IBM likely to use new Irish common fund

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IRELAND - Computer giant IBM is likely to become one of the first multinational companies to use the common contractual fund (CCF), Ireland’s new tax transparent pooling vehicle, to pool its pension funds’ global equity assets.

Martin Jack, director of IBM Retirement Funds EMEA (RFE), the internal investment consultancy that supports 20 pension funds in Europe with assets of more than 20 billion dollars (16 billion euros), told IPE that the decision to choose a CCF was “not yet 100% but almost certain”.

Jack said that IBM RFE’s custodian is doing due diligence to confirm that jurisdictions throughout the world will accept the CCF as a tax transparent vehicle. “We’re already a long way along this process.” He expects the global equity-pooling vehicle to be operating by September.

The move represents a further stage in IBM’s move to pool its worldwide pension fund assets. In 2002 it created a multi-country pooling vehicle for global bonds. This now covers almost all IBM pension funds’ exposure to global bonds, with assets of over one billion dollars.

The next move is to pool global equities, Jack said. “We have been looking for the Holy Grail, which is how do you take assets away from very highly tax efficient pension funds, put them offshore yet avoid incurring additional withholding taxes. We clearly don’t want to have any form of withholding tax drag which would reduce our investment performance.”

Speaking at a conference organised by Dublin Finance in Dublin, Jack said IBM RFE’s first choice for a tax transparent vehicle was Luxembourg’s Fond de Placement Commun (FCP): “We believed it met the criteria which would allow us to essentially avoid withholding taxes. They would either not be applied or would be recoverable by the pension funds themselves.”

However, when the Irish government introduced legislation for a CCF, which was modelled on the FCP, last year, IBM RFE switched its support to the CCF. “For us, it came at just the right time, and at the moment we are very much backing the CCF model. We still have a little bit more work to do to ensure that the various tax authorities around the world are going to treat it the way we believe they will. But the model looks very attractive.”

Jack said use of a global equities pooling vehicle would be extended beyond the IBM European pension funds, possibly to IBM pension funds in Japan and Canada.

The only drawback to a CCF is that it is currently only available in the form of a UCITS. Jack said that IBM RFE needed more investment choice than a UCITS provided: “We very much want to have a non-UCITS version because we see this very clearly as the platform for alternative investment going forward.”

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