Debt funds contribute positively to the European economic system by providing alternative sources of financing for small and medium-sized enterprises (SMEs). Since the global financial crisis, SMEs in Europe have struggled to obtain external financing from traditional creditors. Private debt funds fill this gap, providing alternative financing that European companies had long needed.

Key factors for the development of private debt markets since the global financial crisis include the contraction of traditional lending solutions due to stricter regulations, political support from European authorities, and favorable financial performance compared to other markets.

During the Covid-19 crisis, private debt funds proved resilient and continued to provide financing for medium-sized companies, demonstrating their importance as key partners in difficult times. With the reopening of economies in the U.S., Europe, and Asia, alternative lenders are focused on new businesses and are able to offer higher returns than other fixed income classes. Even with rising inflation in the EU, the floating rate model of many private credit structures should help mitigate the impact on final returns.

With the enactment of Decree-Law no. 27/2023, on April 28, the Asset Management Regime (RGA) was introduced. This regime represents a significant reform in the country's collective investment sector. One of the prominent areas is the creation of a new category of Alternative Investment Organizations (OIA) dedicated to credit, which can be managed by Small Management Companies (SG) and to which some exemptions apply in the bank credit regime, as well as their participation in the credit responsibility center.

Credit OIA's main objective is investment in credits, whether through direct loans, equity in debt instruments, or other forms of exposure to the credit market.

“The introduction of Credit OIA in the Portuguese legal landscape opens up new opportunities in the alternative financing market, especially in the real estate sector. These bodies have the potential to play a crucial role in providing capital for real estate projects, complementing traditional sources of financing.”

In the European context, Alternative Credit Investment Institutions have gained prominence as an important source of alternative financing. Countries such as Germany, France, and the United Kingdom have established traditions of using these vehicles to finance a variety of projects, including commercial real estate, infrastructure, and corporate loans. The flexibility and return potential of these instruments have attracted institutional investors from several continents.

The introduction of Credit OIA in the Portuguese legal landscape opens up new opportunities in the alternative financing market, especially in the real estate sector. These bodies have the potential to play a crucial role in providing capital for real estate projects, complementing traditional sources of financing. Given the current market situation, it is increasingly difficult to access bank credit, this option may become a valid option for several real estate market operators.

Despite the opportunities, Credit OIAs also face significant challenges across Europe, including the need to properly manage credit risk, market volatility, and regulatory compliance. In addition, tax issues related to the treatment of income and capital gains also require careful attention on the part of investors and managers.

This point is especially relevant in the Portuguese context, since the credit OIA is a new figure, it is not provided for in the Tax Benefits Statute.

There is a great expectation in the market to verify whether the income obtained from credit OIAs will be equated to Venture Capital Funds or, if on the contrary, with a subtype of a Securities Investment Fund. This issue is definitely an IRC issue.

In short, the arrival of Alternative Credit Investment Agencies is an important milestone to boost alternative financing in Portugal and growth in the real estate sector, providing a crucial source of capital for projects across the country. However, to make the most of these opportunities, investors and managers must be prepared to face the challenges and considerations associated with this new asset class, learning from the experience and best practices observed throughout Europe, namely in risk analysis and scoring/rating of operations.

In this area of risk analysis in the real estate sector, we anticipate a profound change in the profile of professionals who work in the market, since it will be a new requirement in the real estate appraiser profession for a higher emphasis component of assigning the “scoring/rating” of the project through the application of algorithms with hedonic models that contain new variables, in a traditional real estate valuation, are not considered, and now with the sophistication of market operators, they will start to be used, namely:

a) Variables related to the socio-economic situation;

b) Quality of the surrounding area;

c) Dynamics of the real estate sector and at what point in the cycle are we at the time of the analysis in order to project what will be the “Mortgage Lending Value”

d) What is the prosecutor's experience and risk;

e) What is the legal certainty associated with urban planning issues;

Several attempts to launch real estate “crowdfunding” platforms have been made in Portugal, but none so far on the scale observed in other European countries, so the definitive start of this new source of alternative financing in the Portuguese market allows us to see that all stakeholders are safe from the applicable tax regime and the management companies themselves have the models and procedures adapted to this new reality.

‍