GV status/60-40 - The MR isnât silent on it - article 4 item 1 says that it focuses particularly on SMEs in portugal. That should be sufficient; I think a reasonable person would agree that going below 60% would be violating âparticularlyâ. In practice as well all of the existing investments are in Portugal, and clearly the partners donât have a lot of international experience. (I expect that registering as a GV fund more or less requires meeting the requirements, or theyâre violating an agreement with the government - but I donât know that.)
conflict of interest - Fund managers can be accused of unfair dealing between their own funds as well - nothing that unique about wm really. Thereâs also nothing inherently wrong with buying an asset from another part of the same firm as long as itâs valued fairly.
Given that the fund is being audited by PWC and assets valuations are being set by a third party assessment firm (you have to, no competent regulatorâs going to let a fund mark its own assets at least without some reasonable substantiation), it seems likely that something like that would come out in the wash. A unitholder would have the right to read the audit, if youâre paranoid. You can also construe Article 18 items 4 and 5 as applicable.
I dunno. I just wouldnât worry about it. Itâs a registered and regulated fund, and itâs not like Portugal is a third world country. You gotta assume SOME baselines here, or you have much larger concerns than this.
I donât understand SIF at all. They say âequity investmentsâ but the two investments listed in the Q1 report are loans. Ok sure they are buying equity interest but for nominal stakes, and the return is all based on loans back into the fund - so theyâre not REALLY exposed to equity growth, theyâre making fixed-income investments. So theyâre fundamentally violating the MR.
What do you mean by jumped around? I didnât really talk to them. Whatâs in their pipeline?
I dunno. Iâd like to diversify beyond BC but none of the other funds do much for me. I might consider talking to Rock since folks seem to think theyâre ok.
Since you are wading in for real conversations with the fund managers, especially if you are a âUS personâ, would you mind asking them about how they can support US customers, who are all subject to PFIC taxation? Certain paperwork is needed from funds in order to avoid catastrophically punitive tax outcomes.
As I understand it, you can elect to pay taxes on PFICs in either of three ways:
the default, which back-dates âexcessâ profits to the purchase date and charges penalties and interest for the arrears, all at the maximum federal tax bracket rate (ouch!). As with FATCA, penalties can easily exceed profits.
qualified, which treats dividends and capital gains as regular income, always at the maximum bracket rateârequires special paperwork from the fund!
mark-to-market, similar to qualified but doesnât require special paperwork from the fund, but only applicable for securities that are actively traded and have a well-defined market value
SIF was one of the first funds out there. They are buying equity/loans to a variety of businesses. For these, they have a fixed return. First they aimed to invest in VRBO-type properties but pivoted to general real estate, then most recently into a solar farm.
I communicated with Dunas/GB today. They have 3 investments ready to go and plan to become active in October.
Regarding PFIC, yes this is something I have become aware of. Very important for US investors, from what I can tell. The funds only now seem to be realizing this because US investors are becoming more prevalent. In 6 months I see this being highlighted in their brochures. Most donât seem to know what to say about it yet. I am digging around but it seems they need to consult with lawyers and be ready to tell US investors how they will work with you to avoid interest penalties.
*90Mn euros is their maximum approved capital, and they expect to reach 40Mn-50Mn until end of 2022. Currently the fund size is 12Mn.
Their original fund investors are Portuguese but now more GV investors focus. So far, they have 13 GV investors (4.8Mn) , in which 4 applicants have got approvals.
Up to 70% leverage: they will only do leverage the fund, whit a limit of 50% debt to equity barrier per unit, if there is a relevant opportunity that justifies (Gross Yield > 7,5%).
the legal effectiveness of Presentation/Perspectives of the Fund: They are the ONLY one fund manger who answered me YES.
I will review their 1H 2020âs report shortly. Should drop here if any new findings.
Generally, I have good impression with Bluecrow cos their response is prompt and details attached.
Thanks Julia. Can you explain what you are looking for with âthe legal effectiveness of Presentation/Perspectives of the Fund: They are the ONLY one fund manger who answered me YES.â?
I am always worrying the inconsistence btw fundsâ Management Regulation and their Presentation(Marketing materials) cos MR has more generic and broad conceptions .
When I check with sales agent of New Edge Fund, I am told the Presentation of the fund is only the purpose for explanation, and not treated as one of the legal documents. Thatâs why I asked Bluecrow the same question. They replied that marketing materials could be treated as legal binding documents and not only the Management Regulation. Although as you/Bill pointed out before, the key challenge is if investors are able to bring a claim under the terms of MR or contract if the fund mangers go sideways? Honestly, Itâs hard to say 100% yes, but the answer from Bluecrow let me feel more comfortable on the issue.
Larry, can you please elaborate on how BlueCrow managed to increase NAV from 5000 to 7500 in just one year? Also, is there a significant risk in terms of NAV fall from this level?
Simply, their properties appreciated. They had an independent appraisal of the property values (which they are happy to show you), added them together and got the new NAV. I donât expect them to repeat this performance. I canât really argue with the values themselves and they are in pretty boring sectors but I donât believe they will decline. In fact, their most recent expected NAV is actually over 7600 now. You have to be ok with that value but it only affects how many PUs you own. The fact that the original investors shares are priced lower doesnât really impact you - you still earn the same percent on your investment.
Yeah, Larry, I donât expect they could achieve same appreciation as they did last year. Their current portfolio is quite simple and clear, but I am curiously on where they are now re potential investment targets?
Duarte said they have a couple ag-sector investments in the pipeline, likely to close this year.
Thanks Julia, Larry, this is actually rather valuable. Duarte is telling the same story to people independently, presumably without knowing weâre talking. Consistent clear open messaging is just another sign of a well run fund IMO.
Yes, you are right, JB --we actually did crossing checking and got more clear pic on the fund. I hope Ag-sector might have more business stability than leisure/tourist industry in the long run.
Yes, I looked at it very briefly, until I realized that it is not open to US persons (which I am). Too bad, as it looks very interesting, and if I were not a US person, I would definitely check it out.
Another one of the joys of being an American abroad (in addition to taxation on worldwide income, FATCA compliance, etc.)âŠ
Just heard this name and did a quick look via its website. The Portugal Gateway fund looks quite interesting due to its background of fund manger(thatâ s my first impression) . If any insights you can share, it would be grateful!
So here is my low-down on Bluecrow - having spoken to Duarte:
Good
a) They have raised EUR 11.5 mn and have managed to deploy more or less EUR 10.6 mn. As Larry noted above they have just finalised two ag lands and are having a few more in the pipeline.
b) They have seed money from 6 brothers who pooled their residential properties/land into this tax-entity and they remain initial holders. They apparently have an agreement with the fund to not pull the money in the interim for at least 6+ years.
c) 45% is Industrial and rest is agro land and residential. Only one retail property and will look at this sector closely next year for any potential.
d) Fee is 1.1% (is low enough, so I did not ask for further break up). Was a bit unclear on the hurdle return (I thought he said 10% but I recall it was 20%) - will clarify further.
e) No co-investing and it is likely that given they have a 2022 fund closing, further investors will be mostly GV. But I anyways like that it is long term in nature and there is some seed money.
f) Dividends will likely be paid (5-6% net yield) - AGM decision. Extension can be done and early pull out is possible after 6 years.
g) Unlike several other funds there are already 12 GV investors of which 3 have received their GVs - so some track record in that aspect.
h) PwC and Mazars are the auditors - both reputable as the latter is for local accounts.
Negative
a) Small in size and they have limited track record in the VC fund; that said, including asset management business which feeds into the VC business, they have close to EUR 200 mn AUM.
b) Not 100% on board with having random 6 brothers as seed investors - but given there seems to be an agreement not to pull out and it is via a structured vehicle , it is ok I guess.
c) No leverage but can up to 50% provided returns can be proven at or above 7.5% .
d) Antonio is the agro expert. A bit of confusion here - Duarte seemed to indicate that they invest in cork lands along with olive and nuts but Antonio on the webinar seemed to suggest that they do not as cork is more climate-change prone and so they invest in nuts and olive only - need to clarify? Anyways am not too knowledgeable so will read up!
Thanks lot for sharing such points, which I agreed with you at all.
Yes, I have the same concern on its size and VC experience. Basically, itâs hard to say diversify the investment strategy for such small size fund. In terms of Ag-sector, it sounds to be a targeted sector rather than a reliable one.
Good analysis. On balance it looks to me like your negatives are not too significant. The experience of all these funds is questionable and not like you see in the US, for sure. Bluecrow has one of the longer track records of the ones I have reviewed. They also told me they eventually expect to be about 50/50 GV investors.
Had another call with Rock Capital today and thought Iâd share.
they donât believe they will qualify as a PFIC at first but were knowledgeable about the issue and were open to getting official verification from their lawyers.
The have invested themselves in both their A PUs and the B PUs. I knew they had co-invested but didnât realize it was in both classes of shares
Their timeline is a big positive to me. They aim to divest starting 2026 and could theoretically close the fund by 6/2027. You can leave then, so people investing by early 2021 may have their GV wrapped up by then and be ready to take their euros back. If GV investors need longer, they can extend annually if need be.
They explained their performance fee since their regs are confusing. They have no fee until you get 30% return. At 30%, they then take 30% of all profits back to the first dollar (not 30% of anything above 30% return). So they admit you either want them to make 29.9% profit or over 40% profit, if that makes sense.
They are the ones making decisions on what properties to buy and rehab and how to do it and they seem to have a lot of experience doing so.
