Hedge funds facing Biden tax threat take precedence in Puerto Rico
As Democrats demand higher taxes on the wealthiest Americans to fund President Joe Biden’s infrastructure and climate initiatives, hedge fund managers are taking refuge in Puerto Rico.
ExodusPoint Capital Management and Millennium Management has established subsidiaries on the island, according to local records. It could help corporate portfolio managers relocate to Puerto Rico for huge tax breaks – an option that is increasingly popular now that the pandemic has made remote working mainstream.
Michael Gelband’s ExodusPoint created a money management unit on the island on behalf of co-founder Hyung Soon Lee, who moved there last year, and other investment talent in the area. Izzy Englander’s Millennium established his own arm in Puerto Rico a few weeks after Biden’s election.
The existence of the subsidiaries, which was not previously reported, is of greater significance now that Biden has proposed a series of tax increases on top earners. While some Wall Street residents have moved to places without income tax, like Florida, those who venture to Puerto Rico can also avoid federal levies.
“A lot of people are looking to relocate because they no longer need to be near their workplace,” said Peter Schiff, who has transferred the asset management arm of his brokerage firm based in Westport, Conn., Euro Pacific Capital, San Juan in 2013. “The higher the taxes” in the United States, said Schiff, “the greater the attraction of coming here.”
Dan Morehead’s Pantera Advisers, based in Menlo Park, Calif., set up a money management unit in the town of Guaynabo last month, according to a deposit.
Billionaire John Paulson, who made his fortune betting against the housing market before the 2008 financial crisis, began looking for real estate on the island in 2013. Paulson, who has said in recent years that he had l he plans to move to Puerto Rico no longer plans to do so, according to a spokesperson.
Read more: Paulson’s Heaven in Puerto Rico Attracts Rich Fleeing US Taxes
The appeal to future tax savers is a pair of laws Puerto Rico enacted in 2012 to attract wealthy mainlanders: the Export Services Law and the Individual Investor Law. The latter is of particular interest to hedge fund managers because it exempts taxes on capital gains, including those levied on performance fees which constitute the bulk of their remuneration. In New York, that income would currently be subject to aggregate federal, state and local taxes approaching 50%.
Puerto Rico received nearly 3,500 requests for tax incentives in fiscal 2019 and 2020, exceeding the combined total of the previous seven years, according to the Commonwealth Economic Development and Trade Department. More than 1,000 applications were filed during the six months of March, a spokesperson for the agency said.
Tax breaks are generally available to new residents and service businesses that generate income outside of Puerto Rico. Applications are confidential until approved, and government offices reviewing applications are struggling with a backlog of at least seven months that has been exacerbated by the pandemic and growing demand.
At the end of March, ExodusPoint and Millennium were the only major fund managers to have subsidiaries in Puerto Rico, according to Securities and Exchange Commission records. So far, Lee has not received an exemption under the Individual Investor Act, and none of the companies’ subsidiaries have received incentives under the Export Services Act, according to the government spokesperson.
Representatives of ExodusPoint and Millennium declined to comment. Millennium also plans to open two more offices in Florida next year, including its second location in Miami and one in West Palm Beach, a person familiar with the matter said.
Read more: Millennium to open two more tax-friendly Florida offices
In Dorado, about 20 miles west of the capital San Juan, house prices have skyrocketed. The area is considered family-friendly, has high-end housing, and is one of the few places infrastructure finance professionals need to access their employers’ computer networks on the continent.
“There has been exceptional interest, in part because Dorado has access to high-speed fiber,” said Jared Dubin, who recently founded Troluce Capital. Advisers there to manage the money for ExodusPoint. “The Dorado real estate market has been pretty wild.”
Millennium incorporated a San Juan-based company, MPG PR Management, on Nov. 23, according to records kept by the Puerto Rico State Department. The subsidiary had four fund managers working there at year-end, SEC records show.
In June, ExodusPoint incorporated its subsidiary in Dorado, where Lee, 52, now lives. It owns 50% of that entity, ExodusPoint Capital Management Puerto Rico, and shares ownership of the remainder with Gelband through another subsidiary, according to a regulation. deposit.
Lee, whose Facebook page shows him sitting at the controls of a private plane, has a commercial pilot rating and is certified to fly small jets, according to Federal Aviation Administration records.
In September, ExodusPoint amended his SEC filings that Lee’s business trips on a plane he had recently purchased would be partially covered by the company’s expense policy. It allows Lee and Gelband to request reimbursement from ExodusPoint hedge funds for private flights, with reimbursement limited to the equivalent cost of a first-class commercial airline ticket.
Millennium and ExodusPoint have a common history – Lee and Gelband were senior executives at the Englander company before leaving to form ExodusPoint – and a similar business model. Both allocate capital in their main hedge funds to independent teams of traders known as pods, some of which work in-house and others that organize themselves as separate money management firms, such as Dubin l ‘did with Troluce.
Even before the pandemic, Millennium had set up dozens of remote offices, including outposts in Laguna Beach, California, and Sugar Land, Texas, for portfolio managers who didn’t want to live in New York City. . ExodusPoint has also embraced the practice.
Other managers could soon join them in the Caribbean.
“If people are interested in making drastic life changes in order to pay less tax, then I have an item on my list,” said Stewart Patton, a Belize-based lawyer who helps American expats optimize their situation. fiscal. “Move to Puerto Rico.”
– With the help of Katherine Burton and Alan Levin
(Updates with Millennium’s Florida plans in the 12th paragraph.)