Inside Penny Pritzker's portfolio: How a billionaire invests

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Her investment firm owns a stake in student housing in Austin, Texas, valued at $6 million to $30 million, and is building apartment buildings in Washington, D.C., and near Baltimore; Gambrills, Md.; Los Angeles; and Los Altos, Calif.

Tax shelters

The family's oldest offshore trusts were set up by A.N. Pritzker in 1963 and 1971 in the Bahamas. Penny Pritzker was a child, and she has benefited enormously from her grandfather's foresight.

According to Forbes, key assets in the trusts along the way were healthy, cash-flow-positive businesses, including AIC Holding, which owns Hyatt International, operating hotels outside the U.S. and Canada; Rockwood, a holding company that had a 10 percent stake in the Marmon Group industrial conglomerate; a stake in Royal Caribbean Cruise Lines; interests in reinsurance companies; and Triton Holdings, a lessor of passenger jets and cargo planes.

By establishing foreign trusts for foreign-based assets, the Pritzkers ensured that the income from those businesses rarely reached their pockets and thus wasn't taxed.

As first reported by Forbes, almost all of the income coming from the foreign trusts' assets — Hyatt International, Rockwood, etc. — went to a lending organization created for the family. The income would pass through the trust and be used to pay off loans used to invest in and expand family businesses, for example building a new Hyatt in Paris.

It seems like a revolving door but, because the family rarely took money out of its trusts, the more appropriate analogy is that of a snowball. The tax benefits enabled the ball to grow bigger, quicker.

The strategy can't be duplicated today. "The loopholes have been closed," wrote Stephane Fitch in Forbes in 2003. "But they remain available to families that had the foresight to set up offshore trusts four decades ago, as the Pritzkers did."

A source close to Pritzker has said she has asked her trustee to begin the process of reshoring her foreign trusts so her money will come home.

Salaries and cash

Stock dividends, interest and capital gains are immense sources of income for Pritzker.

But records show that Pritzker also receives old-fashioned salaries and "consulting fees" from a number of sources, which are perhaps the most surprising sources of income included in the federal filing.

She received $53.6 million in consulting fees from her family's Bahamian trustee, the Canadian Imperial Bank of Commerce Trust Co. She paid taxes on that income. A source close to the family said it was a fee pertaining to 10 years of work managing and dividing up the family's assets among 11 cousins; she does not receive such a large fee annually.

Her additional consulting fees included about $32.4 million from hundreds of domestic trusts, which, according to a source, will be adjusted higher through an amended filing; $118,667 from credit reporting agency TransUnion Corp., which her family sold; $508,000 from CC Development Group; and $436,250 from The Pritzker Organization, which her cousin, Tom, leads. Her salaries include about $1.66 million from two Pritzker Realty Group entities; nearly $1.17 million from the Horton Trust Co., a recently created trust based in Illinois; and $125,000 from her investment firm, PSP Capital Partners LLC.

She also has received cash in the form of loans from PSP Capital Resources LLC. One $25 million to $50 million loan is related to her residence in Aspen, Colo., and another loan in the same range is for "investment operations." The form doesn't list a specific interest rate. It's safe to assume it's low.

Expertise

Large family investment offices like PSP have savvy investment pickers and tax strategists working full time. Sometimes they make direct investments, as Pritzker's did in mortgage-backed securities. But they also turn to outsiders: hedge funds, private equity firms, and stock and bond pickers.

Pritzker has turned to some stars in the world of stock and bond investing.

For bonds, she has more than $50 million invested in a fund that is open to individual investors, the DoubleLine Total Return Fund, managed by Jeffrey Gundlach, a former Morningstar mutual fund manager of the year.

For blue-chip stocks, she has more than $50 million in the GMO Quality Fund. GMO runs numerous funds with renowned strategist Jeremy Grantham providing direction. The fund is open only to the ultrawealthy, but GMO does manage other funds sometimes found in 401(k) plans.

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