PORTUGAL Law and Practice Contributed by: Domingos Cruz, Joana Bugia and Constança Morão, CCA Law Firm
Conflict of Interest Policies Simultaneously with the above – and as an out - growth of the fiduciary duties – the funds need to have conflict of interest policies, which are made in order to identify, manage and mitigate conflicts that may arise between the interests of the fund managers, or related parties, and those VC funds are highly regulated in Portugal and need to follow the Asset Management Regime ( Regime de Gestão de Ativos or RGA) and the entity responsible for the regulatory oversight is the CMVM. The CMVM is responsible not only for approving the registration and incorporation of VC companies and VC funds, but also for overseeing the operation and activities of those entities. of the fund’s investors. 2.3 Fund Regulation Compliance with the aforementioned regime (both in the registration stage and in the day- to-day management) is essential for VC enti - ties operating in Portugal to maintain legal and operational legitimacy. 2.4 Particularities On the one hand, VC investment in Portugal has some particularities due to key aspects, such as the programmes established by the government to boost entrepreneurship. An example is “Con- solidar” , a programme with an overall budget of up to EUR500 million, which aims to support the subscription of VC funds for investment in SMEs and mid caps. However, this programme still has some limitation regarding the fund’s investment policy, where the investments can be made and the type of instruments that the fund can subscribe. In addition, the EU funding of VC funds, the tax incentive system for research and development (SIFIDE) depends on the target companies being classified by the Portuguese
fund, as detailed below (Management Fees, Carried Interest, Hurdle Rate, Co-Investment and Conflict of Interest policies). However, these structures need to be evaluated on a case-by- case basis because in Portugal, as in many other jurisdictions, fund managers owe fiduciary duties to the investors in the funds they manage. These duties are based on principles of trust, loyalty and good faith, and require fund managers to act in the best interest of the fund’s investors, The fund managers receive management fees, which are annual fixed fees charged as a per - centage of the value of the total assets of the respective fund. These fees cover operational expenses, salaries and other costs associated with the management of the fund. Carried Interest Another common practice is to establish that, upon liquidation and after the distribution of profits to the fund’s participants, a percentage of the earnings will be paid to the fund’s managers. Hurdle Rate and not in their own. Management Fees Together with the carried interest, a hurdle rate is usually established. The hurdle rate sets the min - imum rate of return that the fund must achieve so that the fund managers can receive the car - ried interest. Co-Investment Lately, the possibility of co-investment – ie, the fund’s founding participants and the fund managers having the possibility to, upon veri - fication of certain conditions (including, but not limited to, investment amount, stage of the tar - get, amount of the ticket, target activity), invest alongside and under the same terms and condi - tions of the fund has become more popular.
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