Or as an alternative title, why you might want to be careful believing what Zero Hedge says about anything.
They've a piece up about Braeburn Capital, a small Nevada corporation. A small Nevada corporation which is also used to manage Apple's vast and rapidly growing cash pile. All that money they're making from selling iPhones and iPads but which they're not (at least as yet are not) handing out to the shareholders in dividends.
To list what Zero Hedge get right: yes, Braeburn is owned by Apple, Braeburn manages the cash pile and yes, Apple's cash pile is very large. What they get wrong:
Any substantial follow up diligence on Braeburn will not reveal much if anything.
CapitalIQ has the following description of the firm: "Braeburn Capital Inc. is the asset management arm of Apple Inc. The firm invests in the public equity markets. Braeburn Capital Inc. was founded in 2006 and is based in Reno, Nevada." And that's it - there is no breakdown of which "public equity market" investments Braeburn is invested in, as is to be expected.
Well, yes, there is in fact a quite clear description of what Braeburn is invested in.
What's more, Braeburn has no reporting obligations: there is no Investment Advisor Public Disclosure (IAPD) entry on Braeburn for the logical reason that it is not an investment advisor: it merely manages an ungodly amount of cash for AAPL's millions of shareholders. There is also no SEC filing 13-F filing on Braeburn's holdings. As such, not confied by the limitations of being a "long-only", it is in its full right to hold any assets it feels like, up to and including CDS on housing, puts on Samsung, or Constant Maturity Swaps that pay if the 10 Year collapses. It just doesn't have to report any of them.
Nobody knows: and that's the beauty of Braeburn. It is the world's largest hedge fund that is not really a hedge fund, nobody has heard of, and nobody knows just what assets it holds.
No, we really do know what Braeburn is invested in.
In addition to this from Zero Hedge we've also got one of the UK's leading experts on international taxation of corporations thoroughly befuddled:
Look at that last one: even the IRS can’t find out what’s happening in Nevada!
So, the nub of it is that if Braeburn keeps its cash out of the US and manages it from Nevada its tax bill on $117 billion or more of cash may be $200. It could be more, but it need not be.
It makes me hate the Apple I’m writing this on.
The point being that we know that Apple owns Braeburn. We also know that Braeburn handles Apple's cash pile. Even Zero Hedge knows these two things. Therefore the place to go and see what Apple's cash pile is invested in is in the accounts for the Apple corporation. Because corporations do in fact have to tell us all, at least publicly traded ones do, what they've got their cash invested in.
Here's Apple's last full year accounts. Look at page 57. There they list what the company cash pile is invested in.
As at 24th Sept 2011, they had near $2 billion in money market funds, just over a billion in mutual funds. $10 billion in US Treasuries, $14 billion in US agencies (I assume Fannie, Freddie etc). $5 billion in....well, you get the picture. They give a reasonable enough accounting of what they've got their money in.
Clearly, no one's really expecting anyone at all to tell us the precise nature of their holdings....we've got 35k in 2012 3.5% June Treasuries, 42k in the July issue and so on. No one reports their bond holdings to that level of detail to the general public. The only other reporting required could be if they held larger than the reporting limits stakes in the equities of certain companies. As they appear not to hold any equities at all, other than whatever's in that near trivial mutual fund holding, this isn't really relevant. Rather, they're not holding equities as part of the cash pile, they may well have trade investments accounted for elsewhere.
As to what they're doing with options and hedges and futures and so on, they also seem pretty clear on that a couple of pages up:
The Company had no fair value hedges in 2011, 2010 and 2009.
I'd take that as meaning not very much myself, that they're not doing very much of that sort of investing. There's a bit of hedging known foreign currency income but that's just to be expected. And as to the split of how much of that money is onshore in the US and how much offshore they tell us that too:
The Company’s marketable securities investment portfolio is invested primarily in highly rated securities and its policy generally limits the
amount of credit exposure to any one issuer. The Company’s investment policy requires investments to generally be investment grade with the
objective of minimizing the potential risk of principal loss. As of September 24, 2011 and September 25, 2010, $54.3 billion and $30.8 billion,
respectively, of the Company’s cash, cash equivalents and marketable securities were held by foreign subsidiaries and are generally based in
U.S. dollar-denominated holdings. Amounts held by foreign subsidiaries are generally subject to U.S. income taxation on repatriation to the U.S.
So as to Zero Hedge's insistence that we don't know anything about what Apple is doing with Apple's cash I think we can refute that. For of course the company, Braeburn, that Apple uses to manage said cash is a subsidiary of Apple. And thus appears, consolidated, in Apple's accounts. So if we want to know what Braeburn is doing we should go and read Apple's accounts.
And as to the tax accountant telling us that not even the IRS knows what's happening in Nevada. Apple does file with the IRS so it's rather likely that they do get this information. If not, of course they can just read Apple's accounts like the rest of us. Because that is where you expect to see a corporation's accounting for its cash: in the accounts.
