Portugal GV Fund Comparison?

So, I was talking about investments with my lawyer today, and she said that while splitting works, she advised against more than a two way split - not that itā€™s not legal, or that you wonā€™t get approved, but it gums up the works; itā€™s somehow out of the normal workflow and your application will take a lot longer to process. Why? Who knows. She just said that was the view of everyone she knew in the biz.

Bummer because I was counting on three. But.

YMMV/EUR0.02.

2 Likes

Thanks for posting about the BPI Portugal FIAA Fund. That is the first I have heard of this fund.

As for Global X, I have been looking at this one also and the same thought, but I do not believe that it will qualify. Even if they were willing to make the certifications that more than 60% of the investments are in PT companies (which would be easy given the fundā€™s investments/purpose), my reading of the law is that the Fund itself must be ā€œconstituted under Portuguese legislationā€ (i.e. subject to CMVM regulation).

From SEF: https://www.sef.pt/pt/pages/conteudo-detalhe.aspx?nID=62

vii) TransferĆŖncia de capitais no montante igual ou superior a ā‚¬ 350 000, destinados Ć  aquisiĆ§Ć£o de unidades de participaĆ§Ć£o em fundos de investimento ou fundos de capitais de risco vocacionados para a capitalizaĆ§Ć£o de empresas, que sejam constituĆ­dos ao abrigo da legislaĆ§Ć£o portuguesa, cuja maturidade, no momento do investimento, seja de, pelo menos, cinco anos e, pelo menos, 60 % do valor dos investimentos seja concretizado em sociedades comerciais sediadas em territĆ³rio nacional;

Google Translation:

vii) Transfer of capital in an amount equal to or greater than ā‚¬ 350,000, intended for the acquisition of units in investment funds or venture capital funds dedicated to the capitalization of companies, which are constituted under Portuguese legislation, whose maturity , at the time of the investment, be at least five years and at least 60% of the value of the investments be made in commercial companies based in the national territory.

Obviously, something to check with your PT lawyer who would know better. I suspect that this legal requirement will be an even larger roadblock than convincing Global X to make a certification.

1 Like

Honestly I would go with IMGA AƧoes or a similar publicly traded fund but I am quite skeptic about the acceptance of those funds. Because the law says:

vii. Capital transfer of the amount of 350 thousand Euros, or higher, for the acquisition of units of investment funds or venture capital fund of funds dedicated to the capitalisation of companies, capital injected under the Portuguese legislation, whose maturity, at the moment of the investment, is, at least, of five years and, at least, 60% of the investments is realized in commercial companies with head office in national territory;

But practically those funds does not capitalize any company, they are buying someone elseā€™s share. VC funds are really injecting capital to the companies and increasing their capital. So I wonder why should Portuguese state accept this?

I asked my lawyer about it and he claimed he had not had any rejections yet in the 6-7 he had done with IMGA. That doesnā€™t mean of course that they got an approved GV yet.

By that vein though how would all the VC funds doing real estate rehab qualify? Iā€™m honestly askingā€¦

My understanding is that the real estate venture funds typically are buying into/capitalizing special purpose vehicles (SPVs) who buy/develop/own the underlying real estateā€“i.e. the funds do not simply own the real estate directly like a REIT. I had always assumed this was at least in part to make sure it satisfies the ā€œcapitalization of companiesā€ requirement, but others may know better.

1 Like

Ah ok thanks

1 Like

The wording of the legislation is capable of various interpretations. Maybe the ā€œcapitalisation of companiesā€ requirement is for venture capital fund of funds but not for investment funds. That would give hope to tbe Global X route. Or maybe capitalisation is widely interpreted. The 5 year maturity requirement isnā€™t clear to me either - I can think of a variety of ways to read that. Lawyers have given me different interpretations of these provisions and I donā€™t think SEF gives guidance. Ultimately what matters is what SEF approves in practice and probably they like it that way. Iā€™ve been told by the legal department of BPI clearly in writing that SEF is fine with their BPI Portugal FIAA fund for GV purposes and that they will help me with the certificates, just as they have done for other clients in the past. Thatā€™s all that I need to know, so Iā€™m not going to second guess SEFā€™s interpretation.

1 Like

The ā€œcapitalization of companiesā€ language is a different issue from the ā€œconstituted under Portuguese legislationā€ issue.

I think the issue with Global X PGAL fund is that it is a US company and not ā€œconstituted under Portuguese legislationā€ which is required of all qualifying funds. The unfortunate part of this if you are a US citizen is that if PGAL satisfied SEFā€™s requirements, you may avoid PFIC issues since PGAL is not a PFIC (i.e. itā€™s fails the ā€œFā€ part of PFIC since it is not foreign). If you go with the IMGA or the BPI funds, you have the PFIC issue, which isnā€™t the end of the world but you will probably end up with a less desirable tax treatment in the US (or at least more complicated tax filings).

As for the ā€œcapitalization of companiesā€ language, it is a bit ambiguous as to whether it applies to both investment funds and venture funds, or just to venture funds. That said, Iā€™m not sure it matters. Buying shares in a ETF/mutual fund who then buys shares in a listed company is capitalizing the listed company much the same way as buying shares in a venture fund who then buys shares in an unlisted company to capitalize the unlisted company. Iā€™m not sure I follow ZYā€™s comment about why this language would be an issue.

Anyway, as you said, at the end of the day, what ultimately matters is whatever SEF decides and it seems like IMGA and BPI funds are both being accepted . It just would have been nice if Global X PGAL was too, but doesnā€™t seem likely.

1 Like

I just wish either one made a decent return :wink:

1 Like

Yup, and as an ā€œunsophisticated investorā€ Iā€™ve learned soooo much from discussions on this thread - for which grateful thanks to all the investment-savvier posters for sharing thoughts & discoveries.

The frustrating thing is thereā€™s no centralized source of authoritative info (SEF & CMVM donā€™t answer emails), no official directory of lawyers dealing with GV, no comprehensive list of GV-qualifying funds (apart from Nomad Gateā€™s partial list), no list of GV-eligible ā€œculturalā€ investmentsā€¦ which means months & months of exploration & research sorting out (sometimes contradictory) answers to questions.

Portugalā€™s intention here is capital injection to Portuguese companies. So when A person buys B personā€™s shares of a company, this does not benefit the company. Just shares change hands. But VC funds does not buy shares from other shareholders. Their capital adds to the capital of the company.

For example, a company has a 5 million Euros value and if VC fund invests 5 million, it becomes %50 shareholder of the company. So the company worths 10 million now with 5 million cash. And it makes sense.

From investorā€™s perspective they may be quite similar. But from investeeā€™s perspective, they are extremely different things.

IMHO :slight_smile:

1 Like

There is a discussion in another thread about this, namely that a lot of these funds essentially bent the law out of shape and created REITs using the VC structure and SPVs in order to get the tax benefits as well as access to GV capital; while maybe this met the letter of the law, it certainly didnā€™t meet the spirit of it, and that the governmentā€™s fairly unhappy about it but doesnā€™t know what to do about it. Thereā€™s a few ways of looking at the problem. Iā€™m not sure where the thread is exactly though, but the discussion was fairly recent.

I get your point, but the thing is, there canā€™t really be some official list of any of these things.

  • Any lawyer could do your SEF application. Or you could do it yourself if you wanted to; you donā€™t NEED a lawyer any more than you need one for a D7. So who goes in the official directory? The Portuguese lawyerā€™s association might put together a list, maybe, but of course thatā€™s no statement about how good any of them are.
  • Whatā€™s a GV qualifying fund? See above, all sorts of things could qualify; itā€™s not limited to ā€œfunds that say they areā€. There could be a list of those, if someone wanted to make one like @tkrunning is doing, but itā€™s all just individual effort hereā€¦ the government doesnā€™t care.
  • Whatā€™s a cultural investment? Could be all sorts of things. Itā€™s not the governmentā€™s problem to figure out what all out there could be valid.

The private sector is filling this gap by offering firms such as GCS and Magwind - who expect to be paid for their servicesā€¦

Hi Jonny,
Thanks for sharing! Is there a contact at BPI who could confirm your information on the BPI Portugal FIAA fund, and serve as a lead contact point regarding new investments?

In case you may not want to post publicly, my Twitter @paradisepursuer is open for DMs ā€“ would really appreciate it!

I asked my lawyer about the BPI fundā€¦ his response was he was aware of it but had not heard of anyone using it for a GV. Not that he would know what everyone does, but anecdotally he claimed to have done 6-7 with the other fund. So Iā€™d be very curious if it does pan out, because Iā€™m still a couple months away from making my commitment.

@tkrunning I might suggest that this post should be its own thread, since itā€™s not really about comparing funds to one another. Itā€™s not a bad potential thread, just itā€™s a whole bundle of (perfectly valid) questions many of which have nothing to do with looking at data around specific funds and worthy of its own thread.

3 Likes

Yeah that would be a great new thread, happy to respond

1 Like

Good idea @jb4422 & @madpoet. Iā€™ve reposted it here

So, hereā€™s tidbit of the day for those looking at funds. Feed this into your search engine:

site:pitchbook.com manager-name

Not all managers are there. You have to be big enough to matter. However pitchbook is like crunchbase, they cover the PE/VC space, and itā€™s a way funds and folks-needing-capital get together. Itā€™s just a way to get a third-party view of whether a fund manager is real and what their history really is or if theyā€™re just making shit up. pitchbook itself isnā€™t freeware but you can get some data out of it this way.

5 Likes