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.
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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