity fund are that your money is spread across multiple investments, reducing the risk of losing it all, some funds focus on high-growth areas, so you might make a good profit, and it still qualifies you for the Golden Visa, just like buying a house used to—since it’s about the same value.
Investment Terms | Explanation |
Private Equity | A pool of money collected from investors to buy and grow businesses before selling them for a profit. |
Fund Manager | The expert (or team) in charge of investing and managing the money in the fund. |
Lock-in Period | The number of years you have to keep your money in the fund before you can take it out (usually 6-10 years). |
Diversification | The fund invests in different types of businesses to lower the risk of losing all the money. |
Management Fee | A yearly payment (e.g., 1-2%) to the fund manager for handling the investments. |
Performance Fee | A bonus payment to the fund manager if the investments make a profit (often around 20% of the gains). |
Capital Call | When the fund asks investors to send in their money as needed instead of all at once. |
Exit Strategy | The plan for how the fund will sell investments and return money to investors, usually after a few years. |
Hurdle Rate | The minimum profit the fund must make before the manager can take a performance fee (e.g., 6-8%). |
How Private Equity Funds Work in Portugal
Capital raising for private equity in Portugal is often done through private and public institutional investors, such as investment banks, pension funds, development banks in Portugal, and some national retail investors.
Retail investors outside the European Union or the European Economic Area (EEA) who subscribe to private equity funds for the Golden Visa program are another major funding source.
By securing a portion of the funding from private and public institutions, PE funds can become more attractive to individual investors, who will be more confident in tagging along their investments.
While private equity funds typically invest in equity, they may also employ debt financing strategies—funding from financial institutions—to enhance their investment portfolios and achieve their investment goals.
In the Portuguese market, it is estimated that family businesses may represent between 70 percent and 80 percent of national companies, employ 50 percent of the workforce, and contribute two-thirds of the Gross Domestic Product (GDP); such figures present opportunities for PE funds to help grow these businesses.
<h3″>Taxes
These funds are tax-exempt. The tax framework regime for participants in a PE fund will depend on whether they are a tax resident or entity, non-resident individuals, or non-resident entities.
- Tax residents: These residents are usually not liable to pay a 10 percent final withholding tax rate on income or a 10 percent tax rate on capital gains.
- Non-residents: Qualify for tax exemption on income and capital gains.
Fund duration
While it can vary considerably from fund to fund, the typical fund duration usually is eight years. It is also common for PE funds to have the option to extend the initial duration by one to two years. Typically, the investment period is around two-thirds of the fund‘s initial duration (roughly five years).
Investment objectives
Private equity funds can have a diverse focus and invest across different sectors. Some PE funds structure themselves as sector-agnostic, while others are more sector-specific or niche-oriented. Naturally, each sector entails different risk levels, influenced by the economic circumstances and trends at the investment time.
For example, a PE fund with a buyout and growth objective usually invests in established companies with proven market products and positive growth. This typically involves larger investments compared to venture capital funds that invest in smaller tickets in several startups and early-stage companies, where growth is less certain (but potential can be high).
Exit strategies
Private equity funds in Portugal typically employ three primary exit strategies to realize their investments in companies: trade sales, initial public offerings (IPOs), and spin-offs.
The chosen exit strategy significantly influences individual investors’ potential returns, liquidity, diversification opportunities, professional expertise, institutional backing, and broader economic impact.
The choice of exit strategy depends on various factors, including the company’s size, stage of development, market conditions, and the fund’s investment objectives. PE fund managers carefully evaluate these aspects, as well as the company’s financial performance, growth prospects, and competitive landscape, to determine the most optimal approach.
Licenses
Under Portuguese law, private equity managers must obtain permission from the Portuguese market regulator, the CMVM (Portuguese Securities Market Commission), before operating. Private equity fund management can be carried out by private equity companies, through private equity fund management firms that are AIFM Directive compliant and by regional development companies. Investors do not need special authorization or license to subscribe to participation units in a private equity fund.
Regulation
All the above-mentioned fund management entities are subject to regulations under Portuguese law. As previously mentioned, the securities market regulator (Portuguese Securities Market Commission — CMVM) also supervises the funds. Private equity vehicles in Portugal are subject to the general limits of the Portuguese Securities Code for the marketing and advertisement of securities.
Portugal Golden Visa Investment Funds
For a minimum investment of €500,000, investors qualify for the Portugal Golden Visa investment fund. In recent years, these funds have quickly become one of the most popular ways to get residency in Portugal, largely because the costs of applying via this route can offer higher potential yields than other investment routes for the Golden Visa program.
An additional benefit of a private equity fund investment is that fewer and lower additional costs are involved than in the now-defunct real estate investment option. You can apply for a Golden Visa by investing in a private equity fund but you must maintain your investment for at least six months before doing so.
The process is:
Step 1: Choose an appropriate Golden Visa Investment fund or Golden Visa funds |
Step 2: Appoint a law firm |
Step 3: Get a NIF number (tax identification number (NIF) in Portugal) and open a Portuguese bank account |
Step 4: Sign and complete the necessary fund subscription documents |
Step 5: Fund managers evaluate and approve you as an investor |
Step 6: Transfer the funds from your bank account to the fund account |
Step 7: The fund manager issues the fund subscription declaration |
Step 8: Provide all the Golden Visa documents to the law firm and pay the AIMA application fee |
Step 9: AIMA Biometrics appointment scheduled, and you visit AIMA in person |
Step 10: AIMA issues a residence permit that is valid for an initial two years |
Step 11: Golden Visa residence permits are renewed every two years, and you are well on your way to Portuguese citizenship |
Step 12: Portuguese citizenship and passport can be granted after five years |
Benefits of the Golden Visa investment fund
Aside from the residence permit, there are several benefits to choosing the investment fund route, such as:
Higher potential yield: Capital gains yield can be significantly greater than other Portugal Golden Visa investment options, depending on your investment profile, the policy, and the targeted/return of the fund you opt for. Researching the best private equity funds for you will help to secure a high potential yield.
PE funds are strictly regulated: Private equity funds in Portugal are well-regulated. The CMVM (Portuguese Securities Market Commission) regulates and supervises funds eligible for the Portugal Golden Visa program.
Working with experts: Each private equity fund is tailored to the client’s profile and has its own objectives and risk tolerances. Fund managers are professionals whose full-time responsibility is ensuring that the private equity fund performs well.
Any investment, including an investment into one of the Portuguese Golden Visa funds, carries some level of risk. You can analyze this risk independently, but getting advice from a fund manager when making investment decisions is a good idea, particularly if you do not speak Portuguese and are unfamiliar with Portuguese bureaucracy.
Take a look at our Portugal Golden Visa Ultimate Guide by Experts
Portugal's Private Equity Industry Analysis
The private equity trends in the Portuguese private equity market partly shifted with the most recent Portugal Golden Visa changes. Many private equity funds focused on real estate assets, but these are no longer considered Golden Visa-eligible funds.
Although the real-estate-related fund is no longer a qualifying investment for the Golden Visa program, it doesn‘t mean these funds will suddenly end or that no new ones will be launched; the real estate sector in Portugal is still very competitive and attractive to parties such as fund managers, investors, and developers.
The end of all real estate-related investments as eligible Portugal Golden Visa funds (namely property acquisition and subscription of the above-mentioned funds) prompted the launch of new private equity funds. The updated private equity or investment funds route now focuses on the most varied sectors (technology, industrial, energy, logistics, R&D, or even with an agnostic approach) for the Portugal Golden Visa program.
The vibrant startup ecosystem, characterized by a growing number of innovative companies, has attracted the attention of venture capital investors seeking exposure to promising private equity investment opportunities in Portugal.
This increased interest stems from the potential for high returns and the belief that Portugal is home to a fertile ground for nurturing successful startups because of factors such as a skilled and educated workforce, lower labor costs in comparison with other European countries, and government support in the form of tax breaks, incubators, and funding programs.
Differences Between Private Equity and Venture Capital
Private equity (PE) and venture capital funds (VCs) invest in companies of various sizes, from startups to SMEs. They both commit varying amounts of capital and can differ in the ownership percentages in the companies they invest in.
However, there are a few differences between private equity and venture capital funds.
Private equity (PE): PE funds usually involve larger investments in more mature companies looking to expand or restructure. PE funds invest for control by acquiring a stake in portfolio companies or through debt instruments.
Venture capital funds: Venture capital funds make modest investments in startups, providing crucial support to startups in their early stages of growth.
These investments typically involve acquiring minority stakes through equity and quasi-equity convertible instruments rather than debt. This approach nurtures innovation and long-term success, setting the stage for exciting new ventures to flourish.
Exploring Visa and Immigration Options for Portugal
If you're considering making the move to Portugal, it's essential to be informed about the various visa and residency options available. The Golden Visa Portugal program is an attractive option for many, offering residency to investors and their families. For those eyeing retirement in this beautiful country, the Portugal D7 Visa is tailored for you. Digital nomads can take advantage of both short and long-stay options with the Digital Nomad Visa (D8).
For the entrepreneurial spirit, Portugal offers the Entrepreneurship/startup Visa (D2) - Start-up Visa (open company) tailored for those looking to establish their businesses in the country. Those with specialized skills can explore the Work visa for highly qualified employees (D3). Additionally, if you have Portuguese ancestry, you might be eligible for Citizenship by descent.
However, moving to a new country isn't just about visas. If you're thinking of buying property, our guide on Buying Property in Portugal can offer invaluable insights. Dive deeper into the immigration process with our comprehensive Portugal immigration guide. For Americans specifically looking to relocate, we have curated information on Americans moving to Portugal. Lastly, one can't forget the importance of the NIF (Tax Identification Number), a crucial step in any relocation process.
Frequently Asked Questions about Private Equity Funds in Portugal
How does private equity investment work in Portugal?
Investing in private equity in Portugal offers the opportunity to support dynamic, fast-growing companies through dedicated investment funds. By participating in these funds, investors can not only contribute to the growth of promising businesses but also become eligible for the Golden Visa program, which grants residency in Portugal. It’s an exciting way to be part of Portugal’s thriving entrepreneurial landscape.
What is venture capital private equity?
Venture capital (VC) is a subset of private equity focused specifically on investing in startups and early-stage companies that have high growth potential. In the context of Portuguese immigration and private equity funds, venture capital plays a significant role in shaping both the economic landscape and the migration patterns related to entrepreneurship and innovation.
Are private equity funds traded on the stock market?
No, private equity funds are private, closed-end funds that are not traded on stock exchanges. This means that they are not accessible to the general public and their investments are only available to a limited number of accredited investors. Private equity funds also do not provide regular liquidity, meaning that investors cannot sell their investments easily.
Why are private equity funds not perpetual?
Private equity funds typically exit each deal within a set time period to align incentives through an incentive structure, manage risk, facilitate portfolio management, comply with regulations, and attract institutional investors.
This structure helps to ensure that the investments are well-structured, transparent, and aligned with the interests of all stakeholders.
What are the key considerations for investing in private equity funds in Portugal?
Key considerations for investing in private equity funds in Portugal include:
- Fund Performance: Historical performance and returns.
- Management Team: Expertise and track record.
- Investment Strategy: Alignment with investor goals.
- Regulatory Environment: Understanding local regulations and compliance.
- Risk Management: Assessing the risk profile of the investments.
What are the types of private equity funds?
The two types of private equity funds are general partners and limited partners. Limited partnership agreements — which are broadly similar to shareholders agreements but for partners rather than shareholders — establish the amount of risk that each party carries, and they also specify the lifespan of the fund. Limited partners are also responsible for the amount that they invest. General partners are entirely liable to the market.
What are the benefits of investment funds?
Two of the main benefits of private equity funds in Portugal are higher potential yields than other investment routes, and the funds are strictly regulated by the Portuguese Securities Market Commission. Additionally, the tax exemption on private equity investment funds adds to their appeal.
Should I invest in venture capital funds or a private equity fund to get a Portugal Golden Visa?
Venture capital funds offer the possibility of higher returns but also involve more risk, as these funds invest in early-stage companies with uncertain outcomes. Private equity funds, on the other hand, invest in more established companies with a proven track record, making them a less risky option with lower potential returns.
