Mercan vs Ando Europe: Hospitality Fund Comparison

Key observations:

• Ando Europe targets slightly higher returns (6% vs 5%) with a longer term (8 vs 7 years)
• Ando Europe has higher management fees (1.75% vs 1.5%)
• Both have the same subscription fee (2.0%) and performance fee structure
• Neither has confirmed PFIC status (US investors should verify)

Mercan Hospitality Fund

Mercan Group is one of the most recognized names in Portuguese hospitality investment. Their fund focuses on:

Investment thesis:

• Established hotel management companies across Portugal
• Tourism infrastructure supporting hospitality operations
• Diversified geographic footprint (Lisbon, Porto, Algarve, Madeira)
• Partnership with major hotel brands

Strategy:

• Acquire stakes in operating hotel companies (not property)
• Operational improvements to increase profitability
• Scale through additional hotel management contracts
• Exit via trade sale or secondary market

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Ando Europe (Stag) Fund

Ando Europe (formerly marketed under the Stag brand) has a European hospitality focus with significant Portuguese exposure.

Investment thesis:

• European hospitality portfolio with Portugal as core market
• Focus on boutique and mid-market hotel operations
• Tourism recovery thesis post-pandemic
• Expansion into emerging tourism destinations

Strategy:

• Invest in hotel management companies with growth potential
• Portfolio diversification across European markets
• Brand partnerships and operational optimization
• Exit through fund maturity or strategic sales

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Strategic differences:

• Mercan is purely Portugal-focused; Ando has broader European exposure
• Mercan partners with major international brands; Ando focuses on boutique/mid-market
• Ando's 8-year term provides more time for operational improvements

7-Year Total Cost (Mercan's term)

Note: Ando's fund term is 8 years, so this comparison at 7 years is for illustration.

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8-Year Total Cost (Ando's term)

Mercan's 7-year term means capital returns at year 7; reinvestment may be needed for year 8+

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Fee comparison insight:

The 0.25% management fee difference (1.75% vs 1.5%) equals:

• €1,250/year on €500,000 investment
• €8,750 over 7 years
• €10,000 over 8 years

However, Ando targets 6% IRR vs Mercan's 5%. If returns materialize as targeted:

• Ando at 6% returns €30,000/year vs Mercan at 5% returning €25,000/year
• The €5,000/year return difference exceeds the €1,250/year fee difference

Net-net: If target returns are achieved, Ando's higher fees are offset by higher returns.

Tourism Sector Risk (Common to Both)

Both funds are exposed to:

• Tourism seasonality and cyclicality
• Economic downturns affecting travel spending
• Geopolitical events impacting European tourism
• Competition from alternative accommodations (Airbnb, etc.)

Mitigating factors:

• Portugal's tourism sector has shown resilience
• Record visitor numbers in 2023-2024
• Diversified source markets (EU, UK, US, Brazil)
• Favorable climate and safety reputation

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Mercan-Specific Risk Factors

Positives:

• Established track record in Portuguese hospitality
• Major brand partnerships provide operational expertise
• Shorter 7-year term aligns with 5-year citizenship path

Concerns:

• Concentrated in Portugal (no geographic diversification)
• Lower target return may limit upside

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Ando Europe-Specific Risk Factors

Positives:

• European diversification reduces single-country risk
• Higher target return (6% vs 5%)
• Longer term provides more execution runway

Concerns:

• European exposure includes less stable tourism markets
• Higher fees require higher returns to justify
• 8-year term may create liquidity mismatch with 5-year path

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Risk summary:
Both are conservative hospitality investments. Mercan offers simplicity (Portugal-only, shorter term); Ando offers diversification and growth potential with slightly higher complexity.

Current 5-Year Path

Both funds extend beyond the 5-year citizenship timeline:

• Mercan (7 years): Exit ~2 years after citizenship eligibility
• Ando (8 years): Exit ~3 years after citizenship eligibility

No issue—you can apply for citizenship before fund maturity.

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Potential 10-Year Path (Law 61/2025)

Both funds face liquidity mismatch risk:

If the 10-year citizenship rule takes effect, you'll need to:

1. Receive capital back at fund maturity (year 7 or 8)
2. Reinvest €500,000 in another qualifying fund
3. Pay new subscription fees (1-2%)
4. Complete additional due diligence

Neither fund perfectly aligns with a 10-year path. Consider:

• Open-ended funds for full timeline flexibility
• 10-year closed-ended funds (like Pela Terra II)
• Accepting the reinvestment requirement

PFIC Status: Unknown for Both

Neither Mercan nor Ando Europe has publicly confirmed PFIC status or QEF election availability.

What this means for US investors:

• You must contact each fund directly to verify PFIC documentation
• Without QEF election, gains are taxed at the highest marginal rate + interest penalty
• PFIC tax treatment can consume 40-50% of your returns

Recommended action:

1. Request PFIC statement availability from both fund managers
2. Ask specifically about QEF election support and annual PFIC statements
3. If neither provides QEF support, consider PFIC-compliant alternatives:
   • Pela Terra II (agriculture, QEF-compliant)
   • 3 Comma Golden Income (open-ended, QEF-compliant)

Don't assume hospitality funds are PFIC-friendly just because they're popular. US tax compliance varies by fund.

Why Both Funds Qualify

Under Law 56/2023, funds cannot hold direct real estate in restricted zones (Lisbon metro, Porto metro, coastal corridor). However, both Mercan and Ando invest in hotel operating companies, not property directly.

The distinction:

• ❌ Ineligible: A fund owning a hotel building
• ✅ Eligible: A fund investing in a company that manages hotels

Operating company test:

Both pass the Operating Company test—they invest in hospitality management businesses, not passive property holdings.

Due diligence note:
Review each fund's prospectus to confirm the exact structure. Some hospitality funds may have hybrid structures with operating and property elements. Ensure the operating company component dominates.

Choose Mercan Hospitality if:

• You prefer a Portugal-focused investment
• You want the shorter 7-year term
• Lower management fees matter to you
• You value Mercan's established track record
• You're comfortable with a 5% target return

Choose Ando Europe (Stag) if:

• You value European diversification
• You want higher target returns (6% vs 5%)
• You're comfortable with the longer 8-year term
• You prefer boutique/mid-market hospitality exposure
• You believe the higher fees are justified by higher returns

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Neither fund stands out as objectively better. The choice depends on:

1. Timeline preference: Mercan's 7-year term is slightly shorter
2. Return expectations: Ando targets higher returns with higher fees
3. Geographic preference: Mercan is Portugal-only; Ando is European
4. Brand partnerships: Mercan works with major brands; Ando focuses on boutique

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For US investors specifically:

Verify PFIC status with both funds before deciding. If neither confirms QEF compliance, consider PFIC-compliant alternatives like Pela Terra or 3 Comma, even though they're in different sectors.