Saturday, 20 December 2014
Last updated 1 day ago
Feb 20 2013 | 12:32pm ET
Reinsurance firms businesses have proven a popular way for hedge funds to raise permanent capital. They also can help hedge fund managers avoid paying U.S. taxes.
While the Internal Revenue Service penalizes companies who set up "passive foreign investment companies," it considers insurers to be active. And although it has said that insurers and reinsurers can't have a capital pool much greater than they need to back the insurance they sell, the IRS has never set thresholds, Bloomberg News reports.
Paulson & Co.'s PaCRE, for instance, sold reinsurance coverage amounting to just 1.6% of its initial $500 million in equity, $450 million of which came from Paulson executives. The average for a Bermuda-based reinsurer is 47%.
Other hedge fund-backed reinsurers, including those set up by SAC Capital Advisors and Third Point, aren't quite as penurious. The former has targeted sales equaling 30% of assets, and the latter 19%. Both also employ their own underwriters, while PaCRE outsources its underwriting, employs no one and uses another insurance's company's offices as its address.
Using a Bermudan reinsurer could save a hedge fund manager more than one-third in taxes, according to Bloomberg.
Dec 1 2014 | 10:21am ET
As 2014 winds down, Northern Trust Hedge Fund Services executives took some time to share their outlook on trends facing the industry in 2015. Read more…
Jeff Sprecher was simply looking for a platform to trade energies when launching ICE 14 years ago but it has grown to reach the pinnacle of both the listed futures and equities world.