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Portugal Golden Visa Investment Funds – How To Minimize Risk

Optimize Investment Partners

The investment fund option under Portugal’s Golden Visa is one of its most popular routes. Since the real estate option has been removed, it is set to be the investment category of choice for most Golden Visa applicants.

It is easy to understand why investment funds have become so desirable in the past few years. The investment process is simple and can be done remotely, conducting due diligence on a fund is straightforward, and they are more profitable than the average property investment.

The liquidation of the investment is also simpler than doing so with a real estate asset, and the vast number of investment funds available gives investors more options to perfect their investment portfolio. 

However, as in any other investment asset class, funds do have risks, and it is essential to mitigate them as much as possible. In this piece, we will cover the main risks that can hinder a fund investment and how we at Optimize address them in a fund eligible for accessing the Portuguese Golden Visa program - Portugal Golden Opportunities Fund.

Types Of Risk Associated With Funds

Liquidity Risk
The fund faces liquidity risk when investing in securities that may experience devaluation during periods of reduced market activity. This risk is particularly pronounced when attempting to sell these assets in a market with low liquidity, potentially resulting in the fund incurring losses due to unfavorable pricing conditions.

Operational Risks
Operational risks stem from the fund's reliance on external entities for various functions. Non-compliance by these entities can have a cascading effect on the fund, encompassing issues related to internal processes, technological systems, workforce management, and external service providers. Any breakdown in these areas can lead to financial losses or damage the fund's reputation.

Credit Risk
The fund exposes itself to credit risk by investing in debt securities. In the event that issuers fail to meet their obligations for timely principal and interest payments, the fund may experience financial losses. Managing credit risk involves thorough credit analysis, monitoring credit qualities, and diversifying investments to spread exposure.

Investment Concentration Risk
Concentrating investments in a limited number of assets exposes the fund to investment concentration risk. This means that the fund's performance becomes closely tied to the fortunes of specific sectors, asset classes, or geographic regions. Diversification across different types of assets helps mitigate this risk by spreading investments.

Risk of Conflicts of Interest
Conflicts of interest may arise if the fund invests in funds managed by Optimize without incurring subscription or redemption charges. This introduces the potential for decision-making that may not prioritize the fund's and its investors' best interests. Investors should be aware of how these conflicts may impact the fund's performance.

Capital Risk
Participants in the fund face capital risk as there is no guarantee of preserving the capital invested or achieving returns. Fluctuations in market conditions can lead to a risk of capital loss, and investors need to acknowledge the inherent uncertainties associated with the fund's performance.

Sustainability Risk
The fund is exposed to sustainability risks associated with environmental, social, or governance events. These events can have actual or potential negative impacts on the value of the fund's investments. Ecological disasters, social controversies, or poor governance practices within invested companies may affect the fund's overall portfolio value.

Market Risk
Market risk is inherent in the fund's investment strategy, given the price fluctuations associated with the assets in which it invests. Economic conditions, changes in interest rates, and geopolitical events can influence the values of these assets. Active risk management strategies, including diversification, are crucial to navigating the uncertainties of market dynamics.

Addressing Risks

The team at Optimize has decades of experience working within the Portuguese investment fund sphere, and we have used that experience to create a sustainable investment framework that provides the best results for our clients while simultaneously mitigating risks.

We use a host of principles to manage Portugal Golden Opportunities fund, such as:

Smart Diversification

Diversifying a fund's investment portfolio is essential to its success. However, some fund management companies choose to "over-diversify," which can lead to capital and liquidation loss.

Over-diversification makes it difficult to monitor and evaluate investments, and it becomes more susceptible to loss in times of economic strain if the diversification strategy is not well planned. 

Other funds tend to concentrate all of their capital into a few assets, which is "under-diversification." This can lead to liquidation problems if one of the fund's main assets takes a hit.

The best strategy is to find the perfect balance, creating a core of safe and consistent investment assets and complementing them with satellite investments that have more potential for fluctuation but yield higher ROI.

At Optimize, we use a balanced strategy for our Portugal Golden Visa eligible fund. We invest 40% of our fund's capital in companies worth more than €10 billion of market capitalization, giving us a steady ground on which to expand our investment portfolio. We maintain that solid foundation by investing that 40% into the top five companies on the Portuguese Index, but this is where we differ from funds that focus on one spot.

Four companies account for 53% of the index, and that is where most funds put the vast majority of their capital. By lowering that amount, we have more funds to invest in other areas, diversifying our portfolio to ensure high ROI while managing risk.

We also diversify our investments by security, sector, and location, hence ensuring that if one industry or locality takes a hit, our fund can maintain its profitability and flexibility to adjust to any economic crisis. 

However, investing abroad is risky business if not done correctly. Our team has a formula on which it bases its foreign investment practices. In Spain, for instance, we decided to invest 13% of our fund's capital in top-tier banks with outstanding credit scores and in renewable energy companies. This strategy allows us to lower overall risk levels but produces a profitable, diversified asset. 

Most funds must invest at least 85% of their capital in stocks. Portugal Golden Opportunities fund has a minimum threshold of just 60%, which allows us to diversify smartly and provide maximum returns with low risk.

Constant Monitoring & Evaluation

To truly mitigate liquidity and capital risks, constant monitoring and evaluation are vital.

At Optimize, we continuously monitor, evaluate, and communicate the performance of our investments to our staff, stakeholders, and clients to ensure that we see any risk coming.

Every month, we make available on our website a factsheet of the fund where clients can see, for example, the composition of the portfolio divided by sectors, the performance of the fund, and its main positions.

But it isn't just the performance of an asset that matters; it is the credit score of a particular company, the economic environment of a country, and the overall global investment trend.

We implement automatic threshold detection mechanisms and alerts and an annual risk assessment to ensure that the fund is operating on the lowest risk margin possible. 

We provide reports to the CMVM (Portuguese Securities Market Commission) that include performance and risk-related indicators, such as volatility and Value at Risk (VaR), and our fund that allows the request of Portugal residency by investment is audited twice a year by an external auditor, Mazars.

By creating a cycle of continuous improvement through intricate monitoring and evaluation, we can understand any future risks that lay in our path and adjust to meet them. This is one of the reasons that all our investments are made in the stable Euro, as it gives us a greater ability to standardize and monitor investments based on a globally strong and reliable currency.

We also monitor market regulations updates, company compliance, and any other related issues. 

Our commitment to continuous improvement aligns with our value of transparency. It is important to note that investing in stocks means that there will always be capital risks, and we communicate those risks to our clients and shareholders, as well as how we mitigate them.

Without proper monitoring and evaluation, a fund manager cannot achieve an adequate level of transparency because they cannot report on what they cannot see.

Optimize is data-driven and based on information; hence, we share what we know with those involved with us, and that is one of our biggest strengths in lowering overall risks to our fund. 

Optimize’s Portugal Golden Opportunity Fund

Optimize’s Portugal Golden Opportunity Fund invests at least 60% of its portfolio in stocks and only invests in listed assets, stocks, bonds, or mutual funds. Its diversification strategy aims to reduce the volatility over the long run.

Unlike private equity funds, which are much riskier due to their high security, location, and sector concentration, the Portugal Golden Opportunity Fund is based on an intricate diversification plan that lowers risk while maintaining a favorable ROI margin.

The transparency associated with investing in listed securities represents a lower risk margin for investors, especially when compared to private equity funds that run the risk of being exposed to a lack of liquidity, which is one of the biggest issues a fund and its investors can face. 

At Optimize, we have perfected the risk mitigation process to ensure that the Portugal Golden Opportunity Fund provides investors with top-tier security and profitability within a safe investment environment.

To know more about Optimize's Golden Visa eligible  fund, check our website.