Have you read How to Buy Bill Ackman, Dan Loeb on the Cheap - Closed-end funds run by these hedge fund pros trade at a discount to net asset value?
The setup sound great: famous Hedge Funds are trading cheap in Europe, and anyone with a brokerage account can buy!
Barron's hints at a wrinkle: "Fund investors get an annual Passive Foreign Investment Company, or PFIC, tax form, which is like a K-1 or 1099 form."
Yeah about that.
Barron's neglects to mention investing in a PFIC can subject you to a "Tax Regime" that is about as pleasant as it sounds.
"In general, US persons owning stock—even one share—of a PFIC may be subject to tax at top marginal rates, plus an interest charge, on certain distributions and dispositions of PFIC stock. Even an indirect owner of PFIC stock may be subject to the regime."
The quote above is from Baker Tilly, who has a good primer on the subject. In short, you really don't want to be subject to The Regime.
If one were to buy Pershing Square Holdings or Third Point Offshore via the European tickers in Barron's (PSH.Netherlands or TPOU.UK) or the US listed Pink Sheets ticker (PSHZF or TPNTF), one could in for an unpleasant surprise come tax time.
Fortunately, some of this can be addressed by filing to use qualified election fund (QEF) election or a mark-to-market (MTM) election. Furthermore, if you hold these in an IRA, you may be able to avoid the worst of it.
However, I would tread carefully on any of these solutions.
At this point, I'm going to drop the "talk to your tax professional" phrase. Don't take tax advice from a blog. Especially not this one.
The prospectus from Pershing Square Holdings has more tax info starting on page 199.
So Barron's: Nice idea, but realize US taxable investors (most of your readers) should think twice about the tax burden associated with your latest picks.
Due to overwhelming demand from readers, I am posting another Joel Greenblatt video.
Or rather, some guy named Hunter begged me to post one after reaching out via the contact tab.
In this lecture to Columbia Business School students Greenblatt discusses Magic Formula Investing.
His Little Book that Beats the Market is considered an absolute classic. Wherein he examines cheapness and quality, and contends such a strategy essentially prints money.
As an aside, if I ever talk to a group of little kids about investing, I am going to borrow his analogies from the book.
Not investment advice. Not a solicitation to invest. Don't take candy from strangers. The links above are affiliate links, if you were to click on one and then buy something Amazon would pay me several cents.
When I realized I needed to get up to speed on Private Placement Life Insurance (PPLI) as a tool for potential tax savings, I did what I always do to educate myself on highly technical subjects:
To be clear, most of this book was a waste of my time. Much of the information was stale, as it was written in 2005.
But that doesn't mean I regret the purchase. In fact, one chapter alone made it worthwhile.
If you are thinking "what the hell is PPLI?", I encourage you to read: Tax-Efficient Investing Through Private Placement Annuity and Life Insurance Investment Accounts - A Brief Overview.
As an investment professional, I was looking for objective information on PPLI, and Private Placement Variable Universal Life (PPVUL).
Instead, I was drowning in the sea of white papers written by brokers who provide potentially helpful, but ultimately self-serving information.
This book was no different. Except chapter sixteen.
PPLI has been around for a long time as a bespoke structured financial product that could save one a boat load of taxes. Of course, the terms bespoke and structured are code for "very expensive" and "lots of fees". This is the roadblock most run into when considering PPLI. Do the setup fees and the ongoing expenses justify the long-term tax savings? So the real problem becomes how low can you get the negotiable fees and are the fixed fees worth it relative to your asset base?
Fortunately, the PPLI space is moving from bespoke towards standardization, and fees are coming down. One indication that PPLI is going mainstream (or as common as a product for affluent investors can be) is MONEY: Master the Game by Tony Robbins. While I have not read this book, Awaken the Giant Within on Audible is one of my favorite things to listen to on a long drive; there is a reason it is considered a classic.
How does one assess the level of fees your broker has quoted you? Chapter 16 of The PPLI Solution breaks down the following:
The book then provides an example spreadsheet with these costs, circa 2005. I am writing this in 2016; the costs quoted to you should be lower than those in the book. Also, the book will make it clear which of these fees are negotiable.
For those that are looking for really low fees, in my research I have found a way to "go direct", but it is not for the faint of heart; there is no broker to hold your hand. A quote from this type of source should provide the lowest cost example, and could be used as leverage to get a lower rate from your broker.
To be perfectly clear, I don't sell insurance, nor am I licensed to sell insurance. Please don't contact me regarding how to purchase PPLI, I cannot help you in that regard. Not investment advice. Not a solicitation to invest. Don't take candy from strangers. The links above are affiliate links, if you were to click on one and then buy something Amazon would pay me several cents.
This is the personal blog of Emory Redd.
This blog is not investment advice. This is not a solicitation to invest. Don't take candy from strangers.
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