PVF - Partners Value Investments LP

[Rod]

Yes, I understand the cost of leverage component for considering an option vs the stock.

 

However, in this case the options are warrants, and are quite dilutive. I think valuing the company is pretty simple (use NAV, adjust for changes since last Q) but I'm unsure how to divide up the value between common and warrants.

 

The common would be worth more if the warrants didn't exist, because some upside goes to the warrant holders, and a pie isn't bigger because you cut it in two pieces.

 

In this case, do you just assume they will exercise, and add cash and increase shares outstanding?

 

I would definitely assume that the warrants are exercised. So I would add to the shares outstanding. The cash from the exercise should be added too, but the catch is that it's 9 years off, so you should discount the cash value to the present with some reasonable discount rate.

[EricSchleien]

Yes, I understand the cost of leverage component for considering an option vs the stock.

 

However, in this case the options are warrants, and are quite dilutive. I think valuing the company is pretty simple (use NAV, adjust for changes since last Q) but I'm unsure how to divide up the value between common and warrants.

 

The common would be worth more if the warrants didn't exist, because some upside goes to the warrant holders, and a pie isn't bigger because you cut it in two pieces.

 

In this case, do you just assume they will exercise, and add cash and increase shares outstanding?

 

I would definitely assume that the warrants are exercised. So I would add to the shares outstanding. The cash from the exercise should be added too, but the catch is that it's 9 years off, so you should discount the cash value to the present with some reasonable discount rate.

 

When the company calculates their NAV they have it adjusted for dilution. Just look at their financial statements. Also be VERY careful with the Warrants. I think the Warrants are a better investment than the LP. However, I own the LP and NOT the warrants. Here's why:

 

1) The warrants have an insane bid/ask spread. It's insane to the point they're basically not buyable without overypaying.

 

2) The warrants are only exercisable if you live in Canada. So if you are American or from somewhere not in Canada you'll have to sell the Warrants before they expire and good luck with that..you'd SERIOUSLY need the luck since you'd be forced to sell potentially at a 50% discount to the market price. And I'd bet if you waited right before expiration you'll have a ton of people if will find out from their broker that they can't exercise and will panic sell leading to even worse pricing in a sale if you choose to sell right before they expire.

 

From an investment standpoint LP is superior to BAM common if you can get in at the right price (which is possible).

 

If you're Canadian and can buy the warrants at a good price then that's a better deal than the LP but you may not be able to buy the warrants, period. Remember, 90% of the LP is controlled by BAM management and I have a feeling it's even higher for the warrants.

[tiddman]

Interesting too see a thread about this company.  I was just looking into them.  They seem to be a collection of certain Brookfield companies plus a slightly leveraged portfolio of international stocks.

 

I am in the US and was looking for ways to buy them.  There is an "unauthorized tracking stock" PVVLF that trades on the US OTC markets.  However this is not authorized by the company and is really just a way to represent the investment in US-domiciled accounts.  I contacted TD Ameritrade about this and they said to buy this security they'd convert to $CDN and buy it on the Toronto exchange and represent it in the account holder's account with this symbol.

 

I also contacted the company's investor relations to see if they would provide tax help for US investors.  As an LP they'd have to provide a schedule K, which is what the other Brookfield-affiliated LP's like BIP do.  However they said that they will not do this, they only expect Canadian holders.  They said they'd provide a Canadian T5013 form to account holders but not schedule K's.

 

I am in the US and I don't even know what a T5013 is.  Does anyone know what would happen tax-wise if I owned this security?  I'd have to report partnership income, gains, losses, etc. somehow.  Normally I get a schedule K which treats me as if I am an LP in the partnership.  This also handles things like basis, long and short term capital gains, and other partnership accounting issues.  However without help from the company I'm not sure how I'd report that on my taxes.

[Shane]

Also curious is anyone have bought this in the US with either E-trade or Fidelity.

[rkbabang]

Also curious is anyone have bought this in the US with either E-trade or Fidelity.

 

I've purchased it with Fidelity.  The symbol is: PVF_U:CA, but you can't do it online you have to call them to put in the order and once it is in your account they won't quote a current price for it.  If you search for the symbol on their website you will get symbol not found.

 

[Shane]

Thanks rkbabang - anyone have experience with E-trade?

[gokou3]

Just bought at CAD$37.05 today; seems like there's a willing seller at this price.  Given the book value per unit is US$37.03 as of Dec 2017, did I just convert CAD to USD 1:1?  ;)  Perhaps I am missing some dilutive events here.

[gokou3]

Just did some calculations.  The share prices of brookfield companies all went down after 2017Q4, so the discount based on market price is only about 10%.

[gokou3]

Remember, 90% of the LP is controlled by BAM management and I have a feeling it's even higher for the warrants.

 

I am trying to confirm ownership of PVF LP but to no avail.  Seems like they don't file the annual information form?  When I checked SEDI (ugh), there are some ownership info but don't add up close to 90%. 

[racemize]

Remember, 90% of the LP is controlled by BAM management and I have a feeling it's even higher for the warrants.

 

I am trying to confirm ownership of PVF LP but to no avail.  Seems like they don't file the annual information form?  When I checked SEDI (ugh), there are some ownership info but don't add up close to 90%.

 

I spent a while figuring this out last week, but now I don’t recall exactly where I found the information. I think the circular for BAM has the most information actually. I believe it’s 40%+ direct ownership and then another 40%+ that own it outside of partners.

[gokou3]

OK, this seems to be it (PDF page 51):

 

http://pvii.ca/_Global/80/img/content/PVLP%20Re-Organization%20Circular.pdf

 

"As of April 28, 2016, the directors and officers of PVI and their associates and affiliates and Partners Limited and its associates and affiliates, as a group, beneficially owned, directly or indirectly, or exercised control or direction over, an aggregate of approximately 52,659,282 Common Shares representing approximately 72.1% of the outstanding Common Shares."

 

 

SEDI details attached.  Don't think there are substantial changes in ownership since 2016.

[racemize]

OK, this seems to be it (PDF page 51):

 

http://pvii.ca/_Global/80/img/content/PVLP%20Re-Organization%20Circular.pdf

 

"As of April 28, 2016, the directors and officers of PVI and their associates and affiliates and Partners Limited and its associates and affiliates, as a group, beneficially owned, directly or indirectly, or exercised control or direction over, an aggregate of approximately 52,659,282 Common Shares representing approximately 72.1% of the outstanding Common Shares."

 

 

SEDI details attached.  Don't think there are substantial changes in ownership since 2016.

 

I think it gets to over 90% when you include the original 40 partners (which includes prior management)

[gokou3]

OK, this seems to be it (PDF page 51):

 

http://pvii.ca/_Global/80/img/content/PVLP%20Re-Organization%20Circular.pdf

 

"As of April 28, 2016, the directors and officers of PVI and their associates and affiliates and Partners Limited and its associates and affiliates, as a group, beneficially owned, directly or indirectly, or exercised control or direction over, an aggregate of approximately 52,659,282 Common Shares representing approximately 72.1% of the outstanding Common Shares."

 

 

SEDI details attached.  Don't think there are substantial changes in ownership since 2016.

 

I think it gets to over 90% when you include the original 40 partners (which includes prior management)

 

You are right, the 2017 management information circular for BAM has the following on PDF page 8:

 

Partners Limited also owns, among other things, a direct interest in 867,495 Class A Shares and an approximate 49% interest in the common shares of PVI ... The Partners themselves collectively own, on an individual basis, an additional approximate 40% interest in PVI.

 

So 49+40 = 89% of PVI owned by the current and former management group.

[racemize]

I did get confirmation this is a PFIC for U.S. investors, which pretty much bars the Americans from investing. 

[John Hjorth]

I did get confirmation this is a PFIC for U.S. investors, which pretty much bars the Americans from investing.

 

Thank you for setting this straight, Joel. By a one-liner-post! [Ax in the forehead of this investment for fellow US based board members.]

 

- Personally, I can't get my eyes off this thingy, but different tax regime for the US citizen CoBF member compared to me. And personally, I foresee tax problems with this for me and my family. I've come to the conclusion, that I need to consult a tax adviser before buying [because of the LP "status/condition" - [in for me and my family tax deferred accounts only [perhaps] - there is no way for me to buy this thingy in a taxable account - it would likely end up as a nightmare with tax returns.]]

 

- - - o 0 o - - -

 

A [former?] fellow board member has - to me - committed sacrilege - by deleting - several! - own posts in this topic. I'm soo upset - and appalled - by this. I'm still trying to find out what has happened here. -More to come about this, I'm investigating. [DYOW & share, please.]

[CGJB]

It might be helpful if US-based investors in PVF share their experiences with how they've been handling tax filings on this investment -- with the clear understanding they are NOT providing tax advice.

 

Thanks in advance to anyone who is willing to do this.

[EricSchleien]

Not tax advice.

 

No form needed because there’s no business income and no distributions to LP.

 

Tax form needed if you sell / capital gain.

 

Consult your own tax pro. You can also call management of PVI.

[CGJB]

Thanks, Og.

 

And I recently found your podcast and have been enjoying it immensely!

[Jurgis]

I did get confirmation this is a PFIC for U.S. investors, which pretty much bars the Americans from investing.

 

Not if you find a broker through which you can buy this in IRA/401(k).

 

I don't own any of this. I do own or have owned some PFICs in IRAs. There have been threads about PFICs in IRAs/etc on CoBF. I am not a tax accountant/lawyer/etc.

[Jurgis]

Not tax advice.

 

No form needed because there’s no business income and no distributions to LP.

 

Tax form needed if you sell / capital gain.

 

Consult your own tax pro. You can also call management of PVI.

 

This is likely not true if PVF is PFIC and you hold it in taxable account.

 

FWIW.

[racemize]

The K-1 part is easy because of the reasons Og mentioned; however, that doesn't change the requirements of the PFIC I think. 

 

To be fair, I don't know too much about PFICs other than they seem like a nightmare for U.S. investors.  Happy to be wrong here.

[Jurgis]

The K-1 part is easy because of the reasons Og mentioned; however, that doesn't change the requirements of the PFIC I think. 

 

Right. Hence my answer to you and to Og.

 

From what I understand, you can hold PFIC in IRA (and possibly 401(k)) without filling any paperwork.

 

To be fair, I don't know too much about PFICs other than they seem like a nightmare for U.S. investors.  Happy to be wrong here.

 

Yes, I've looked at PFIC requirements in the past, but I'm not an expert either and can be wrong.

Longer discussion - where we should move if this PFIC discussion persists - is at http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/pfic-classification-for-us-investors/ That thread also has external links to some opinions/resources.

[John Hjorth]

The K-1 part is easy because of the reasons Og mentioned; however, that doesn't change the requirements of the PFIC I think. 

 

To be fair, I don't know too much about PFICs other than they seem like a nightmare for U.S. investors. Happy to be wrong here.

 

Awesome post, Joel - Thank you. With regard to my bolding of part of your post here, it is to me so true: "Dont - just don't - mess around with other people's money - if you're not perfectly clear about the risk involved in doing so [here: tax risk]".

 

Edit:

 

Credit goes also to Jurgis for grabbing the mic here. [Not the first time about this.]

[Spekulatius]

Don’t buy an LP if you are a foreign investor. It’s almost certainly not worth the trouble. I think technically , you need to file an US tax return and/ or suffer withholding taxes from distributions. I don’t think this is worth the trouble for most individual investors.

[Sunrider]

Don’t buy an LP if you are a foreign investor. It’s almost certainly not worth the trouble. I think technically , you need to file an US tax return and/ or suffer withholding taxes from distributions. I don’t think this is worth the trouble for most individual investors.

 

IB automatically withholds so the tax liability should be taken care of, same as with normal dividend paying stocks, so I think there’s no need to file for taxes, ... but not an expert.