QUESTION: Do you have knowledge of a website (or other service) that evaluates offshore funds (non-USD denominated) in the way that Morningstar does here in the US? I am particularly interested in information in euro-based hedge funds and Australian and New Zealand funds of any sort.
 

 Response from a Financial Planner Who Lives in Bermuda

Best website for this query on offshore funds is  www.funds-sp.com

You can use the free section. One can also register as a small investor with a password and get a bit more content. The professional section is too expensive for the ordinary citizen investor. This is Standard and Poors rating service, it lists US and ...........all others, with exception of some Canadian mutual funds providers, are here.

Also, I use Bloomberg for institutional investors, not generally available to the public, although their Bloomberg.com is pretty good at finding some.....you have to know the exact ticker though.

Sometimes, I also use Lipper, but they do not carry anyway near enough funds.

Schwab International also has a website that carries probably the twenty most popular offshore funds (they are just Chinese wall twins of US ones) but the rating criteria is very, very skimpy, no peer rating, etc.

Regarding PFICs - Ill let you address that one, but we both know that this is a complicated and serious issue. Generally, (in Bermuda) we will not sell offshore funds to US investors because of the reporting requirements and the segregation of US persons.

Martha Harris Myron CPA/PFS CFP(r) - United States licenses
Email: marthamyron@northrock.bm
 

This Reply is from an Offshore Fund Manager

As the manager of an offshore fund I can tell you that the data sources on the industry are confusing at best. Bloomberg has a lot of information available to its subscribers and they scrub their data pretty well; but to my knowledge they do not verify it. The Financial Times similarly has a lot of data available on its website.
  
At the risk of an overly hasty generalization, I would say that most offshore funds do not provide PFIC accounting and do not welcome US onshore taxable entities as shareholders. Certainly we do not, simply because we cannot risk tainting the fund. Further, as an investor, one does not really want to be in an entity where the tax incidence of the fund owners is mixed. This is a complex issue that could be addressed at another time. But simple reflection should lead to the conclusion that one wants to invest with like-situated fellow investors. If one is taxable one wants to be in a fund where the manager thinks about taxes. If one is not taxable, one would prefer a fund where the manager invests without tax considerations. In reality, because of withholding taxes on interest and dividends, and in some cases, capital gains, there is no such animal as a purely tax-exempt investor!

Most legitimate, and I use that term advisedly, managers of hedge funds and mutual funds provide separate investment vehicles for US and non-US investors. Most, but by no means all. Some managers simply do not want to get involved with the hassles of registering with the SEC and complying with US regulatory requirements. That does not mean they are unethical or shady in any way. But of course those exist in abundance in the offshore world as well.

Another Link Suggestion

One of the list members suggested the following link for information about offshore funds. I have not taken the time to review this site or to check it out.

http://www.turtletrader.com/ir3.html

Suggestions from a U.S. Investment Advisor

Follow Up Comments by Vern Jacobs

It would be enormously easier, less expensive and less risky to invest in various U.S. mutual funds that in turn invest in foreign mutual funds.  But for those who for their own reasons are determined to invest directly in foreign funds that are not sold on U.S. securities markets, here are some comments and observations that might be useful.

For those who are not familiar with the problems U.S. persons have of buying foreign securities or funds, the U.S. Securities and Exchange Commission (SEC) requires the issuer of most kinds of securities from being sold or marketed to U.S. prospects without first being registered. Registration requires a great deal of disclosure and is a very time consuming and expensive process for those who issue or market securities. In addition, every one of the 50 states has an agency that regulates the sale of securities to residents of their state. Thus, if the issuer of a security wants to be able to sell that security to anyone throughout the U.S., they have to pay the costs of registration with 50 state agencies as well as the SEC.

However, there are a few exceptions that are available. To a very limited extent, un-registered securities can be sold to what are known as accredited investors. These are investors who certify that they have a minimum income of $200,000 per year and a net worth of at least $1 million. They must also certify that they are sophisticated investors who do not need the help of the SEC disclosure rules or that they are relying on the services of a professional investment advisor.

Another exception applies where the security is not sold or promoted in the U.S. and where the U.S. citizen or resident actually leaves the U.S. to arrange to buy the product on foreign soil.

Issuers of foreign securities rarely want to incur the enormous costs of registration with the SEC and the 50 state security regulatory agencies. And Im told that if they do sell unregistered securities in the U.S., the SEC has the power to revoke their access to U.S. security markets and banking services. Therefore, issuers of foreign securities (including foreign mutual funds) will go to great lengths to avoid any appearance of selling anything to a U.S. person.

To make matters even more difficult for those who want to buy foreign mutual funds, the U.S. tax laws impose complex and difficult requirements on U.S. buyers of foreign funds (also known as passive foreign investment companies or PFICs). One of the most appealing options available to the U.S. investor in a PFIC is to elect to treat their share of the fund income as if it had been distributed at the end of each calendar year. However, to do that, the foreign fund must disclose far more information to the U.S. investor than most foreign funds are willing to disclose. And in many cases, its not so much a matter of keeping the information secret as of the time and cost of providing the information to U.S. investors. 

Those U.S. persons who are determined enough to secure foreign investments or funds must therefore do so through a foreign intermediary entity such as a foreign trust or a foreign corporation. The foreign trust will have a foreign trustee and the foreign corporation will have a foreign manager of the corporation. And if they buy any foreign mutual funds, they must be prepared to cope with some very complicated and often onerous tax rules. (See http://www.offshorepress.com/offshoretax/otpfic.htm  and also http://www.riserlaw.com/practiceareas/assetpro/offshore/pfic.htm  and http://members.aol.com/taxguru/pfic.htm )

I checked the www.funds-sp.com web site (Standard and Poors) and found that their information reports on various offshore funds and insurance products are available for Euro 750. Twenty reports per year are available for 250.  Since you are buying information rather than investing in foreign securities, there are no prohibitions on being able to access the information from a U.S. address.  I was not able to find any way to determine if a report on a particular fund or insurance product is available, without first subscribing to the service.

For curiosity, I also used the Google search engtine for information on foreign mutual funds. The following is a sampling of what I found, and I did not investigate further except for making a phone call to Morningstar as described next. (The problem with searching for foreign mutual funds is that you get a lot of links to web sites about U.S. mutual funds that invest in foreign securities or funds.)

I checked the Internet using Google (searching for foreign mutual funds) and linked to the Morningstar Mutual Funds Online web site (http://mfb.morningstar.com/ ).  But I was not able to identify any segment of their web site that deals with offshore funds or investments. I called their support number and was informed that they do not provide such information.

I found one web site that includes links to about twenty some other web sites dealing with foreign funds. (See http://www.combose.com/Business/Investing/Mutual_Funds/Fund_Families/Foreign_Funds/ )

One of the web sites listed on the site above is a Singapore Investment Advisor and Dealer that has information about different funds. Other than that, I know nothing about the group. (See http://www.fundsupermart.com/main/home/aboutUs.tpl )

I also found a link to a web page with links to nearly all the securities exchanges of the world.  See http://www.slu.edu/departments/finance/363exch.htm

For curiosity, I also searched for foreign hedge funds and came up with the following source of links to various web sites dealing with that topic.
http://www.business.com/search/rslt_default.asp?query=hedge+fund

I also did a search using the term PFIC and found 5,500 links to various web pages with that acronym in the document. The PFIC acronym is not unique to foreign mutual funds. There are links to web sites dealing with a medical condition with the name of Progressive familial intrahepatic cholestasis, a marketing corporation with the name of PFIC, the acronym for pension fund investment certificate and many others. However, those who have the patience to wade through these 5,500 links may find links to foreign funds that have posted their PFIC disclosure document on the Internet. (An example is http://www.freeholdtrust.com/client/pdf/1/14/fre0810a.pdf ) If they identify themselves as a PFIC, its likely that they offer their shares to Americans.

But, after locating some, its still necessary to evaluate their performance potential.

The Sovereign Society web site includes a number of links to web sites related to international investing. I have not yet taken the time to check out all of the links on this web page, but you might find some helpful resources here. (http://www.sovereignsociety.com/vmembers.php?nid=745 )
 
Some further comments about Due Diligence for Offshore Investors are available at http://www.offshorepress.com/duediligence.htm
 
Vern Jacobs
www.offshorepress.com