Billionaire John Paulson will offer a new fund designed to lower U.S. taxes for investors through insurer Philadelphia Financial Group Inc., said two people with direct knowledge of the matter.
Investors in Paulson Partners Premium LP can put money into Paulson & Co.’s merger-arbitrage strategy either through an annuity that defers income taxes or a life insurance policy that is tax-free for beneficiaries, both of which are offered by Philadelphia Financial, said the people, who asked not to be identified because the information isn’t public. The vehicle only invests in dollar-denominated share classes of the firm’s merger funds, its oldest strategy, one of the people said.
The $18 billion hedge-fund firm decided to start the offering after its high-net-worth and family-office clients, who comprise a smaller percentage of Paulson & Co.’s assets than its institutional investors, asked for a way to invest their money that would mitigate income taxes, the person said. Paulson, whose firm is based in New York, began marketing the fund at a presentation last month, according to an invitation obtained by Bloomberg News at the time.
The manager and his employees aren’t allowed to invest in the fund, the person said. In April 2012, Paulson executives set up Pacre Ltd., a Bermuda venture that positions its owners to avoid taxes on hedge-fund earnings by routing money through a reinsurer. The 57-year-old manager is seeking to reverse two years of losses in some of his strategies, including wrong-way bets on gold that have countered this year’s gains from equity stakes in financial companies and investments that profit from merger activity.
Tax Rate
Paulson, a lifelong New Yorker, explored a move to Puerto Rico to lower his own tax bill, according to four people familiar with the matter, before announcing in March that he wouldn’t make the move.
Typically, hedge-fund investors pay either the 39.6 percent maximum federal tax rate for ordinary income or the 20 percent long-term capital gains rate, depending on how long securities are held, plus a 3.8 percent health-law surcharge.
Paulson invited prospective clients to the firm’s offices on April 24, where he gave a 75-minute presentation about the new fund, according to the invitation. Investors in all of Paulson’s funds must be qualified purchasers with at least $5 million in assets that can be invested, the person said.
“Philadelphia Financial is pleased to be involved with Paulson & Co. and to include an Insurance Dedicated Fund managed by Paulson in our insurance offerings,” Chief Executive Officer John Hillman said in an e-mailed statement.
Insurance Strategies
Philadelphia Financial, based in the city of the same name, provides insurance strategies to advisers of ultra-high-net- worth individuals. In addition to merger arbitrage, Paulson & Co. runs strategies including credit; event driven, in which the firm seeks to profit from corporate events such as restructurings, takeovers and bankruptcies; and those that invest in companies that the firm believes will benefit from an economic recovery, and gold and related securities. Investors can choose between dollar- and gold-denominated share classes of most of Paulson’s funds.
Armel Leslie, a spokesman for Paulson & Co. at Walek & Associates, declined to comment on the new fund.
