Pimco’s Ivascyn Beats Gross’s Flagship: Riskless Return

By Christopher Condon and Alexis Leondis - Aug 29, 2012 12:00 AM ET

 

Q

Bill Gross is the biggest and best-known bond picker at Pacific Investment Management Co. He isn’t the top performer.
Daniel Ivascyn, who runs the $11.2 billion Pimco Income Fund, holds that distinction for the past five years among 26 Pimco bond funds bigger than $1 billion, according to the BLOOMBERG RISKLESS RETURN RANKING. The Income Fund rose 13.8 percent in the period after adjusting for price swings, compared with the 9.6 percent gain by Gross’s flagship Total Return Fund, which ranked fourth, according to data compiled by Bloomberg.

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Pimco Income Fund Manager Daniel Ivascyn

PIMCO via Bloomberg

Daniel Ivascyn has run the Income Fund since its inception in March 2007.

Daniel Ivascyn has run the Income Fund since its inception in March 2007. Source: PIMCO via Bloomberg

7:06

Aug. 29 (Bloomberg) -- Henry Herrmann, chairman and chief executive officer of Waddell & Reed Financial Inc., talks about investor sentiment and U.S. markets. He speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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Gross Not Pimco Bond King With Ivascyn at Top: Riskless Return

Andrew Harrer/Bloomberg

Bill Gross, named fixed-income manager of the decade in 2010, is being beaten at his own game by another bond picker at Pacific Investment Management Co.

Bill Gross, named fixed-income manager of the decade in 2010, is being beaten at his own game by another bond picker at Pacific Investment Management Co. Photographer: Andrew Harrer/Bloomberg

Daniel Ivascyn, who runs the $11.2 billion Pimco Income Fund, was the top performer over the past five years among 26 Pimco bond funds bigger than $1 billion, including Gross’s flagship Total Return Fund, according to the BLOOMBERG RISKLESS RETURN RANKING. Source: PIMCO via Bloomberg

“This speaks to the depth and quality of the research bench that Pimco has that often gets overlooked when people are talking about Bill Gross,” said Eric Jacobson, a fund analyst at research firm Morningstar Inc. (MORN), which named Gross fixed-income manager of the decade in January 2010.
Ivascyn, 42, has tempered volatility in the fund by investing in higher-quality mortgage-backed securities, including in the case of those not backed by government agencies. He also picks corporate bonds that are senior in thecapital structure, whose holders get priority over other debt sold by the issuer in the event of a default. His strategy of loading up on debt he deems less risky is in line with Pimco’s“new normal” view that predicts extreme outcomes because of global market swings.

Caveat Applies

Ivascyn applies caution while comparing his risk-adjusted returns to those posted by his more famous boss. Matching his returns against Gross’s $270 billion Total Return Fund (PTTRX) isn’t an“apples to apples comparison,” because the two funds have different objectives, he said. The Income Fund’s primary objective is to provide investors with a consistent dividend stream. Gross’s fund aims to give investors a higher total return, which is a combination of income and appreciation, he said.
“In a world of so much volatility, staying senior in the capital structure has significantly insulated the fund,”Ivascyn said in a telephone interview from Newport Beach,California, where Pimco is based. “It allows for a significant margin of error if the world deteriorates.”
The fund’s 14 percent position in non-agency mortgage securities, which aren’t backed by agencies such as Freddie Mac (FMCC)and Fannie Mae, contributed to performance as Ivascyn focused on those that had “resilient” cash flow, yet were trading at a discount to their value, he said. Ivascyn also focused on the senior-most tranches of securitized assets that bundle mortgages to avoid losses in the event of defaults on the underlying securities, he said.

Return Rundown

Bloomberg’s risk-adjusted return, which isn’t annualized, is calculated by dividing total return by volatility, or the degree of daily price variation, giving a measure of income per unit of risk. A higher volatility means the price of an asset can swing dramatically in a short period, increasing the potential for unexpected losses.
Ivascyn produced the best risk-adjusted return among Pimco bond funds with at least a five-year track record over the past one and three years as well. Gross’s $2.1 billion StocksPLUS TR Short Strategy Fund (PSTIX), which allows investors to bet against the Standard & Poor’s 500 Index through futures and total-return swaps, was the worst of the group, with a risk-adjusted return of 0.2 percent over the past five years.

Mortgage Securities

Not including the impact of price swings, Ivascyn’s Income Fund had a cumulative return of 67 percent over the past five years, which ranked fifth among the 26 Pimco funds, and volatility of 4.9, which ranked third. Gross’s Total Return Fund had a cumulative return of 55 percent over the past five years, which ranked 11th among the 26 Pimco funds, and volatility of 5.6, which ranked eighth, according to data compiled by Bloomberg.
About 40 percent of Ivascyn’s fund was in mortgage-backed securities as of July 31, compared with 51 percent for Gross’s Total Return, according to the firm’s website. Sovereign bonds from non-U.S. developed countries are the second-largest holding after mortgages for the Income Fund, while in Total Return, it’s U.S. government and related debt.
Before joining Pimco in 1998, Ivascyn worked at Bear Stearns Cos. in the asset-backed securities group. He has a bachelor’s degree in economics from Occidental College in Los Angeles and an MBA in analytic finance from the University of Chicago Booth School of Business.

Fidelity, Oppenheimer

Ivascyn’s fund also had the highest risk-adjusted return among 64 similarly managed rivals that included non-Pimco funds with least $1 billion in assets over the past five years. Among those funds, Pimco Income Fund beat the $9.9 billion Fidelity Strategic Income Fund (FSICX) over the past one and five years. It ranked second over three years behind the $6.2 billionOppenheimer Senior Floating Rate Fund (OOSAX), which focuses primarily on collateralized senior loans.
Ivascyn has run the Income Fund since its inception in March 2007. He was part of the team that helped the firm weather the U.S. housing meltdown by guiding it largely out of so-called non-agency MBS, or those without an explicit or implicit guarantee from the U.S. government, before the crisis. The firm, including the Income Fund (PONAX), then went back into non-agency MBS beginning in 2009 when prices fell.
More than half of the allocation to mortgage-backed securities is in agency debt and the rest is in mortgages not backed by the government. Ivascyn said he likes agency mortgages because of their high quality, implicit or explicit U.S. government guarantees and liquidity. In the non-agency part of his portfolio, he focused on higher-quality securities that traded below their value.

MBS Outperforms

Over a longer period, mortgage-backed securities have proved a good value and carried relatively low volatility. Barclays’ index of U.S. mortgage-backed securities returned 36 percent in the past five years, ahead of government bonds while trailing corporate credits. They had the lowest volatility of the group, and the highest volatility-adjusted returns.
Ivascyn followed a similar pattern of buying at discounts with bank loans in the middle of last year, after the European sovereign-debt crisis scared away retail investors and prices fell to about 90 cents on the dollar, he said. Bank loans have returned 7.7 percent this year through Aug. 27, according to the S&P/LSTA U.S. Leveraged Loan 100 Index.
“We try to be as tactical as possible,” Ivascyn said.“In this deleveraging environment with lots of volatility, typically these big swings in risk-on versus risk-off lead to a lot of technical repricing, and that provides opportunity.”

Market Volatility

Ivascyn said the market volatility has presented investment opportunities. Government bonds from developed markets outside the U.S. account for 19 percent of the fund’s assets; emerging-market government-backed bonds represent 16 percent; U.S. investment-grade corporate bonds are 7 percent; and U.S. junk bonds, or those rated below investment grade, 5 percent.
“We’re more diversified than at any other point,” he said. “But we still think housing-related investments will continue to perform.”
Gross had what he termed “a stinker” in 2011 after eliminating U.S. Treasuries early in the year and missing a rally as investors rushed to the safety of government-backed debt. The Total Return Fund returned 4.2 percent last year, trailing 70 percent of peers, according to data compiled by Bloomberg, his worst year since at least 1995.

Gross Rebounds

This year, it’s outperformed 97 percent of similarly managed funds and 98 percent of peers over the past five years, according to data compiled by Bloomberg data.
Total Return Fund decreased its allocation to 33 percent from 35 percent in U.S. government and related debt as of July 31, compared with a month earlier, according to the firm’s website.
Pimco has gathered more new customer money this year than any U.S. mutual-fund manager except Vanguard Group Inc., according to data compiled by Morningstar. Investors deposited $28.3 billion with the firm’s mutual funds through July, with 28 percent of that going to the Total Return Fund. Ivascyn’s Income Fund gathered $3.8 billion during the same period.
To contact the reporters on this story: Christopher Condon in Boston at ccondon4@bloomberg.net; Alexis Leondis in New York at aleondis@bloomberg.net

“中国梦幻灭” 资深外籍人士逃离中国

“中国梦幻灭” 资深外籍人士逃离中国

http://www.creaders.net 2012-08-23 15:25:02 经济学人

据《经济学人》报导，一些久居中国的外籍人士已经决定要离开中国。虽然他们人数尚且不多，但是也引起了其他“老中国通”的关注。选择离开中国的不仅仅是外国人，一部份中国人也正在逃离中国。很多已经采取了行动，而很多正在计划中。根据去年10月中国银行和胡润百富的研究报告，中国14%的亿万富翁已经移民或向其他国家递交了入境文件，此外的46%打算近期移民。今年3月，北京一家报纸表示该研究可能还低估了中国的资产外流的现状。

　　《经济学人》文章中指出，中国空气污染、食品安全、严重的腐败、摇摆不定的法律环境以及糟糕的教育系统也是外籍人士及一些中国亿万富翁选择逃离的原因。在中国，一些用不法手段致富的人时刻担心着他们积累财富的内情被发现。很多中共高层也各自准备了应急计划，以备从随时可能发生的政治动荡中脱身。“裸官”一词就是用于形容大量的中共党员及政府工作者把自己的家人和资产转至海外，以应对未来可能出现的最坏形势。

 

　　曾在中国任教的媒体人卡斯特（Charles Custer）决定离开中国。他表示对中国缺乏新闻自由和法制的苦恼，更承认自己过去几年的经历不仅“使人心灰意冷”、“灵魂破碎”，而且“有时更令人恐惧”。在他的博客文章中，他指出空气污染和食品安全也是他选择离开北京的主要原因，他写道“我喜欢唿吸（新鲜空气），也希望享受食物。”

这些年来中国一直挣扎于城市日益恶化的空气污染，北京健康部官员公开承认在过去的10年中肺癌患者比例上升了60%。卡斯特表示，“在北京抱怨空气质量可能已经是老生常谈了，（空气污染）太可怕了，每个人都知道这一点，但是只能学会忍受。”
　　而另一位决定离开中国的是英国人基托（Mark Kitto），他在1986年来中国读书后就选择留在中国做一个商人。在博客中，他表示在中国生活了16年已经受够了。他选择离开的原因和大多数中国富翁一样。他写道，“我担心家人唿吸的空气和吃的食物对我们身体造成伤害”，他补充说，“另一个离开中国的重要原因”就是给孩子一个良好的教育。
　　基托的经历可能让其他在华的外国人深有同感，也就是对中国幻想的破灭。他写道，“我不再爱恋中国，从我的中国梦中清醒过来。”在过去的16年中，基托发现中国改变了，透出“明显的商业气息”。他哀叹中国从前传统的家庭文化观演化成了注重“我”的个人主义文化，而且充斥着物质主义和炫耀性的消费主义。

The Best Investment Property Holding Entity is the LLC

The Best Investment Property Holding Entity is the LLC

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It is amazing how often I am asked by people starting in real estate investment: “What type of corporate structure is best for owning investment property“. I hear that question more often than I am asked how to find tenants or how to finance the property. Here is some information that I have compiled and learned over the years.

Disclaimer: Right up front I need to remind everyone that I am not an attorney nor do I play one on television. You should seek competent legal advice in your area, regarding this topic. These details are simply what I have learned through reading, executing, and talking with attorneys.

Best entity for Investment Property

Although there are many different business entities (LLC, C-Corporation, S-Corporation, partnership), the easiest to set up and cheapest to maintain, for real estate investments, is an LLC (limited liability company). Additionally, an LLC is very flexible and can have any number of owners (technically called ‘members’). Each member can own any percentage of the company (as long as the total equals 100%). Lastly, members can be other LLCs, corporations, and trusts. This flexibility allows you to customize the configuration to suit your tax situation and liability protection goals.

Tax Implications for the Investment Property LLC
C-Corporations pay taxes on profits generated by the corporation, first. The owners pay taxes again on the profits they receive as dividends. Although, S-Corporations avoid the corporate tax, their corporate structure and number/type of owners is severely limited (S-Corporations can only be owned by individuals, not LLCs or trusts). Fortunately, unlike corporations, LLCs do not pay any corporate tax. All profit and losses “pass through” to the member’s tax returns at the percent that they own the company. This is especially helpful if you own multiple LLCs as the profit and losses from each roll up to your personal taxes (a loss on one can offset a profit on another).

Liability Protection for the Real Estate Investor
As the name implies, an LLC provides limited liability to its members, meaning that any liability created by the company is limited to the company. The members’ personal assets are protected from all claims against the company. Partnerships and unincorporated businesses do NOT provide liability protection. It is critical that you protect your personal assets as a 2005 Congressional study stated: “small businesses bear 68 percent of business tort liability costs”. A properly set-up and maintained LLC can protect the owner’s interests in the assets of an LLC from the owner’s personal creditors.

Setting up an LLC for your Investment Properties
I recommend that you consult with a qualified real estate attorney when you set up your first LLC (or purchase your first investment property). Pay them to establish the LLC on paper and with the state. Have them teach you what should/must be done on an annual basis to maintain both the legal entity of the LLC and the litigation protection of the LLC. This may cost up to $1000 per LLC. Some attorneys may offer a discounted price.

How Many Properties per LLC?
This is where a good attorney can weigh the liability protection versus the costs. Many advisors will tell you to set up one LLC per property. Practically speaking this is easy when you own 2-4 properties, but it will become increasingly cost prohibitive when you own 15 properties. Not only does it cost about $360 (in Minnesota, using BizFilings.com) to set up an LLC initially, but each year your CPA will charge you to prepare and file the tax return for each LLC (this costs me about $400 per LLC-you can imagine your tax bill if you had 15 LLCs!). Most real estate investors will put 3-5 properties in each LLC (grouping them based upon geography, age, liability risk, or equity position).


Moving your Properties into your LLC
A common misconception is that you must buy the investment property in the LLC’s name. Unfortunately, you would need to use commercial financing (with a 20% down payment) to have your LLC buy the property initially. A “Quit Claim deed” is all that is required to legally transfer the property from your personal name to your LLC. The mortgage(s) will stay in your personal name and it will remain on your credit report, but you will gain the liability protection mentioned above. This Quit Claim deed process requires a simple one page document signed and notarized by all owners of the property and it is then mailed with the appropriate filing fees (about $50-75) to the County recorder where the property is located.

Property Management Considerations
Technically, each LLC should have its own checking account, corporate credit card, and Quickbooks file. Again, as above, this may be possible with a limited number of LLCs, but it can be overwhelming to think about 15 checkbooks, 15 corporate credit cards, and 15 LLCs signing leases and performing evictions. Many real estate investors will transfer their properties into “ownership” LLCs which simply hold the properties. They will then set up a “management” LLC that signs all leases, pays all bills (including mortgages), contracts for all repairs, and retains one or two corporate credit cards. To keep the liability protection intact, you should have a management agreement signed by both the “ownership” and “management” LLC.


Using the LLC
All the work and cost of establishing the LLCs can be wasted if a judge agrees with the lawsuit plaintiff, that the LLCs are just shells. Follow your attorney’s advice, but generally, you should hold meetings (and keep written minutes of the meeting) on a bi-annual to annual basis. You should record decisions and “vote” on changes to the company. Lastly, have your attorney review your work annually to insure you are maintaining your legal protection in the event of litigation.
As you can see, an LLC has many benefits over other corporate entities (or no entity at all). Having an LLC for your real estate investment is an important step in providing protection for both your personal and corporate assets. Consider the creation and use of an LLC as important as learning how to find tenants.

How To Determine The Best Legal Entity To Hold Your Real Estate

How To Determine The Best Legal Entity To Hold Your Real Estate

By Amanda Han
August 24 2010

As a real estate investor and tax advisor, one of the most common questions I get from investors is "what type of legal entity should I hold my real estate in?" Unfortunately, the correct answer to this question is most likely "IT DEPENDS". For real estate investors, the best legal entity to hold title to your investment properties should accomplish the following 5 objectives:

1) Minimize taxes due to the IRS and State agencies and in turn result in a higher overall return on investment

2) Allow for maximum asset protection against potential lawsuits and creditors

3) Provide privacy to the owner(s) of the property

4) Allow the investors to achieve a wide range of flexibility and options regarding the management and control of the property,

5) Minimize the complexity and cost of maintaining the legal entity(s).

You may have heard people tell you "Always use LLCs for real estate", and another person may say "Always hold your real estate in a Trust". As a real estate investor, it can be both confusing and frustrating to receive such definitive, yet contradictory advice. As a result, a lot of investors are left to wonder - just which one is correct??

Well, the answer again is: IT DEPENDS! Unfortunately, in our complex tax code, there is no "easy way" to provide an answer. Also, there is no "one size fits all" strategy that works for all real estate investors. An analogy I often make is: Giving out tax advice without first understanding everything about the taxpayer is the same as a doctor prescribing medication without first doing a diagnosis. In both the financial and medical field, this is known as malpractice. Every taxpayer is different and unique. As such, the BEST legal entity(s) to hold title to your real estate investments will depend on your personal, business, investing, and overall tax situations.
Here are a few examples of things I analyze when working with investors to determine the ideal entity structure for their real estate holdings:

1) What type of property will be purchased? (Commercial, multifamily, single family, office space, etc.)

2) What is the length of the expected holding period of the property? (Long-term hold, fix and flip, wholesale, etc.)

3) What is the projected monthly/annual income for the next several years? What are the types of income to be earned? (Rents, management fees, commissions, vending income, etc.)

4) What are the investor's exit strategies for the property? (Sale, lease option, seller financing, 1031 exchange, transfer to next generation, etc.), **TIP** - YOU SHOULD ALWAYS HAVE MORE THAN ONE!

5) Last but not least, what other types of income or investments is the investor involved in? (This includes a review outside of the real estate and analyzes the taxpayer's tax situation as a whole.)

The answers to all of the questions above will assist your advisor in determining the optimal legal entity structure for your investment. It is true that an LLC can be a great entity for those investing in real estate. But there are times when holding your investments in an LLC will result in significantly higher taxes vs. in a Corporation or a Trust. In order to identify the ideal entity structure for YOUR real estate holdings, here are the two action steps to help you get started:

Step One: Spend some time and think about your answers to the 5 planning questions above.

Step Two: Seek out your qualified real estate and asset protection attorney to help you develop the best entity structure for your real estate holdings from a LEGAL perspective based on your answers above.

Step Three: Concurrent with Step Two, seek out your tax advisor to help you develop a strategy to determine the best entity structure for your real estate holdings from a TAX perspective based on your answers above.

Step Four: Develop the optimum entity structure for your proposed real estate investments using the guidance of both your legal and tax advisors. Get them to work together as a team to develop the best strategy and structure for your situation!

Most investors spend time and resources on research, due diligence, rehab, leasing, and property management to ensure the profitability of their investments. Make sure you take that extra step to determine the best legal entity to hold your real estate and further increase your return with significant tax savings.

Beneficial management structure - LLC or LP

Beneficial management structure

Depending upon your specific situation, either a LLC or a LP may provide the management structure you need. A LLC provides a flexible structure that allows members to manage the entity or to elect a manager or a group of managers. All members of a LLC are provided limited liability. Additionally, many states allow one person to form a LLC.

LPs, however, require at least one general partner and one limited partner. The general partner is personally liable, but that may be handled by forming a corporation or LLC to serve as general partner, thus encapsulating any liability in a protected entity. When you use a LLC or LP for real estate investments, you may also benefit from estate planning and gifting opportunities available

Protect real estate investments with an LLC

Protect real estate investments with an LLC

Real Estate Adviser by Steve McLinden• Bankrate.com

Dear Real Estate Adviser,
I operate a small real estate investment business and am trying to determine if there is any value -- economic, legal, tax or other -- of owning your personal home through a limited liability company? What about owning rental properties through one?
-- John

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Dear John,
You've got things flipped around a little here. If you're a business owner, a limited liability company, or LLC, structure can protect your home and other personal assets from court judgments. But the house itself, as your personal home, wouldn't fall under such a corporate structure.

However, you can form a company owning real estate that could be served quite well under the LLC flag.

Rental-property ownership, as you probably realize, is fraught with inherent financial risks such as potential environmental-contamination claims, fire-related claims, slip-and-fall claims and other injury claims. A lot of owners of income-producing real estate like to operate under an LLC because their personal assets, such as stock, bank accounts, vehicles and their other LLCs, aren't at risk if an accident or other incident occurs on premises or if undesirable flaws in it suddenly surface.

Generally, all that is at stake in a lawsuit against an LLC is each member's investment in that LLC business. Often, owners of multiple properties split them up into separate LLCs to segregate their problem assets from their premium assets. Of course, LLC owners -- or "members" as they're called -- are not exempt from personal actions of fraud or negligence. But that doesn't keep some fly-by-night builders and other bad-faith operators from hiding behind them, unfortunately.

LLCs allow for flexible profit distribution among their members. They also provide a veneer of personal privacy when a plaintiff attorney is doing an asset search in anticipation of filing a lawsuit.

On the tax side, an LLC benefits greatly from its classification as a "pass-through" company, which means its income is passed through to its owners and claimed on those owners' individual returns. Hence, it is subject only to capital gains on the ownership shares of the member, and not to corporate capital gains taxes, so there's no double taxation. LLCs with just one owner-member, however, are taxed as a sole proprietorship. LLCs are certainly not headache-free. They can be relatively expensive and complex to set up and may be dissolved if a member dies or withdraws. Some states have unique laws that govern LLCs.

But if you're

Real Estate Investing: Choose the Right Structure to Save Thousands

Real Estate Investing: Choose the Right Structure to Save Thousands Posted by Cliff Redding

Mar 1

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Disclaimer: This article is not a substitute for legal advice from a qualified licensed attorney and tax accountant. I am not an attorney, a tax accountant or even attempt to play one. The below article is strictly written for general education purposes and is based on my current understanding of the law. Before acting, it is highly encouraged that you seek out legal advice from a competent attorney and tax account for your specific situation.
Real estate investors often lose a significant share of their profits through taxes because they do not structure their business appropriately. It is not about just how much profit you make, but how much profit you keep. The tax man can giveth and taketh away if you don’t know what you are doing leaving you with very little. No disrespect to Uncle Sam, but why pay more than you legally need to. There are ways to legally reduce your tax burden by using the correct corporate structure or structures that provide the greatest tax advantages for the strategy or strategies you employ in your real estate investing. A key point to remember is that there is always a balancing act between asset protection and tax responsibilities. What may be the strongest asset protection strategy may not be the most advantageous tax wise, and vice-versa. Part of the art of real estate investing is balancing these two critical areas of your business in such a way that matches your risk tolerance and your specific situation. This is an area that I highly suggest you not go it alone. It is worth the money to pay competent professionals to help guide you to a corporate structure that meets your specific needs.
There are three common corporate structures, a limited liability company, a sub-chapter “S” corporation and a “C” corporation. There are advantages and disadvantages to each of these structures that vary with the strategy you are pursuing. It is beyond the scope of this article to get into all of the details. But in general, the net income derived from an LLC that is declared as a partnership, passes directly through the company to the tax returns of the limited partners of the company (i.e. no double taxation). Depending upon your current tax bracket, this could be good or bad. In an “S” corporation, the net profits are paid as dividends to the share holders of the company (again, no double taxation). In contrast, a “C” corporation is taxed at its own tax rate at the corporate level as well as at the dividend or salary level (i.e. double taxation). At first glance, this is not appealing, however, knowing that the first $50,000 of net profit in a “C” corporation is taxed at the 15% tax rate, this could be more advantageous; especially if you are doing a number of flips or assignments each year and you have a number of other long term rentals that you are holding in an LLC. The “C” corporation also allows other benefits such as the creation of retirement plans and health plans paid by the corporation that are not allowed to the same extent in an LLC. Knowing the strengths and weaknesses of each type of corporate structure allows you the ability to take advantage of the strengths of each type of entity. As for the beginning investor, however, it is usually advised to operate out of a limited liability company.

The critical point here is to match your corporate structure with your strategy. Plan ahead of time which strategy or strategies you plan to pursue, and create corporate entities that provide the greatest advantages from both an asset protection standpoint and a tax standpoint. It is possible, and advisable, to have more than one corporate entity if you are an investor who likes to have a varied portfolio of strategies. Choosing the correct corporate structure can help you take advantage of tax rates and save you thousands of dollars.
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