Gross target versus what reaches the investor
Qualifying funds commonly market a 4%–7% gross target. Between that number and your account sit a management fee, an administration and depositary charge, and in many structures a performance fee above a hurdle.
Stack those and the net figure frequently lands one to two percentage points below the headline. A 6% gross target with a 1.5% management fee and 0.4% of running costs nets closer to 4.1% before any performance participation.
| Line | Illustrative |
|---|---|
| Gross target return | 6.0% |
| Management fee | -1.5% |
| Administration, depositary, audit | -0.4% |
| Net to investor before performance fee | 4.1% |
| All-in Lombard cost (Euribor + 1.5% + fees) | 4.4% |
| Net spread on the subscription itself | -0.3% |
Why a negative spread does not necessarily kill the trade
If the analysis stopped there, financing would look irrational. It does not, because the subscription is not the asset your loan is really funding — your retained portfolio is.
The correct counterfactual is: what happens to the €500,000 of securities you would otherwise have sold? If those assets compound at 6% and their disposal would have triggered a capital gains charge, the financed path can win comfortably even when the fund itself underperforms the loan rate.
Compare the loan cost to the return of the assets you keep, not to the return of the qualifying fund. Getting this comparison right changes the answer for most investors.
The variable that dominates everything: duration
Portugal's citizenship timeline now runs from residency issuance, and processing delays have pushed realistic total commitments well beyond the original five-year expectation. A ten-year financed hold at 4.4% costs roughly €220,000 on a €500,000 facility.
That figure should be modelled explicitly at the outset. Investors who budgeted for five years and are carrying interest into year eight are the ones who end up deleveraging at unfavourable moments.
Open-ended structures change the risk profile
A closed-ended fund with a six-to-eight-year lock leaves a financed investor with no lever at all if returns disappoint or rates rise. An open-ended fund with periodic redemption windows preserves the ability to exit, repay the facility and stop the interest cost.
For a leveraged subscription, that optionality is worth accepting a slightly lower target return for.
How to run the numbers yourself
- Obtain the fund's net return net of every fee layer, not the gross target
- Add all loan costs: margin, reference rate, arrangement fee, hedging, cure reserve drag
- Model the retained portfolio at a realistic long-run return, not last year's return
- Include the deferred capital gains tax as a liability, not a saving
- Run the whole thing at ten years, then again at five, and see whether the conclusion holds
Frequently asked questions
Do Portuguese qualifying funds outperform Lombard loan costs?+
Net of all fees, many sit close to or slightly below current euro Lombard costs. The financing case usually rests on the retained portfolio, not on the fund outperforming the loan.
How long should I model the financed hold?+
Ten years or more under current timelines, since the citizenship clock starts at residency issuance and processing delays are material.
Discuss your financing with a CISI Level 7 adviser
We model the loan against your actual portfolio, the programme you are targeting, and your tax residency — before you commit capital. No product commission, no obligation.