Investing in funds has undoubtedly become the preferred route for applying to Portugal’s ARI (Golden Visa) Program. Since the legal changes in 2023, over 99% of applications have been made through fund investments.
In the past two years, a significant number of funds have been created specifically targeting Golden Visa investors. This competitive landscape has led to the emergence of increasingly creative fund structures.
Within this context, several concerning situations have begun to surface — making it essential for any prospective investor to carefully assess the details behind these 3 critical red flags:
1. Fund’s compliance and eligibility for Portugal’s Golden Visa program.
Although legal opinions are not generally binding, those issued by certain authoritative entities can be considered conclusive and offer reassurance to investors. Any potential investor — should always request two legal opinions:
a. One from a Big Four accounting firm to validate the fund’s by-laws and ensure compliance with the regulatory framework.
b. One from a leading administrative law firm to confirm eligibility under the Golden Visa legislation, especially given the multiple amendments to the Decree-Law over the past five years.
These are the same types of entities relied upon by official bodies such as the immigration authority (AIMA) and the markets regulator (CMVM) when assessing a fund’s compliance and eligibility.
The recommendation is: Never invest in a fund – whether open or closed, regardless of sector – unless it presents both legal opinions: One from a big four firm and another from a top-tier administrative law firm.
2. Buy-back mechanisms must be carefully assessed.
Such mechanisms are legal and permitted, but their structure and implementation require close scrutiny.
Whatever the mechanism may be, it must be explicitly stated in the Fund's by-laws.
If it involves side agreements, side letters, or contracts with promoters/investees entities or other vehicles from third parties, these documents — and any rights derived from them — fall outside the immediate and direct action by the regulator (CMVM).
In such cases, any disputes must be resolved through the Portuguese court system, potentially leading to lengthy and uncertain legal proceedings.
The recommendation is: Never invest in a fund with a buy-back mechanism that relies on third-party entities, side letters, or external agreements.
Invest only if all terms are transparently and explicitly stated in the fund’s By-Laws.
3. Important Considerations When Investing in Open-Ended Funds in Portugal
Open-ended funds may seem attractive due to their flexibility, but in the Portuguese context, they present notable risks that investors should consider carefully.
a. Low Liquidity in the Portuguese Market. Funds investing in Portuguese-listed equities face a limited and illiquid market. Trading volumes are low, and few companies are actively traded. Exiting positions — especially in times of volatility — can be slow and costly.
b. Limited Liquidity in Public and Corporate Debt. When funds focus on sovereign or corporate debt, the situation is similar. Portugal’s bond market is relatively small, and secondary trading is limited, meaning liquidity is not guaranteed when redemptions are requested.
c. Low Profitability - The financial instruments typically used in these funds — especially public bonds or low-yield corporate debt — often deliver modest returns. This can erode the value of the investment over time, particularly when compared with alternative options available in international markets.
d. Liquidity Mismatch and Redemption Risk. Open-ended structures allow investors to redeem regularly, but the underlying assets may not be liquid. This creates a mismatch, placing pressure on fund managers and potentially impacting all investors during periods of high redemption.
The recommendation is: Investors should carefully assess the fund’s asset composition and liquidity strategy, and be cautious of open-ended funds whose assets are tied to illiquid markets or instruments. Understanding the fund’s redemption policy and its ability to meet redemptions is fundamental.
