Pershing Square Holdings debuts ...

[Ham Hockers]

Does anyone know how this is treated for tax purposes for U.S. individuals? Most of these structures I have seen are pass throughs.

 

Also, are there any ERISA experts around who can opine on whether or not a personal retirement account would fall under the ERISA restrictions for ownership?

 

Are you sure? I thought there would be no tax until you sell. Just like an ordinary stock holding.

 

Or even worse a PFIC.  That's a separate level of hell altogether...  If this is a PFIC and you're in the US avoid investing in this in a taxable account unless you have a killer accountant, or want to mess with the taxes on this on your own.

 

If this is a PFIC (from some Googling I believe it is) you have to pay taxes on the increase in NCAV over the year regardless of your holding period.  For example, if the fund trades at $10 on Jan 1st and $12 Dec 31st you have to pay taxes on the 20% gain even if you purchased at $11.  If you purchase at $11 and sell at $10 you still pay taxes even though you lost money.

 

Brokerage fees aren't the issue here, it's the tax classification.  For many investors this is stuffed in a trust, or in a fund where the manager/custodian doesn't worry about these issues.  For individuals it's a different story.  This is why many fund companies list the management company to get around these restrictions.

 

Yes that would be bad, but any type of pass through would be annoying if PSH didn't distribute everything.

 

And I would hesitate to buy this in a retirement account without fully understanding the ERISA restrictions (as I don't). I suggest people read the prospectus ...

 

I read through the prospectus but didn't see any mention of PFIC. If this is indeed incorporated as a PFIC, I would at least expect some mention of that in the prospectus. Weird....

http://pershingsquareholdings.com/media/2014/09/Prospectus-Dated-2-October-2014.pdf

 

So what you are saying is that if this is a PFIC, and someone bought in January and sold in Feburary to another guy. The NAV increased from $10 on Jan 1st to $12 on Dec 31st. Then at year end, both persons are subject to paying that 20% increase in NAV?

 

I was suggesting reading the prospectus for the ERISA stuff.

 

There's nothing in there about U.S. tax treatment because I believe they specifically avoided selling IPO shares to U.S. individuals.

 

Oh... I see. PSH NAV increased a lot this year. Does this mean if I hold it through year end, I have  to pay the tax on the NAV increase from Jan 1st to Dec 31st? What if I sell now?

 

I don't know the tax treatment of this investment for U.S. people. That's why I asked!

[Kraven]

Does anyone know how this is treated for tax purposes for U.S. individuals? Most of these structures I have seen are pass throughs.

 

Also, are there any ERISA experts around who can opine on whether or not a personal retirement account would fall under the ERISA restrictions for ownership?

 

Are you sure? I thought there would be no tax until you sell. Just like an ordinary stock holding.

 

Or even worse a PFIC.  That's a separate level of hell altogether...  If this is a PFIC and you're in the US avoid investing in this in a taxable account unless you have a killer accountant, or want to mess with the taxes on this on your own.

 

If this is a PFIC (from some Googling I believe it is) you have to pay taxes on the increase in NCAV over the year regardless of your holding period.  For example, if the fund trades at $10 on Jan 1st and $12 Dec 31st you have to pay taxes on the 20% gain even if you purchased at $11.  If you purchase at $11 and sell at $10 you still pay taxes even though you lost money.

 

Brokerage fees aren't the issue here, it's the tax classification.  For many investors this is stuffed in a trust, or in a fund where the manager/custodian doesn't worry about these issues.  For individuals it's a different story.  This is why many fund companies list the management company to get around these restrictions.

 

Yes that would be bad, but any type of pass through would be annoying if PSH didn't distribute everything.

 

And I would hesitate to buy this in a retirement account without fully understanding the ERISA restrictions (as I don't). I suggest people read the prospectus ...

 

I read through the prospectus but didn't see any mention of PFIC. If this is indeed incorporated as a PFIC, I would at least expect some mention of that in the prospectus. Weird....

http://pershingsquareholdings.com/media/2014/09/Prospectus-Dated-2-October-2014.pdf

 

So what you are saying is that if this is a PFIC, and someone bought in January and sold in Feburary to another guy. The NAV increased from $10 on Jan 1st to $12 on Dec 31st. Then at year end, both persons are subject to paying that 20% increase in NAV?

 

I was suggesting reading the prospectus for the ERISA stuff.

 

There's nothing in there about U.S. tax treatment because I believe they specifically avoided selling IPO shares to U.S. individuals.

 

Oh... I see. PSH NAV increased a lot this year. Does this mean if I hold it through year end, I have  to pay the tax on the NAV increase from Jan 1st to Dec 31st? What if I sell now?

 

I don't know the tax treatment of this investment for U.S. people. That's why I asked!

 

I know nothing about this investment and haven't read through the thread.  I just skimmed a couple of the last posts that caught my eye.  In general a retirement account would be subject to ERISA for these types of purposes.  Typically, it's a representation that you (the investor) must make so if you answer incorrectly you could have contractual or legal issues because of that.  But the reason for the rep is that issuers don't want to be subject to the erisa regs.  So they want to prevent or limit participation.  In terms of a PFIC, Oddball is correct, you do not want any part of that unless you are of sufficient size to have tax and accounting experts dealing with it for you.  It isn't an issue for an H&R Block preparer to handle for you.  Seems like they don't want US investors anyway.  But for all of this, you should double check with someone who knows what they are talking about.  I do not and could very well be wrong about it all.

[oddballstocks]

Does anyone know how this is treated for tax purposes for U.S. individuals? Most of these structures I have seen are pass throughs.

 

Also, are there any ERISA experts around who can opine on whether or not a personal retirement account would fall under the ERISA restrictions for ownership?

 

Are you sure? I thought there would be no tax until you sell. Just like an ordinary stock holding.

 

Or even worse a PFIC.  That's a separate level of hell altogether...  If this is a PFIC and you're in the US avoid investing in this in a taxable account unless you have a killer accountant, or want to mess with the taxes on this on your own.

 

If this is a PFIC (from some Googling I believe it is) you have to pay taxes on the increase in NCAV over the year regardless of your holding period.  For example, if the fund trades at $10 on Jan 1st and $12 Dec 31st you have to pay taxes on the 20% gain even if you purchased at $11.  If you purchase at $11 and sell at $10 you still pay taxes even though you lost money.

 

Brokerage fees aren't the issue here, it's the tax classification.  For many investors this is stuffed in a trust, or in a fund where the manager/custodian doesn't worry about these issues.  For individuals it's a different story.  This is why many fund companies list the management company to get around these restrictions.

 

Yes that would be bad, but any type of pass through would be annoying if PSH didn't distribute everything.

 

And I would hesitate to buy this in a retirement account without fully understanding the ERISA restrictions (as I don't). I suggest people read the prospectus ...

 

I read through the prospectus but didn't see any mention of PFIC. If this is indeed incorporated as a PFIC, I would at least expect some mention of that in the prospectus. Weird....

http://pershingsquareholdings.com/media/2014/09/Prospectus-Dated-2-October-2014.pdf

 

So what you are saying is that if this is a PFIC, and someone bought in January and sold in Feburary to another guy. The NAV increased from $10 on Jan 1st to $12 on Dec 31st. Then at year end, both persons are subject to paying that 20% increase in NAV?

 

If this is listed in Holland why would they need to detail US tax issues in a prospectus?  Investors are on the hook for PFIC themselves.  Some foreign companies will mention that they might be considered one to US investors, but the majority I've seen completely ignore the issue.

 

If more than 50% of the company's assets are securities and the company isn't a bank or investment bank then this most likely qualifies.  Not sure what Pershing does, but if he just listed his fund then this is a PFIC.  Same thing as if you went and purchased a TOPPIX ETF, you'll get nailed for it, but the TOPPIX ETF won't mention PFIC in the prospectus.

[muscleman]

Does anyone know how this is treated for tax purposes for U.S. individuals? Most of these structures I have seen are pass throughs.

 

Also, are there any ERISA experts around who can opine on whether or not a personal retirement account would fall under the ERISA restrictions for ownership?

 

Are you sure? I thought there would be no tax until you sell. Just like an ordinary stock holding.

 

Or even worse a PFIC.  That's a separate level of hell altogether...  If this is a PFIC and you're in the US avoid investing in this in a taxable account unless you have a killer accountant, or want to mess with the taxes on this on your own.

 

If this is a PFIC (from some Googling I believe it is) you have to pay taxes on the increase in NCAV over the year regardless of your holding period.  For example, if the fund trades at $10 on Jan 1st and $12 Dec 31st you have to pay taxes on the 20% gain even if you purchased at $11.  If you purchase at $11 and sell at $10 you still pay taxes even though you lost money.

 

Brokerage fees aren't the issue here, it's the tax classification.  For many investors this is stuffed in a trust, or in a fund where the manager/custodian doesn't worry about these issues.  For individuals it's a different story.  This is why many fund companies list the management company to get around these restrictions.

 

I am learning the PFIC staff as hard as I can.

http://www.deblislaw.com/understanding-the-pfic-rules-without-suffering-a-migraine.html

 

It is still a bit confusing to me. It says I can either elect for paying taxes every year, or I can elect to defer taxation until I sell. But what's the tax rate when I sell? Is that just the capital gain tax or is it a higher rate?

 

A taxpayer who does not make a QEF election is taxed under the pure PFIC tax regime of Section 1291.  Under this regime, taxpayers are permitted to defer taxation of a PFIC’s undistributed income until the PFIC makes an excess distribution.  An excess distribution includes the following:

i.      A gain realized on the sale of PFIC stock, and

ii.      Any actual distribution made by the PFIC, but only to the extent that the total actual distributions received for the year exceed 125% of the average actual distribution received in the preceding three taxable years (or, if shorter, the taxpayer’s holding period before the current taxable year).

 

Can any tax experts help me please?

[muscleman]

Oddball, I think the following explanation makes a lot of sense. I can either do QFE election or Mark to Market election. If I do Mark to Market election, then I will have to pay the capital tax gain as if it is ordinary income, no matter how long I hold it. This really sucks.

 

====================

http://en.wikipedia.org/wiki/Passive_foreign_investment_company

Mark to market

 

A shareholder of a PFIC may also elect each year to recognize gain or loss on the shares as if he/she/it had sold the PFIC shares at fair market value. Such election is available only for shares the market value of which is readily determinable (e.g., regularly traded shares). Shares subject to this election are not subject to the tax and interest regime.[10] Also, this election is independent of prior PFIC elections (i.e. QEF or Sect 1291 election). for example: If stock X was purchased in 2007 for $100, has a FMV on 12/31/11 of $120, and no PFIC forms were filed until 2011 (when Sect 1296- Mark-to-market- election was made), no PFIC filings would be needed for the prior years as long distributions were less than 125% and no capital gains occurred. For the current year, 8621 would be filed using Mark to market and the ordinary income would be $20. see Section 1.1296-1 3 b.iii

[Guest Schwab711]

Im sure these guys also worked very hard, and were very smart:

 

http://en.wikipedia.org/wiki/Long-Term_Capital_Management

 

Do you think they did what Ackman is doing? I am sure you don't. Therefore, why a post like that? Trying to be hilarious? ;)

 

Gio

 

Ackman may not be as far off as you think. That's some fantastic MTM vs. Fund NAV.

[muscleman]

Does anyone know how this is treated for tax purposes for U.S. individuals? Most of these structures I have seen are pass throughs.

 

Also, are there any ERISA experts around who can opine on whether or not a personal retirement account would fall under the ERISA restrictions for ownership?

 

Are you sure? I thought there would be no tax until you sell. Just like an ordinary stock holding.

 

Or even worse a PFIC.  That's a separate level of hell altogether...  If this is a PFIC and you're in the US avoid investing in this in a taxable account unless you have a killer accountant, or want to mess with the taxes on this on your own.

 

If this is a PFIC (from some Googling I believe it is) you have to pay taxes on the increase in NCAV over the year regardless of your holding period.  For example, if the fund trades at $10 on Jan 1st and $12 Dec 31st you have to pay taxes on the 20% gain even if you purchased at $11.  If you purchase at $11 and sell at $10 you still pay taxes even though you lost money.

 

Brokerage fees aren't the issue here, it's the tax classification.  For many investors this is stuffed in a trust, or in a fund where the manager/custodian doesn't worry about these issues.  For individuals it's a different story.  This is why many fund companies list the management company to get around these restrictions.

 

Yes that would be bad, but any type of pass through would be annoying if PSH didn't distribute everything.

 

And I would hesitate to buy this in a retirement account without fully understanding the ERISA restrictions (as I don't). I suggest people read the prospectus ...

 

I read through the prospectus but didn't see any mention of PFIC. If this is indeed incorporated as a PFIC, I would at least expect some mention of that in the prospectus. Weird....

http://pershingsquareholdings.com/media/2014/09/Prospectus-Dated-2-October-2014.pdf

 

So what you are saying is that if this is a PFIC, and someone bought in January and sold in Feburary to another guy. The NAV increased from $10 on Jan 1st to $12 on Dec 31st. Then at year end, both persons are subject to paying that 20% increase in NAV?

 

If this is listed in Holland why would they need to detail US tax issues in a prospectus?  Investors are on the hook for PFIC themselves.  Some foreign companies will mention that they might be considered one to US investors, but the majority I've seen completely ignore the issue.

 

If more than 50% of the company's assets are securities and the company isn't a bank or investment bank then this most likely qualifies.  Not sure what Pershing does, but if he just listed his fund then this is a PFIC.  Same thing as if you went and purchased a TOPPIX ETF, you'll get nailed for it, but the TOPPIX ETF won't mention PFIC in the prospectus.

 

Thank you for bringing this tax issue up. I sold today. Glad I bought at the rock bottom price this year, so at least I didn't lose money. I understand that I can elect for Mark to Market treatment for this trade and I will pay ordinary income tax on it, which is the same as short term cap gain tax for US stocks anyway. I am sad that I can't hold it for long term investment.

[jay21]

Im sure these guys also worked very hard, and were very smart:

 

http://en.wikipedia.org/wiki/Long-Term_Capital_Management

 

Do you think they did what Ackman is doing? I am sure you don't. Therefore, why a post like that? Trying to be hilarious? ;)

 

Gio

 

Ackman may not be as far off as you think. That's some fantastic MTM vs. Fund NAV.

 

I am not sure I get your point. Can you elaborate?

[Guest Schwab711]

Im sure these guys also worked very hard, and were very smart:

 

http://en.wikipedia.org/wiki/Long-Term_Capital_Management

 

Do you think they did what Ackman is doing? I am sure you don't. Therefore, why a post like that? Trying to be hilarious? ;)

 

Gio

 

Ackman may not be as far off as you think. That's some fantastic MTM vs. Fund NAV.

 

I am not sure I get your point. Can you elaborate?

 

So Pershing Square's derivative Assets/Liabilities (This can be normal stock options like writing covered calls, which relatively low-risk. This could also be exotic derivatives like Knock-outs or Bermudas with no volume, high margin requirements, and no way out of the trade unless you pay off the bank who facilitated it). In my experience, (I rarely look at simple stock-options which these could be and probably are, I hope...) Interest Rate Swaps (IRS - most common derivative for banks/HFs) have very low MTM on the order of 1% - 5%. If interest rates move significantly you could find some of the longer-dated DX (derivatives) with MTM of well over 100%. If we assume 5% MTM on the current DX, Pershing Square has nearly $10B in notional exposure (Abs($375m gains + $95m losses) and round to $500m * 20 = $10B notional exposure).

 

In general, significant DX positions on the Balance Sheet tend to scare me off because transparency with them is so low that you are REALLY reliant on the manager knowing the risk of the positions. Anything can happen and HFs have very low credit ratings so there is probably daily MTM margin. Kind of rushed so this isn't a very clear example but you'd really want to know what kind of derivatives are held (write covered-calls, IRS, exotices), tenor exposure (how long-dated are these contracts), and the size of the trades (how concentrated are their bets).

 

LTCM went under with arb bets on class A/B shares of Royal Dutch Shell, simple IRS, and other fairly simple DX that stayed under/over-valued for longer than LTCM had cash reserves for escalating margin calls. They were illiquid not insolvent, but the end result is the same for shareholders.

 

[jay21]

Ackman stated he using options on HLF to limit risk.  I think you can dig up some details.

 

I am not too concerned. The majority of his assets are usually tied to his core positions somehow (even if he occasionally mentions some weird FX call option strat).

[Picasso]

So only down 45% or so from the IPO.  Who's buying here?

[ap1234]

Does anyone know what percentage Valeant is of the PSH NAV (either at Dec. 31st or more recently)?

[Jurgis]

I have to admit that I am holding some from higher cost.

I am not adding.

I want to see how Ackman deals with the current situation.

I am not a staunch believer in him. I think he has some good ideas and the "platform" companies though ridiculed may be sensible concept. He overpaid though (and I overpaid for PSH :) ) and VRX was/is a double mess.

 

It is likely that individual companies - PAH? - might be better investments than PSH.

 

However, I think we should ask Sanjeev to merge this with PSH thread in investment ideas: http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/pshne-pershing-square-holdings/msg253137/#msg253137

[thepupil]

waiting for the bonds to (hopefully) get cheaper...currently ~$85, 8.6% yield. like the odds of PSH NAV being greater than $1B, getting paid to write that tail risk.