Residency by Investment: A Short Introduction to Mutual Funds and Private Equity in Portugal

You can no longer secure permanent residency in Portugal with a real estate purchase, but you still can still get a “golden visa” by investing in Portugal via mutual funds and private equity funds. How can the average investor figure out if the return is worth the risk?

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The Portuguese real estate market has been on fire for the last several years, and critics of the so-called “golden visa” program (not its official name) that allowed non-EU citizens to essentially buy Portuguese residency through a home purchase have finally got what they’ve been waiting for: an end to that provision in the expectation that it will help cool the housing market by taking foreign buyers out of it.  However, they’re likely to be disappointed.  For one thing, the main problem in the escalation of housing costs continues to be an overall lack of available homes for sale, raising the prices on what’s left, as I discuss in my Portugal Real Estate Watch article.  For another, foreigners can still buy property here – and frequently do – because there are no residency requirements to purchase real estate in Portugal.  Depending upon how much time they plan on spending in the country every year, non-EU citizens just need to secure a visa some other way.  And there are plenty of ways.
If your ultimate goal is permanent residency in Portugal – something akin to a “green card” in the United States – you basically have to first pass through a period where you reside in Portugal for a set number of days per year under a long-term visa / temporary residency permit. Afterwards, you can apply for permanent residency and, eventually, Portuguese citizenship. (Short-term visas for reasons other than acquiring permanent residency also exist, but I will not be talking about them here.)
These long-term visas geared towards obtaining residency can be roughly categorized as those targeted at “normies” who have to prove they can support themselves financially but only at the Portuguese minimum wage – as of January 2024, about US $883 a month – and those for heavier hitters on the economic spectrum with lump sums of cash on hand that they can invest or donate in Portugal, as long as it’s not an investment in real estate. 
In this article, I’ll be exploring how you can evaluate the potential payoff of those non-real estate investments, as well as how you can think about the pros and cons of golden visas versus other long-term visas as a means to obtain Portuguese residency. 
Personally, I have never needed a golden visa because I acquired Portuguese citizenship through marriage to a Portuguese citizen, so I am not here to provide any advice based on my own experience.  Instead, I consider Portuguese “residency by investment” from the perspective of someone who might be weighing the advantages of permanent residency in an EU country where none of the candidates in an upcoming national election has been convicted of 34 felonies, and also has the financial flexibility to move some money from their savings or investment accounts back home over to Portugal via the golden visa route – though not necessarily with millions to blow. What would I want to know that the Google algorithm is not spitting back to me?  In that spirit, if the family office takes care of the fat trust fund you live off while island hopping in the Mediterranean, you already have a gaggle of lawyers and accountants and this article may not speak as closely to you. 
I’ll start with a brief review of the types of financial investments you can make in Portugal to obtain permanent residency and characterize the general profile of who might be most interested in those kinds of investments. Then, I’ll look at some ways to evaluate your potential return on the investments vis-à-vis what you could have earned investing back in the States or somewhere else.
Note: I will not be reviewing the procedural ins and outs of how to apply for Portuguese visas and residency.  There are plenty of online resources for this, as well as consulting agencies you can pay to help you apply.   But beware: there are many, many (many) websites out there with impartial or outdated information about the golden visa program, including from consulting agencies who are supposedly experts, and even some Portuguese government websites.  The information environment is constantly shifting because the politics of golden visas are complicated.  Be certain that the information online you are looking at is current, in particular, that there is a “date updated” listed on the page, like this example. As always, I recommend seeking professional legal and financial advice before moving forward.

Residency By Investment: Who’s It For?

The term “golden visas” sometimes appears in scare quotes because golden visas are not really a thing.  Nor are they a Portuguese invention.  Various European countries over the years have offered permanent residency – and/or eventual citizenship – to non-EU citizens in exchange for capital investments of different types, principal among these in real estate.  In other words, the more “gold” you have, the easier you can score a visa somewhere in Europe. However, these programs have often been the targets of political criticism and subsequently altered or eliminated.  (See “The Goose That Lays the Golden Visa” and other fables.) 
In Portugal, golden visas are formally known as Autorização de Residência para Atividade de Investimento (ARI), or Residency Permit for Investors, and can be granted to applicants who:
  • Create at least 10 permanent employment positions (8 positions if they are in a low population density area)
  • Transfer capital worth at least 500,000 euros to a public or private institution for the purpose of scientific research (only 400,000 euros if it’s in a low population density area)
  • Transfer capital worth at least 250,000 euros to support artistic or cultural production
  • Transfer capital worth at least 500,000 euros to form a new company in Portugal with the creation of at least 5 permanent employment positions, or to invest in an already existing company to create at least 5 permanent employment positions or support 10 currently-filled positions, maintaining the investment for at least 3 years.
  • Transfer capital worth at least 500,000 euros to a non-real estate investment fund where at least 60% of the value of the investment is made in companies based in Portugal, maintaining the investment for at least 5 years.  This is the program arm we’ll be talking about.
Although real estate investments are currently excluded from eligibility for golden visas, a new legislative proposal would allow investments in real estate funds geared towards affordable housing. Stay tuned.
From October 2012 through September 2023, the Portuguese government granted 12,718 residency permits under ARI, almost half of which went to Chinese nationals. (781 permits were granted to Americans.) Of the total, 11,383 permits went to applicants under the now revoked “buy a house to get permanent residency in Portugal” provision.  If you’re following the math here, this means only 1,335 permits over 11 years were granted for the types of investment still allowed under the revised legislation.  Only 9 of these went to scientific research investments and 8 to culture.  ARI created a whopping total of 23 jobs. Sounds like we’ve got our priorities in order!
Screen Shot 2024 06 13 at 3.27.23 PM
Loud and proud! It could’ve been only 22 jobs, which would have been a real policy failure. Source: SEF
We’ll be looking at the second highest category after real estate investments where 723 permits were granted over this same time period: investment funds. Indeed, the number of residency permits and the euro value invested has increased significantly in the last few years, and Portuguese fund managers are racing to create more funds for golden visa-ers in waiting.
But fear not: if you just want to score permanent residency buying a house somewhere in Southern Europe, you can still do it in Greece.

Profile of Golden Visa Applicants

Prior to the revocation of the real estate provision of the ARI program, the socioeconomic profile of the average foreign national who applied was varied.  While it’s true that foreigners snatching up condos in Lisbon and beachfront property in the Algarve in the early days of the program were fairly well off, a lot of middle income retirees moved to Portugal and bought homes in lower cost cities.  Presumably, future ARI permits will be granted primarily to higher-income individuals who can afford to invest in Portugal and buy/rent a home here or somewhere else.
One of the principal attractions of golden visas versus traditional means of gaining permanent residency is that investors don’t need to spend as much time here: just seven days in year one, and not less than 14 days in subsequent years. That’s basically a vacation in Portugal, not relocating to Portugal.  By contrast, you can acquire permanent residency without a “golden” investment just by showing that you have social security / pension / rental property / other passive income (i.e., not a job you can get fired from) at least as much as the Portuguese minimum wage, however, you have to spend 16 months of the first two years physically in Portugal.  So, if you want to work towards permanent residency in Portugal now but aren’t quite ready to commit to spending that much time here, you need a golden visa. 

Mutual Funds Vs Private Equity: Invest in What?

The exact language regulating which financial investments qualify for ARI permits has been interpreted to mean two broad categories: mutual funds, using the US terminology, where investors buy shares of funds that themselves buy shares in publicly listed, primarily Portuguese companies, traded on Portuguese and some European stock exchanges; and private equity funds investing in privately held Portuguese companies (i.e., not listed on a stock exchange), whether already established firms or those in the start-up phase looking for venture capital to get them going.  Although private equity funds in the United States often require investment minimums in the millions of dollars, Portuguese private equity funds targeted specifically at golden visa investors require substantially less, usually no more than the minimum investment required to qualify for the ARI program, and sometimes even less.
Nomad Gate maintains a list of funds that meet the criteria for golden visa investors.  If you speak Portuguese, Deco Proteste, a consumer rights organization, has a more comprehensive list of Portuguese investment funds, although some of these may not qualify for a golden visa.  You can also Google around to find more.  Given the fact that you have to invest at least 500,000 euros to qualify for a golden visa, and given the fact that Portuguese investment firms have created funds specifically targeted at potential investors like you, how can you decide which is right for you?  Let’s take a look at the pros and cons of both.

Portuguese Mutual Funds

It’s important to keep in mind that the Portuguese capital market is a tiny fraction of the US capital market, and substantially smaller than other countries in Europe.  (If you’re interested, you can read more about European capital markets here.)  There are currently just 52 equities listed on the Euronext Lisbon, the main stock exchange in Portugal, compared to around 2,000 on the New York Stock Exchange (NYSE) and more than 3,000 on the NasdaqIn total, the US stock market is worth around US $46 trillion, almost four times the entire European capital market combined. The S&P 500 index, which tracks the 500 largest companies listed on US exchanges, comprises around 80% of that $46 trillion. Meanwhile, the benchmark Portuguese stock market index of the 20 largest companies traded on the Euronext Lisbon was renamed the PSI (Portuguese Stock Index) from the original PSI-20 because there were not always 20 companies every year with at least 100 million euros of tradeable shares to meet the minimum threshold to be included in the index.  Ouch.
Capital markets have a lot of room to grow here.  In part, that’s because Portuguese households tend to be risk averse and conservative in their investmentsAlmost 2/3 of household wealth is concentrated in real estate – and, as I discuss in Portugal Real Estate Watch, a big chunk of that sits empty as unsold, un-rented, second or third homes. Only 5.6% of financial assets in Portuguese households are held in mutual fund shares, one of the most common vehicles to invest in the stock market, compared to more than twice that in the United Sates.
Now, if your objective is permanent residency in Portugal, the small number of listed Portuguese companies, and their relatively smaller market capitalization compared to the US stock market, is not necessarily an issue if: 1) the annual return is roughly similar to what you might have earned on similar investments in the United States or elsewhere; or 2) the return is lower but tolerable when you factor in the gain of permanent residency in Europe.  If the latter, there’s no online resource that can make this determination for you.
OK, so what kind of returns can we expect on mutual funds that will qualify for a golden visa?
One of the pros of investing in mutual funds as opposed to private equity comes down to transparency, the ease with which you can look up the historical performance of any fund you are considering.  Many Portuguese mutual funds will provide that information right on their website, and you can also use resources like Morningstar Portugal or the funds database at Financial Times to track individual funds.  You may need to be a subscriber to access the more advanced functionality of those sites, but they are a good place to start.
Many Portuguese mutual funds hold large positions in the PSI index companies, since these are also the blue chip stocks of the country, but may also have shares in companies outside of Portugal.  Still, to get an overall sense of how Portuguese mutual funds perform, it’s worth taking a look at the returns of the PSI index compared to other European indexes.
The graph below shows the five-year return of the PSI compared to the BEL 20 (same kind of index but for Brussels), the ISEQ 20 (same kind of index but for Ireland), and the N100 (a pan-European index).  We can see in the graph below that the PSI roughly tracked these other indexes: when those markets were up, the PSI was also up, and when those markets were down, the PSI was also down. This tells us that the PSI is not on some wonky trajectory out of step with what’s happening in the rest of Europe.  Granted, we also can see that the PSI doesn’t generally produce the kind of huge returns as these larger indexes, but you can make the argument that Portugal is doing pretty well given its size.
PSI index comparison
Image Source: Euronext Lisbon
Two other things worth noting before we move on to private equity.
First, because Portuguese mutual funds are publicly traded, you can buy shares independent of the golden visa program, and you can also sell your shares at any time if you decide that you don’t want to apply for permanent residency after all and want to cash out before the five-year minimum wait is up.  That’s not generally the case with private equity investments, as we’ll discuss below.
Second, and this goes for investments in mutual funds as well as private equity, keep in mind that as a US citizen, you have to file US federal income taxes no matter where on the planet you live. The US has some stringent reporting requirements that fund managers must comply with in order for you to file your US taxes, so make sure you consult with an accountant familiar with these matters and that the fund you are considering will provide you with the information you need at tax time.  Some funds, especially in private equity, may be reluctant to work with American investors because they do not want to release this information, so check ahead.

Portuguese Private Equity Funds

If you have never invested in private equity in the United States, Portuguese private equity funds may be your entry point.  These funds usually have lower investment requirements than you would see in the United States, and private equity gives you the potential to earn much more on your investment than mutual funds.
Why is that? Well, private equity in general operates differently from the stock market.  Funds will usually buy low performing, privately held companies that they think have growth potential, then try to turn them around to generate profits for fund investors.  This can be done in a variety of ways, and The Motley Fool has a short intro discussion of the topic.  A subset of private equity called venture capital focuses on early-stage companies that venture capitalists believe will make it big and turn their millions into billions (or trillions, or wherever we are with the ultrarich).
If you’re a betting man or woman, odds in Portugal may be in your favor. Countries all over the world vie to claim the mantel of the next Silicon Valley, as I discuss in my article about whether Portugal fits the bill.  There have already been seven Portuguese “unicorns” valued at $1 billion or more – pretty impressive for a small, primarily agricultural country languishing under dictatorship two generations ago – and the Portuguese government has made various investments in recent years to foster its burgeoning start up culture. 
Could your 500,000-euro golden visa investment in a Portuguese private equity fund make you a millionaire, too?  It just might, but there are some strings attached.
The main drawback to private equity investing is that it’s, well, private.  The companies private equity firms invest in are not publicly listed so you can’t check out their financials, nor do private equity firms have to publicly release information about their own funds’ returns.  That means you have to rely primarily on what the firm’s prospectus says about their investment philosophy and historical returns, or get the scoop from someone who has invested with them before.  This obviously requires more work than hoping on Morningstar, and lack of transparency is perhaps the major criticism of private equity as an industry. 
Granted, fund managers can’t blatantly lie: both Portuguese mutual funds and private equity are regulated by the Comissão do Mercado de Valores Mobiliários (CMVM), the Portuguese equivalent of the US Securities and Exchange Commission (SEC).  But what if we’re talking about a Portuguese private equity fund established just a few years ago to soak up some of the golden visa business from people like you?  Maybe they’re legit, but how can you be confident they’ll make you any money? If we were talking about something like private equity behemoth Blackstone, which has been around for decades, that might be different.  In Portugal, you’ll have to do your homework because some golden visa eligible funds might not have as much of a track record over time. 
The other disadvantage to private equity investing concerns access to your money.  As mentioned above, you can sell your mutual fund shares at any time, though you won’t qualify for the golden visa if you hold them for less than five years.  However, many private equity funds are “closed end” meaning that your money remains locked in for however many years the fund indicates at time of subscription, or when your initial investment is made.  So, if after three years you decide the golden visa is not for you, that’s fine, but your money is staying in the fund, unless it’s “open end” – and even then, they may have limits on what times of the year you can redeem your shares and how. Furthermore, some Portuguese private equity funds have holding periods of 6 to 8 years, beyond the minimum required to qualify for a golden visa.  Be aware of this when looking at potential funds.
There’s a third disadvantage for new private equity investors: informational, that is, understanding private equity terminology (i.e., hurdle rates and carried interest), how to interpret a prospectus, and how to compare private equity funds to each other when they aren’t really apples-to-apples comparisons.  For instance, a venture capital fund investing in Portuguese technology start-ups could make you a lot of money, but maybe investing in a sustainable energy fund will better align with your values.  This is where a third-party financial advisor not affiliated with the funds you are considering will be your best asset.
Still, the main attraction lies in the potential returns of private equity versus traditional investments like mutual funds.  Blackstone offers an informative but not too technical guide to private equity investing for non-institutional investors like you in which they observe that the risk-return profile of private equity is better than either US or global stocks.  In other words, you can potentially make more with fewer ups and downs in private equity. Of course, they’re talking about the United States but assuming that Portuguese private equity managers know what they’re doing, it’s possible that the pattern here is similar.  Therein lies the risk.

Final Considerations

It’s important to emphasize that if you want to actually live in Portugal, and you have an income stream above Portuguese minimum wage, you do not need to bother with a golden visa.  Residency by investment is specifically targeted at people who want Portuguese residency but don’t want to live here full time.
For everybody else, some things to keep in mind:
  • If you’ve made it this far, presumably you are at least a moderately experienced investor and I don’t need to make the following statement but I will just in case: mutual funds and private equity funds are not capital preserving investments like a savings account.  You can 1) not make any money; 2) lose money; or 3) though unlikely but theoretically possible, lose all of it.  Mutual fund values – and therefore your returns – fluctuate daily as does the overall market, but private equity valuations are calculated differently.  This guide looking at private equity investments for the purpose of golden visas offers some hypothetical examples of your expected return from a private equity investment under varying scenarios, ranging from when the fund loses money (and therefore you do, too) to when it meets its profitability targets.
  • Besides the 500,000-euro investment itself, you will also have to pay visa application fees, management fees to your fund manager, and any costs associated with other legal or financial advice.  All told, you might be looking at anywhere between 0.5% to 2% of the value of the initial investment, depending upon what it is and how much counsel you need.  (As I’ve said before, if you speak Portuguese you can work with a Portuguese lawyer who doesn’t charge a premium to cater to English speakers.)
  • Keep in mind that your 500,000-euro investment comprises the total amount you must invest, not the amount you must invest in any particular fund.  You can invest in a mix of mutual funds or, if you want to dip your toe into private equity, a mix of mutual funds and a private equity fund, for example, as long as the total amount of your initial investment equals 500,000 euros.
  • If you’re applying for a golden visa, presumably you won’t be living here full time and therefore won’t be moving your entire financial life to Portugal.  But even for those relocating to Portugal, keep your US brokerage account open for the various reasons discussed here.
  • First, second, third, and final: make sure you know what you’re doing, and by that I mean get professional legal and financial advice before investing anything.  Many investment firms domiciled in Portugal through which you can make your investments to qualify for a golden visa will walk you through the process, but my strong advice is to talk to someone who doesn’t work at the firm trying to sell you shares so you can decide, with as much neutral information as possible, if the investment is right for you.
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