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Apple’s Ginormous Corporate Cash Pile Plans to Come Home

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The positive economic effects of U.S. President Donald Trump’s tax reform have already altered the financial behaviors of major U.S. companies such as Wal-Mart Stores, Apple Inc. and AT&T.

In response to the tax law reform, many American businesses, large-to-small in annual revenues, have issued bonuses, granted awards and signaled plans to increase capital expenditures in the United States. For example, Apple announced plans to give its employees US$ 2,500 each in stock awards. A key section of the new U.S. tax reform law includes a provision for firms to take advantage of a one-time payment of 15.5% on repatriated funds down from the 35% rate.

Initial Plans

With the Dow Jones Industrial Average (DJIA) reaching new highs and the tax reform deal signed into law, Apple revealed they would invest US$ 350 billion into the United States economy over a period of five years, as they repatriate massive piles of money from overseas. The iPhone maker estimates they will payout roughly US$ 38 billion in tax payments from the overseas repatriation – thus shifting back some US$ 245 billion out of the US$ 252.3 billion it has held offshore. Apple also plans to spend an estimated US$ 30 billion in capital expenditures over the next five years, with roughly US$ 10 billion in U.S. data centers, according to the company. Apple has plans for 20,000 more jobs to create. The company that was once led by Steve Jobs had faced substantial criticism in the press over outsourcing its manufacturing to China to avoid paying U.S. taxes and lower manufacturing costs. Many of those facilities in China had labor issues such as environmental concerns, slave-like wages and extremely long work hours.

“We believe deeply in the power of American ingenuity, and we are focusing our investments in areas where we can have a direct impact on job creation and job preparedness,” said Apple CEO Tim Cook in a statement on January 17, 2017. He added, “We have a deep sense of responsibility to give back to our country and the people who help make our success possible.”

Liquid Financials and Fixed Income Changes

The sales growth of the iPhone has been a major factor in the growth in Apple’s cash pile. In 2006, Apple moved to act, forming a subsidiary in Nevada to manage investments, initially starting with around US$ 13 billion to manage. Nevada has no corporate income tax and no capital gains tax. Apple manages its investments through an outfit in Reno, Nevada called Braeburn Capital Inc. (Braeburn is a type of Apple), a subsidiary of Apple. Apple also employs some 40 to 50 external fund managers to handle the massive portfolio, according to sources. Braeburn has tried to reduce money management costs by using more separate accounts, while reducing dependence on money market funds.

As of September 30, 2017, Apple has a large investment portfolio worth an excess of US$ 300 billion, with US$ 194.714 billion in long-term marketable securities. Some US$ 128.645 billion are in current assets, with US$ 20.289 billion in cash and cash equivalents.

Focusing on the investment portfolio, some US$ 152.724 billion is held in corporate securities, with US$ 55.245 billion in U.S. Treasuries. Most of the portfolio is held in fixed income investments, including mortgage-backed securities – generally mandating investments be investment-grade and the avoidance of losing principal. Since 2012, Apple has been hoarding more corporate debt, rivaling some bond funds. Only about US$ 799 million are held in mutual funds (non-money market). Apple is also a major buyer of commercial paper across the globe. For example, the company participated in a US$ 500 million issue of 3-year floating notes from Hyundai Capital Services. The tech giant even uses derivatives to hedge against currency and interest rate movements.

The Old Scheme Ends

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Koch Brothers Kick Big Money into ERP Cloud Software Company Infor

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New York-based Infor is an enterprise cloud software company. Infor raised US$ 1.5 billion from existing shareholders, Golden Gate Capital and Koch Equity Development LLC. Koch Equity Development is the investment and acquisition subsidiary of Koch Industries, Inc. Infor has 17,300 employees. At fiscal year 2018, Infor claims it generated over US$ 3 billion in revenue. Infor states that over 72% of all hospitals in the United States run Infor applications. Infor could be heading toward an initial public offering (IPO) or possibly be acquired by a company like Oracle Corporation or Salesforce. Charles E. Phillips is the CEO of Infor and before heading it was Co-President of Oracle from 2003 to 2010.

On February 21, 2017, Koch Equity Development invested US$ 2 billion into Infor. Koch Industries was a customer of Infor before it became an investor in the company. Golden Gate Capital made its first investment in Infor in 2002.

Matt Flamini is the President of Koch Equity Development. Jim Hannan is Koch Executive Vice President and CEO of Enterprises for Koch Industries, Inc.

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Could Australia’s Future Fund Offer a Low-Fee Superannuation for its Citizens?

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Australia’s Scott Morrison government may soon allow the country’s Future Fund to offer low-fee superannuation accounts. Aware of the proposal, Prime Minister Morrison stressed that offering Australia a low-fee, government-managed superannuation fund as a default option is not government policy.

However, many proponents of this model believe it would create competition in the country’s US$ 2.7 trillion dollar retirement system. The Future Fund Chairman, Peter Costello, and economist Nicholas Gruen, CEO of Lateral Economics, put forth the idea, and it is quickly gaining support. This comes in the wake of Australians learning that they were losing US$ 3.8 billion annually in high-fee, underperforming accounts, and many were mistakenly being charged fees with no accompanying service provided. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Saudi and Other Gulf Country Bonds to Join JPMorgan Emerging Market Bond Index

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In a boost for Gulf-based debt, JPMorgan is adding their debt compositions to two influential emerging market bond indexes. These emerging market indexes are the most widely tracked among asset managers in the industry. Saudi Arabia, the United Arab Emirates, Bahrain, Kuwait, and Qatar are being added to the J.P. Morgan EMBI Global Diversified Index and the EMBI Global, starting January 31, 2019. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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