Portugal’s stable growth, incentives, and stability make it a prime market for investment funds among golden visa seekers. With advancements in technology and changing investor mindsets, alternative investments are becoming more accessible.
Types of Investment Funds in Portugal
Portugal offers various fund structures, each catering to different investor profiles and risk appetites:
- Real Estate Investment Funds (REIFs): Focused on commercial and residential properties, these funds benefit from Portugal’s booming tourism and real estate markets.
- Venture Capital Funds: Designed for investing in Portuguese startups, especially in technology, renewable energy, and fintech sectors.
- Private Equity Funds: These funds focus on acquiring and restructuring companies, offering high returns for institutional investors.
- Hedge Funds & Alternative Investment Funds (AIFs): Aimed at high-net-worth individuals, these funds employ diversified strategies, including equities, bonds, and derivatives.
- Sustainability & Green Funds: With Portugal’s commitment to renewable energy, funds investing in ESG (Environmental, Social, Governance) projects have gained popularity.
An alternative investment is a financial asset that does not fall into one of the conventional investment categories, which include stocks, bonds, and cash. Most alternative investment assets are held by institutional investors or high-net-worth individuals because of their complex nature and degree of risk.
Introduction
The term “alternative investments” is a relatively loose one and includes tangible assets such as direct holdings of real estate, precious metals, diamonds, art wine, antiques, classic cars, coins, forestry, shipping or stamps and some financial assets such as indirect holdings of real estate, commodities, private equity, distressed securities, infrastructure funds, hedge funds, Exchange-traded funds, carbon credits, venture capital, film production, financial derivatives, and cryptocurrencies.
- Diversification: Reduces overall portfolio risk and improves stability.
- Higher Return Potential: Alternative assets often outperform traditional markets over the long term.
- Inflation Protection: Real assets like real estate and commodities act as a safeguard against inflation.
- Exclusive Opportunities: Access to high-growth sectors not typically available in public markets.
Portugal AIF
Alternative investments have gained momentum in Portugal, as investors seek diversification, stability, and higher returns beyond traditional assets. With evolving markets and economic shifts, these investment vehicles are becoming an essential component of modern portfolios.
The Portuguese private subscription AIFs have become increasingly popular, particularly among qualified investors (including asset managers such as private equity players, real estate developers, family offices, immigration-linked businesses such as Golden Visa funds, and others). Portuguese legislation and regulations for undertakings for collective investments (UCIs; organismos de investimento coletivo) are aligned with EU directives, offering a flexible, competitive, and reliable legal framework.
AIFs can be structured in a contractual form or a corporate form. AIFs can be structured as open-ended or closed-ended. However, due to the typical illiquidity of alternative asset classes, AIFs are generally closed-ended. Open-ended AIFs permit subscriptions and redemptions of units/shares within specified timeframes, allowing investors to redeem their investments more easily and making them a more liquid investment option.
Depending on their investment strategy, AIFs are further categorised into one of the following subtypes:
- Other AIFs (Outros OIA).
- Real estate AIFs (OIA imobiliário);
- VC–PE AIFs (OIA de capital de risco);
- Loan AIFs (OIA de créditos);
All AIFs generally need to appoint:
- A management company, except when they are self-managed AIF SICs;
- A depositary, except when they are targeted only at professional investors and are solely managed by a sub-threshold registered AIF manager; and
- An auditor.
Features
- Low correlation with traditional financial investments such as stocks and bonds;
- No “just-in-time” market values available since assets are often traded over-the-counter in private markets and not in public auction markets;
- Alternative investments may be relatively illiquid;
- Costs of purchase and sale may be relatively high;
- There may be limited historical risk and return data;
- A high degree of investment analysis may be required before buying;
- Higher dispersion of returns among investors;
- Markets often not as efficient, which in turn can offer up more opportunities to exploit;
- Less regulation (such as crypto-currencies);
- Lower transparency;
- Unconventional legal and tax implications.
But while alternative investments may offer distinct advantages to an investor, it is worth noting that they don’t guarantee them.
Typical measures of risk and return (such as beta, mean return and standard deviation) may not provide a sufficient assessment of an alternative investment’s risk-and-return characteristics or indeed may even be wholly unreliable or inappropriate.
Ultimately, alternative investments can offer investors a much-welcomed source of higher returns and risk diversification that are simply non-existent in the world of traditional investing.
