Portugal’s Golden Visa program allows investors to obtain residency through fund investments, but choosing the right fund structure is key to aligning with personal goals. Investors looking to diversify their portfolios through this route often face a fundamental choice between closed-ended funds (CEFs) and open-ended funds (OEFs). Both are pooled investment vehicles with distinct characteristics, and each can offer attractive returns when carefully selected.

This article provides a balanced comparison of the two eligible fund types, examining differences in liquidity, risk, returns, alignment with the five-year investment requirement, and exit options. Rather than recommending a one-size-fits-all solution, the goal is to equip investors with a clear understanding of the trade-offs involved so they can make decisions based on their individual priorities and risk profiles.

Understanding the Differences Between Closed-Ended and Open-Ended Funds

Open-ended funds are designed for liquidity and flexibility and typically invest in public companies. Investors can buy and redeem shares at the fund’s net asset value (NAV), allowing easy entry and exit. This liquidity can be beneficial for those who may need access to their capital on short notice. However, this very structure forces fund managers to hold cash reserves and focus on liquid assets, potentially limiting investment opportunities and affecting returns.

Closed-ended funds, on the other hand, have a fixed number of shares that are privately transacted. This setup allows fund managers to invest in longer-term, higher-potential opportunities without the pressure of frequent redemptions. These funds mostly invest in privately owned companies. While investors do not have the same immediate liquidity as with open-ended funds, they can still exit through the secondary market, offering a path to liquidity if needed.

Alignment with the Golden Visa Investment Horizon

Portugal’s Golden Visa program requires investors to remain invested for a minimum of five years to maintain their residency status. This long-term requirement inherently makes closed-ended funds the more natural fit, as they are structured with fixed investment periods that align with this timeline.

While open-ended funds provide liquidity, this flexibility can lead to potential instability, especially during market downturns when investors might redeem their shares in large numbers, forcing managers to sell assets at unfavorable prices. This risk of sudden outflows makes open-ended funds less predictable for investors who need assurance that their investment will remain strategically managed over the five-year period.

Return and Risk Profile

Open-ended funds are typically associated with higher diversification. However, Golden Visa-eligible funds must allocate at least 60% of their capital to Portuguese companies, significantly increasing exposure to the domestic market. Given Portugal’s relatively small pool of publicly listed companies, diversification is limited and investments can be concentrated in a limited number of sectors (especially finance and energy), making them more vulnerable to economic downturns, policy changes, or sector-specific shocks.

For open-ended funds, market volatility also affects asset value more significantly, with returns mostly generated by market performance and stock-picking expertise, as most fund managers have no direct influence over company operations.

In addition, because open-ended funds prioritize liquidity, they frequently have limited ability to invest in high-growth private companies, which often require longer holding periods to unlock value.

Closed-ended funds, by contrast, are designed for capital appreciation, allowing them to invest in companies with strong growth potential that may not be immediately liquid but can generate higher returns over time.

Considering most closed-ended funds take significant ownership stakes and play a direct role in shaping business strategy, returns are more dependent on fund manager expertise and less correlated with overall market performance.

Closed-ended funds provide less diversification, since active portfolio management prevents them from investing in a large number of companies. Nonetheless, they can better absorb market fluctuations by preventing sudden investor withdrawals, ensuring that managers can focus on maximizing long-term value instead of short-term liquidity management.

Exit Strategy: Secondary Market vs. Redemption

A common concern with closed-ended funds is their lack of daily liquidity. However, investors still have an exit strategy through the secondary market, where they can sell their units to other investors. While this process may not be as immediate as redeeming shares in an open-ended fund, it offers a viable alternative for those needing liquidity before the five-year period ends. In this case, the sale price is not mandated by the public markets, but rather negotiated directly between seller and buyer, often supported by the long-term perspectives of the portfolio companies.

In contrast, while open-ended funds allow direct redemptions, investors need to time the redemption properly in order to avoid facing losses upon exit, considering the sale price is mandated by the public markets, which are considerably more volatile. In addition, open-ended funds can face liquidity issues in times of market stress, potentially delaying investor withdrawals or forcing sales at a discount. This can introduce unpredictability, making open-ended funds less ideal for investors concerned with capital preservation.

For instance, during periods of significant market stress, such as the early phase of the COVID-19 pandemic, certain open-ended funds in Europe experienced sharp spikes in redemption requests, which in certain cases led to temporary restrictions on investor withdrawals.

Fees, Costs and Governance

Typically, open-ended funds charge lower fees than closed-ended funds, often below 1% and with little or no performance fees. However, in Portugal’s Golden Visa program, both structures tend to have similar fee models, with management fees between 1% and 2%, usually accompanied by performance fees. This alignment reflects the specific commercial dynamics of this niche market.

The key difference lies not in the fees themselves, but in how each fund creates value. Open-ended funds generally follow a passive strategy, investing in listed or highly liquid assets. Their focus is on scaling assets under management (AUM), as revenue is primarily generated through recurring fees.

Closed-ended funds, by contrast, are structured with a fixed investment period, typically between 5 and 8 years, and pursue a more active approach. They concentrate on a smaller number of companies and often take a hands-on role in governance and strategy, for example through board participation. This direct involvement aims to drive operational improvements and long-term value creation.

Because returns in closed-ended funds are typically realized at exit, performance fees play a more central role in their economic model. While open-ended funds usually avoid or minimize performance fees due to their passive nature, this distinction tends to blur within the Golden Visa space. In this specific context, both fund types often apply similar performance fee structures.

⚠️ Webinar alert

Choosing the Right Investment: A Dive into Closed-Ended and Open-Ended Funds

Hosted by: Lince Capital and Optimize Investment Partners on May 22, 2025

🙌 Register for the webinar

Conclusion: The Best Fit for Golden Visa Investors

Both closed-ended and open-ended funds have their merits. Open-ended funds offer flexibility and liquidity, making them appealing for investors who want the option to exit more easily. However, this flexibility comes at the cost of potential instability and a focus on liquid investments that may not yield the highest long-term returns.

Closed-ended funds provide exposure to long-term value investments and insulate investors from market-driven liquidity pressures. While they lack daily liquidity, the secondary market provides an exit route, ensuring that investors retain some flexibility without sacrificing the strategic advantages of a closed-ended structure.

Cover image credit: Nomad Gate. License image for free.